<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period Ended: DECEMBER 31 , 1998.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________.
Commission File Number: 0-27390
ORCA TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0368236
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
24000 - 35th Avenue Southeast - Suite 200, Bothell, WA 98021
(Address of principal executive offices)
(425) 354-1600
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
As of February 2, 1999, approximately 13,588,157 shares of the Company's Common
Stock, par value $.001 per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>
ORCA TECHNOLOGIES, INC.
FORM 10-QSB
For the Quarterly Period Ended December 31, 1998
<TABLE>
<CAPTION>
Index Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
Three and Six Months Ended December 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1998 and 1997 4
Condensed Consolidated Balance Sheets
December 31, 1998 and June 30, 1998 5
Condensed Consolidated Statement of Shareholders' Equity (Deficit)
Six Months Ended December 31, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
ORCA Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Six Month Periods Ended December 31
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------------------- ----------------------------------
1998 1997 1998 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 126,815 $ - $ 226,089 $ -
Costs and Expenses
Cost of revenue 88,591 - 111,411 -
Research and development 273,101 - 670,784 -
Sales and marketing 196,037 - 550,582 -
Professional services 236,036 - 527,127 -
Customer services 163,742 - 322,353 -
General and administrative 519,734 161,309 1,342,681 248,157
------------- ------------- -------------- -------------
Total operating costs and expenses 1,477,241 161,309 3,524,938 248,157
------------- ------------- -------------- -------------
Operating loss (1,350,426) (161,309) (3,298,849) (248,157)
Interest Income 369 - 2,730 -
Interest Expense (92,820) (51,789) (158,017) (84,859)
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Net Loss $ (1,442,877) $ (213,098) $ (3,454,136) $ (333,016)
============= ============= ============== =============
Basic Loss per Share $ (0.11) $ (0.06) $ (0.27) $ (0.09)
Weighted average number of shares
outstanding 12,976,222 3,803,335 12,750,752 3,803,335
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consilidated
statements.
3
<PAGE>
ORCA Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
For the Three and Six Month Periods Ended December 31
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------------ --------------------------------
1998 1997 1998 1997
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,442,877) $ (213,098) $ (3,454,136) $ (333,016)
Adjustments to reconcile net loss to cash used:
Depreciation and amortization 250,252 - 531,273 -
Change in operating assets and liabilities, net
of effects of business acquired and disposed:
Inventories 9,607 - (25,942) -
Accounts payable 393,646 201,375 593,149 214,273
Other current assets 154,266 8,828 114,309 -
Other current liabilities (490,982) 86,893 (781,855) 96,600
------------ ------------ -------------- --------------
Net Cash Used By Operating Activities (1,126,088) 83,998 (3,023,202) (22,143)
------------ ------------ -------------- --------------
INVESTING ACTIVITIES
Purchases of property & equipment (13,658) (274,615) (99,143) (277,312)
Changes in notes receivable - (1,353,459) - (1,563,459)
Proceeds from sale of subsidiary - - 300,000 -
Other investing activities - (4,931) 14,000 (4,931)
------------ ------------ -------------- --------------
Net Cash Provided (Used) By Investing Activities (13,658) (1,633,005) 214,857 (1,845,702)
------------ ------------ -------------- --------------
FINANCING ACTIVITIES
Payments on long-term debt (20,131) - (109,104) -
Borrowings on short-term debt 200,000 - 784,235 -
Borrowings from related parties 130,000 852,800 130,000 1,177,800
Issuance of common stock and warrants 533,776 1,366,845 1,538,039 1,366,845
------------ ------------ -------------- --------------
Net Cash Provided By Financing Activities 843,645 2,219,645 2,343,170 2,544,645
------------ ------------ -------------- --------------
NET CASH PROVIDED (USED) (296,101) 670,638 (465,175) 676,800
Cash & cash equivalents, Beginning of Period 303,680 19,194 472,754 13,032
------------ ------------ -------------- --------------
CASH & CASH EQUIVALENTS, End of Period $ 7,579 $ 689,832 $ 7,579 $ 689,832
============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consilidated
statements.
4
<PAGE>
ORCA Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
--------------------- -------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 7,579 $ 472,754
Receivables 49,969 217,227
Inventories 62,670 36,728
Prepaid expenses and other 56,860 83,146
--------------------- -------------------
Total current assets 177,078 809,855
LONG-TERM RECEIVABLES 8,352 45,146
PROPERTY AND EQUIPMENT, net 798,350 2,366,185
OTHER ASSETS 3,170,627 4,453,704
--------------------- -------------------
$ 4,154,407 $ 7,674,890
===================== ===================
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 2,847,943 $ 2,001,454
Accounts payable 1,064,310 1,222,329
Accrued liabilities 400,831 557,086
Accrued loss for discontinued operations 136,293 1,035,625
--------------------- -------------------
Total current liabilities 4,449,377 4,816,494
LONG -TERM DEBT 768,173 1,289,890
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (DEFICIT) (1,063,143) 1,568,506
--------------------- -------------------
$ 4,154,407 $ 7,674,890
===================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed consilidated
statements.
5
<PAGE>
Orca Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity (Deficit)
Six Months Ended December 31
(Unaudited)
<TABLE>
<CAPTION>
Common Paid -in Accumulated
Stock Capital Deficit Total
---------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1998 $ 12,834 $ 12,283,379 $ (10,727,707) $ 1,568,506
Net Loss (3,454,136) (3,454,136)
Sale of discontinued operations (778) (714,776) (715,554)
Sale of common stock 1,192 1,536,849 1,538,041
---------- ---------------- -------------- --------------
BALANCE, December, 1998 $ 13,248 $ 13,105,452 $ (14,181,843) $ (1,063,143)
========== ================ ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consilidated
statements.
6
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10 - QSB and in
accordance with Item 310 of Regulation S-B. Accordingly, such unaudited
financial statements do not include all of the information and footnotes
normally included in audited financial statements presented in accordance with
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position, consolidated results of
operations, and consolidated statements of cash flow for the three and six-month
periods ended December 31, 1998 have been included. All significant
intercompany transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended June 30, 1998, which
have been provided in their entirety in the Company's Form 10-KSB for the fiscal
year ended June 30, 1998. The results of operations for the three and six-month
periods ended December 31, 1998 is not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 1999.
In June of 1998, Orca Technologies, Inc. (the "Company") formally decided to
dispose of its Internet Services Group. Prior to that date, the Company was
engaged in the Internet service business. The accounts and activities of the
Company's wholly-owned subsidiaries, Televar, Inc. ("Televar") and Boss Internet
Group ("Boss"), have been presented in the accompanying financial statements as
"discontinued operations."
NOTE 2 FORMATION OF COMPANY
On August 30, 1996, the Company effected a merger between a wholly owned
subsidiary formed for the purpose of the merger, and Televar, Inc. (the
"Merger"). The shareholders of Televar received 11,593,325 shares of common
stock of the Company in the Merger, resulting in shareholders of Televar owning
an aggregate of about 83% of the 13,968,625 shares of common stock outstanding
on the effective date of the Merger. As a result of the Merger, Televar became
a wholly owned subsidiary of the Company. The Televar capital stock that was
converted into the Company's common stock was converted based on a five-for-one
conversion ratio. In connection with the Merger, the Company also issued an
aggregate of 1,125,000 shares of common stock to certain consultants as
compensation for services rendered to the Company prior to the Merger. The
Company and Televar accounted for the merger as a reverse acquisition, or
merger, with the surviving entity being the Company.
Prior to the Merger, the Company was inactive and had only nominal assets and
liabilities.
On April 12, 1997, the Company executed a one-for-four reverse stock split of
its outstanding common shares. Before the split, the Company had 14,640,745
shares outstanding, while after effecting the reverse stock split, the Company
had 3,660,186 shares outstanding.
7
<PAGE>
In anticipation of a proposed acquisition of the Company by Pacific Aerospace
and Electronics, Inc. ("PA&E"), the Company and PA&E entered into an Operations
Consulting and Expense Reimbursement Agreement (the "Interim Agreement") in June
1997. Under the agreement, PA&E agreed to provide certain consulting,
management and financial assistance and support to the Company until PA&E's
proposed acquisition of the Company, and several other entities could be
completed. PA&E subsequently determined that it would not proceed with the
proposed acquisitions.
During the term of the Interim Agreement, PA&E loaned a total of approximately
$4,219,418 to the Company. In addition, on behalf of the Company, PA&E
guaranteed a bank loan for approximately $1,215,765 and a three-year equipment
lease of $373,421.
On April 27, 1998, the Company consummated an agreement with PA&E to convert the
$4,219,418 owed into shares of the Company's common stock at $2.00 per share
(the "Restructuring Agreement"). In the Restructuring Agreement, the Company
agreed to grant PA&E demand registration rights for those shares and, in the
event of an underwritten public offering, piggy back registration rights, which
will be effective the earlier of : (a) the closing of the Company 's third round
of financing following the closing of the Restructuring Agreement, or (b) the
first anniversary of the closing of the Restructuring Agreement. In addition,
PA&E agreed to continue guaranteeing the Company's 's $1,215,765 bank loan for
eighteen months from the date of the Restructuring Agreement and to guarantee
the equipment lease for the life of the lease.
As an inducement to obtain PA&E's agreement to convert the Company's debt to
equity, the Company also agreed to purchase a promissory note and all related
interests of PA&E in a company, Brigadoon.com, Inc. ("Brigadoon"). This
included PA&E's interest in a lawsuit filed by PA&E against Brigadoon to recover
amounts Brigadoon owed PA&E, totaling approximately $1,600,000. The Company
also joined in filing involuntary bankruptcy proceedings against Brigadoon in
March 1998. Included in the rights acquired by the Company is a common stock
purchase warrant that entitles the Company to purchase 12.5% of Brigadoon's
fully diluted common stock. The purchase price of these rights and interests
was $950,000 payable over five years under a promissory note, with interest at
the rate of 8% per annum (the "PA&E Note"). Under the PA&E Note, the Company
will pay only interest for the first year commencing March 1, 1998 and will make
fully amortizing monthly payments of principal plus interest for the final four
years of the note term.
Under the terms of the disposal of the Company's Internet Services Group
(discussed in Note 5), the Company sold all of its rights and claims to
Brigadoon assets. The Company retained the $950,000 note payable to PA&E and
the $1,215,765 PA&E guaranteed note payable to a bank. As of December 31, 1998
the amount of the guaranteed note payable to a bank increased to $1,300,000 and
the Company is not current with its interest payments to PA&E.
In February 1998, the Company acquired all of the assets and certain liabilities
of MONITRx, Inc.("Monitrx"). The aggregate purchase price of $1,129,000
consisted of 1,200,000 shares of the Company's restricted common stock valued at
approximately $1,104,000 and certain expenses totaling $25,000. In addition,
the Company assumed about $3,044,286 in liabilities. Costs in excess of net
book value of $3,700,000 were recorded as a result of this transaction. Monitrx
develops and markets advanced proprietary and patented network-based software
applications for the home health care industry.
8
<PAGE>
In connection with the Monitrx acquisition, the purchase agreement requires the
Company to make cash payments to the former shareholders and / or employees of
Monitrx on a declining scale over a five-year period commencing July 1, 1998, if
annual net operating profits, as defined in the purchase agreement, exceed at
least $1,200,000.
Also in February 1998, the Company acquired all of the assets and certain
liabilities of Digital Network Associates, Inc. ("DNA") for an aggregate
purchase price of $107,000, which consisted of 111,000 shares of the Company's
restricted common stock valued at $102,120 and certain expenses totaling $5,000.
In addition, the Company assumed about $162,736 in liabilities. Costs in excess
of the net book value of $240,000 were recorded as a result of this transaction.
The unamortized portion of costs in excess of book value was written-off in
fiscal 1999. DNA has developed a proprietary computer networking technology
that empowers authorized field-based health care personnel without computer
skills to access and update data on network databases by means of a regular
touch-tone telephone pad.
In June 1998, the Company acquired the stock of Boss . The aggregate purchase
price of $731,000 consisted of 777,776 shares of the Company's restricted common
stock, warrants to purchase 300,000 shares of the Company's common stock
exercisable over the next 18 months, and certain expenses totaling $15,000.
Costs in excess of the net book value of $484,000 were recorded as a result of
this transaction. The Boss acquisition was subsequently rescinded in September
1998. (See Note 5 - "Discontinued Operations.")
The business acquisitions described above have been accounted for using the
purchase method, and accordingly, the operating results of the acquired entities
have been included in the Company's consolidated financial statements from the
date of acquisition. The assets acquired and liabilities assumed have been
recorded at an estimate of their fair values, with the difference being
reflected as cost in excess of book value, or goodwill. The related goodwill is
being amortized into operations over five years.
NOTE 3 GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During the years ended June 30,
1998 and 1997, the Company incurred net losses of approximately $7,333,738 and
$2,787,328, respectively. In addition, the Company incurred a loss of
$3,454,136 for the six-months ended December 31, 1998. At December 31, 1998 the
Company has a net working capital deficit of about $4,272,299, a cash balance of
$7,579 and a shareholders' deficit of $1,063,143. These factors, among others,
may indicate that the Company may be unable to continue as a going concern for a
reasonable period of time.
Financing for the Company's operations to date has been significantly augmented
by the sale of common stock and borrowings. The Company's ability to achieve a
level of profitable operations and / or additional financing may impact the
Company's ability to continue as it is presently organized. Resolution of these
issues is dependent on the success of management's plans to raise funds through
the sale of its equity securities in a private placement or a public offering.
9
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional equity financing or borrowings, and ultimately to attain
profitability.
NOTE 4 RELATED PARTY TRANSACTIONS
An officer and director of the Company and a director of the Company were, until
January 1998, directors of PA&E. Both are also shareholders of PA&E. In
addition, PA&E's Chief Executive Officer and President (CEO), as well as its
Chief Financial Officer (CFO) and certain members of the CFO's family are, or
were, shareholders of the Company. Until June 1997, PA&E's CEO and CFO were
directors of the Company. A shareholder of the Company, who currently owns
about 2.6% of the Company's stock is a director and shareholder of PA&E. As of
December 31, 1998, PA&E is the beneficial owner of approximately 17.3% of the
Company's outstanding common stock.
The Company subleases from PA&E approximately 20,000 square feet of a newly
constructed office building situated in Bothell, Washington, which serves as the
Company's corporate headquarters and primary office facility. The Company
believes that the terms and conditions of the lease, and sub-lease, are at
prevailing market rates and terms in the suburban Seattle area in which the
building is located. The Company has been unable to meet the agreed upon
payment terms of the lease with PA&E since July 1998.
Certain officers and / or directors and shareholders of both the Company and
PA&E have each personally guaranteed certain obligations of the Company or its
subsidiaries.
PA&E has agreed to guarantee certain of the Company's debt instruments,
including a loan from a bank in the amount of $1,215,765 and equipment under a
capital lease with the sum of the original payments totaling approximately
$373,421. In September 1998 the bank agreed to advance the Company additional
funds to meet required interest payments. As of December 31, 1998 the balance
of the loan from a bank is $1,300,000. The loan was due January 15, 1999 and
the Company is currently in default on the loan.
In addition, the Company owes PA&E $950,000 under the terms of the PA&E Note
issued in connection with the execution of the Restructuring Agreement. Under
the terms of the Restructuring Agreement, PA&E has the option to require that
the entire unpaid balance of principal and interest immediately become due and
payable in the event of default. Although the Company is not current with its
interest payments, there has been no formal notification that PA&E will exercise
the default acceleration provisions of the agreement. (See Note 2 - "Formation
of Company".)
During the year ended June 30, 1998 the Company paid $55,000 in consulting fees
to a company whose president was simultaneously the President of Televar, Inc.
The former Televar President resigned effective September 1997. In a subsequent
complaint and cross-complaint, the former President and the Company each alleged
certain matters. The matters were mediated in April 1998, with the Company
paying the former Televar president $125,000 to settle the case.
10
<PAGE>
The Company presently holds a $250,000 note receivable from a company in which
an officer, director and shareholder of the Company along with another director
and shareholder of the Company, are also officers, directors and shareholders.
In addition, as of December 31, 1998 the Company has provided approximately
$42,000 in unreimbursed administrative services to the company. As of June 30,
1998 the notes are not reflected as an asset on the Company's balance sheet.
As a result of the acquisition of Monitrx, the Company assumed certain notes
payable, totaling about $500,000, to former shareholders of Monitrx, who are now
officers or former officers of the Company. The notes require monthly payments
of principal and interest over the next three years. In addition, the notes
require the Company to pay 6% of all new common stock equity raised as
additional principal payments on the notes, until such time as the notes are
fully repaid. The Company is not presently current with the payments required
under the terms of the notes.
The Company has made various advances, in the form of notes receivable, to
certain officers and other key employees in connection with the relocation of
former Monitrx employees to the Company's Bothell, Washington facility. The
notes total about $150,000, are non-interest bearing and are to be repaid out of
future earnings of the acquired operations. As of June 30, 1998 the notes are
not reflected as an asset on the Company's balance sheet.
NOTE 5 DISCONTINUED OPERATIONS
In June 1998, the Company's Board of Directors adopted a plan to discontinue its
Internet Services Group. On September 28, 1998 the Company completed a
transaction whereby it sold substantially all of the assets and most of the
liabilities of these operations to Boss. In addition, Boss and the Company, in
a separate agreement, dated September 10, 1998, agreed to the rescission of the
Company's previously announced acquisition of Boss.
The two transactions involved the cash payment of $300,000 to the Company, the
buyers assumption of certain Televar liabilities plus the return to the Company
of 777,776 common shares and warrants to purchase 300,000 shares of the
Company's common stock. These transactions resulted in a loss being recorded on
the sale of $1,600,000, which was recognized during the year ended June 30,
1998. In addition, the transactions effectively ended the Company's involvement
in the Internet service business and allows the company to concentrate on its
home health care software applications products.
The Company has restated its prior financial statements to present the operating
results of the Internet Service Group as discontinued operations. The
components of net assets of the discontinued operations included in the
accompanying consolidated balance sheet as of June 30, 1998 are as follows
(effected assets and liabilities have been removed from the Company's balance
sheet as of September 30, 1998):
11
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
<S> <C>
Receivables - net $ 212,227
Prepaid expenses 70,553
Property and equipment - net 1,542,112
Other assets 642,366
Accounts payable (751,168)
Accrued liabilities (188,107)
Deferred revenues (385,625)
Long-term debt (602,323)
-----------
$ 540,035
===========
</TABLE>
Liabilities of the Internet Services Group retained by the Company as of June
30, 1998, and included in the amounts listed above, are $201,168 included in
accounts payable, $15,326 included in accrued liabilities, $327,354 included in
deferred revenues and $130,312 included in long-term debt.
Revenues from discontinued operations were $796,400 and $562,598 for the three-
months ended September 30, 1998 and 1997, and $2,711,114 and $2,302,913 for the
years ended June 30, 1998 and 1997, respectively.
Under generally accepted accounting principles, a provision for loss on
discontinued operations has been included based upon management's best estimates
of the amounts that are expected to be realized on the sale.
NOTE 6 COMMON STOCK
During the six months ended December 31, 1998, the Company issued 1,218,000
restricted shares of common stock in a private placement, exempt from
registration under federal and state securities laws. The net proceeds to the
Company were approximately $1,538,000 (or approximately $1.26 per share). See
"Part II - Item 5 - "Changes in Securities").
The warrants had been issued in connection with a common stock financing in the
prior fiscal year and would have provided the Company gross proceeds of
approximately $917,600. With the rescission of the Company's acquisition of
Boss, 300,000 warrants to acquire shares of the Company's common stock at $2.04
per share were cancelled.
The Company now has 1,962,850 issued and outstanding warrants to purchase
additional shares of common stock that expire in March 1999 and November 2003 at
prices ranging from $1.00 to $1.85, respectively. In addition, as of December
31, 1998, the Company has outstanding options to purchase 2,630,000 shares of
the Company's common stock at prices ranging from $1.00 to $2.00 per share, of
which 926,250 have vested and are currently exercisable, and 1,247,500 of which
were granted to employees of the Company on December 23, 1998 which grant is
conditioned upon shareholder approval of revisions to the Company's stock option
plan at the next annual shareholders' meeting.
12
<PAGE>
The Company is continuing discussions to secure additional equity financing.
Notwithstanding the completion of the offering described above, the Company
requires additional debt or equity financing to continue operations. There can
be no assurance that the Company will be successful in its efforts to attract
additional financing.
NOTE 7 RISKS AND UNCERTAINTIES
With the sale of its Internet Service Group, the Company has focused its
operations on its ability to develop and effectively bring to market high
technology software products to meet its customers needs in the home health care
industry. In the competitive market environment in which the Company intends to
operate, software development and marketing processes are uncertain and complex,
requiring successful management of various development and marketing risks. The
Company's ability to continue to attract the appropriate number and quality of
software development and senior management personnel and to successfully
introduce its products to the market place, could impact its ability to capture
market share.
The Company's products have been developed with full recognition of the pending
new millennium, however, acceptance of the Company's products by potential
customers may be impacted by adverse Year 2000 problems.
Additionally, the health care industry in general, as well as the home health
care segment, is undergoing significant and rapid changes.
As discussed in Note 3 - "Going Concern Matters", above, the Company's ability
to secure adequate sources of capital will impact its prospects for growth and
to continue as a going concern.
In light of these factors, it is reasonably possible that failure to
successfully manage software development, failure to successfully introduce
products to market, uncontrollable failures of internal computer systems at
potential customer sites, the Company's failure to adopt to a rapidly changing
business environment, or the Company's failure to successfully secure additional
sources of financing, could have severe near-term impacts on the Company's
prospects for growth and its ability to continue as a going concern.
13
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
This Quarterly Report on Form 10 - QSB for the quarter ended December 31, 1998,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements may include, but are not limited to,
projection of revenues, income, or loss, capital expenditures, plans for product
development and cooperative arrangements, future operations, financing needs or
plans of the Company as well as assumptions relating to the foregoing. The
words "believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such statements are inherently subject to risks and
uncertainties as further described herein and in the "Considerations Related to
the Company's Business" section of the Company's Annual Report on Form 10-KSB/A
for the year ended June 30, 1998. The Company's actual results may differ
materially from the results projected in the forward-looking statements.
RESULTS OF OPERATIONS
Three month periods ended December 31, 1998 and 1997
Revenues for the three months ended December 31, 1998 were approximately
$126,800. Revenue from software accounts for approximately 22% of total
revenue, 65% of total revenue is attributed to hardware sales and consulting
services generated 13% of total revenue. There was no revenue from continuing
operations for the three months ended December 31, 1997.
Cost of revenue for the three-month period ended December 31, 1998 was $88,600.
The cost of hardware sold accounts for 71% of the cost of revenue. The cost and
expenses attributed to software and consulting services represent 15% and 8%,
respectively, of total cost revenue. There was no cost of revenue from
continuing operations for the three months ended December 31, 1997.
Research and development expenses were approximately $273,100, compared to $0
for the three-month period ended December 31, 1997. The fiscal 1999 expenses
consisted primarily of personnel and overhead costs incurred in conjunction with
research and further development of the CuraSys software. Sales and marketing
expenses were approximately $355,000, compared to $0 for the three month period
ended September 30, 1997. These expenses consisted primarily of personnel,
travel, marketing, advertising and overhead costs associated with the sales and
marketing of the CuraSys product. Professional services expenses were
approximately $236,000, compared to $0 for the three-month period ended December
31, 1997. These expenses consist primarily of personnel, training and overhead
expenses. These expenses were incurred to provide technical support for
existing contracts and training in anticipation of future growth. Customer
service expenses of approximately $163,700 consisted primarily of personnel
costs, compared to $0 for the three month period ended December 31, 1997. These
expenses were incurred to provide customer service for existing contracts and
develop the organization to accommodate projected growth. General and
administrative expenses for the three months ended December 31, 1998 were
$519,700 compared to $161,300 for the three months ended December 31, 1997.
General and administrative expenses consisted primarily of personnel, goodwill
amortization, depreciation, facilities costs, professional and other
administrative expenses. General and administrative expenses for the three
months ended December 31, 1998
14
<PAGE>
were significantly higher than they were during the same period for the prior
year because the prior year did not include expenses of acquired subsidiaries
which were not part of the Company's operations in 1997. Additionally, there was
significantly lower corporate activity in 1997.
Interest expense for the three months ended December 31, 1998 was $92,820
compared to $51,800 for the same period in 1997. The increase in interest
expense is due to the increased level of borrowings during the quarter in 1998
and the increase in debt during the last three quarters of 1997. See " -
Liquidity". Management's current objective is to secure additional equity
funding to finance operating cash flow shortfalls. There can be no assurance,
however, that the Company will be able to identify investors willing to purchase
its securities at a price and on terms satisfactory to the Company, in which
event the Company will be required to continue borrowings at current or
increased levels or to cut back its operations. See " - Liquidity."
Six month periods ended December 31, 1998 and 1997
Revenues for the six months ended December 31, 1998 were approximately $226,100.
Revenue from software accounts for approximately 41% of total revenue, 52% of
total revenue is attributed to hardware sales and consulting services generated
7% of total revenue. There was no revenue from continuing operations for the
three months ended December 31, 1997.
Cost of revenue for the six-month period ended December 31, 1998 was $111,400.
The cost of hardware sold accounts for 81% of the cost of revenue. The cost and
expenses attributed to software and consulting services represent 12% and 7%,
respectively, of total cost revenue. There was no cost of revenue from
continuing operations for the three months ended December 31, 1997.
Research and development expenses were approximately $670,100, compared to $0
for the six-month period ended December 31, 1997. The fiscal 1999 expenses
consisted primarily of personnel and overhead costs incurred in conjunction with
research and further development of the CuraSys software. Sales and marketing
expenses were approximately $550,600, compared to $0 for the six-month period
ended December 31, 1997. These expenses consisted primarily of personnel,
travel, marketing, advertising and overhead costs associated with the sales and
marketing of the CuraSys product. Professional services expenses were
approximately $527,100 compared to $0 for the six-month period ended December
31, 1997. These expenses consist primarily of personnel, training and overhead
expenses. These expenses were incurred to provide technical support for
existing contracts and training in anticipation of future growth. Customer
service expenses of approximately $163,700 consisted primarily of personnel
costs, compared to $0 for the six-month period ended December 31, 1997. These
expenses were incurred to provide customer service for existing contracts and
develop the organization to accommodate projected growth. General and
administrative expenses for the six months ended December 31, 1998 were
$1,342,700 compared to $248,200 for the six months ended December 31, 1997.
General and administrative expenses consisted primarily of personnel, goodwill
amortization, depreciation, facilities costs, professional and other
administrative expenses. General and administrative expenses for the six months
ended December 31, 1998 were significantly higher than they were during the same
period for the prior year because the prior
15
<PAGE>
year did not include expenses of acquired subsidiaries which were not part of
the Company's operations in 1997. Additionally, there was significantly lower
corporate activity in 1997.
Interest expense for the six months ended December 31, 1998 was approximately
$158,000 compared to $84,900 for the same period in 1997. The increase in
interest expense is due to the increased level of borrowings during the quarter
in 1998 and the increase in debt during the last three quarters of 1997. See
" - Liquidity". Management's current objective is to secure additional equity
funding to finance operating cash flow shortfalls. There can be no assurance,
however, that the Company will be able to identify investors willing to purchase
its securities at a price and on terms satisfactory to the Company, in which
event the Company will be required to continue borrowings at current or
increased levels or to cut back its operations. See " - Liquidity."
LIQUIDITY
At December 31, 1998, the Company's total current assets were $177,708 and its
total current liabilities were $4,449,377. The net working capital deficit was
$4,272,299.
Historically, the Company met some of its cash requirements through a
combination of cash flow from operations, issuance of common stock and
borrowings from PA&E. However, with the sale of its 100% owned subsidiary,
Televar, the Company did not record enough revenues from its ongoing operations
to sustain its current level of operations without additional financing. It is
anticipated that the Company will continue to require additional financing. (See
the notes to financial statements accompanying this report.)
The Company has a $1,300,000 loan with a commercial lender that was established
in July 1997. The loan was due January 15, 1999 and the Company is in default
on that loan. Repayment of all advances to the Company pursuant to the loan is
guaranteed by PA&E for an eighteen-month period commencing April 27, 1998.
On November 27, 1998, the Company signed a secured promissory note and borrowed
$700,000 from a third party. The note bears an interest rate of 18% and is due
on March 31, 1999. The note contains provisions allowing the Company to extend
the due date until June 30, 1999.
During the six months ended December 31, 1998, the Company issued 1,218,000
restricted shares of common stock in a private placement, exempt from
registration under federal and state securities laws. The net proceeds to the
Company were approximately $1,538,000 (or approximately $1.26 per share). (See
"Part II - Item 2 - "Changes in Securities").
The Company is continuing discussions to secure additional equity financing.
Notwithstanding the completion of the offering described above, the Company
requires additional debt or equity financing to continue operations. There can
be no assurance that the Company will be successful in its efforts to attract
additional financing.
The proceeds from borrowings, together with cash from operations, are
insufficient to fund budgeted operations for the near term. The Company will
require additional financing in order to fund its operating plan and budget and
is in discussions with several potential equity financing sources. There is no
assurance, however, that these discussions will result in
16
<PAGE>
additional funding on terms that are favorable to the Company or that additional
financing will be available to the Company from other sources. If the Company is
unable to raise additional capital, the Company's ability to continue operations
may be adversely affected.
ACQUISITIONS
In January 1999, the Company acquired two computer software programs from
Millennium Software Inc., a Washington corporation ("Millennium"). In
consideration for the purchase, the Company agreed to pay $150,000 cash in
various installments with the final payment due March 1, 1999. The Company also
agreed to pay the 35,000 shares of the Company's common stock to Millennium
contingent upon the completion of a milestone event by April 1, 1999.
CAPITAL EXPENDITURES
The Company has no current plans for material capital expenditures. Additions
and replacements of furniture, fixtures and equipment will be generally funded
through working capital, capital leases, loans from financing institutions, or
other sources of equity funds. Borrowings to acquire capital equipment will
generally be secured by the equipment being acquired.
17
<PAGE>
Part II. Other Information
Item 2. Changes in Securities.
During the three-month period ended December 31, 1998, the Company issued
446,000 restricted shares of common stock in a private placement to certain
accredited investors and sophisticated purchasers. The net proceeds to the
Company were approximately $526,900 (or approximately $1.18 per share). The
offer and sale of such shares was made without registration in reliance upon
Regulation D and Regulation S, promulgated under the Securities Act of 1933, as
amended. Pursuant to a resolution adopted by the Company's board of directors
on October 30, 1998, the Company issued 144,400 shares of common stock to the
investors in this offering, without additional cash consideration.
Item 3 Defaults Upon Senior Securities
On September 22, 1998, the Company received a notice of default from PA&E, the
company's largest shareholders, with respect to the PA&E Note. (See Note 2 to
the Financial Statements contained in Part I - Item 1.) As of January 31, 1999,
the Company was six months past due on the interest payments due on the PA&E
Note, in the aggregate amount of approximately $38,000. In addition, on
September 22, 1998, the Company received a notice of default on its lease
payments to PA&E, in the aggregate amount of approximately $91,345. As of
January 31, 1999, the default amount on lease payments was approximately
$195,300. The Company is continuing discussions with PA&E with respect to each
of these defaults. (See Note 4 to the Financial Statements contained in Part I
- - Item 1.)
As of January 15, 1999, the Company is in default on a $1,300,000 loan from a
commercial lender. The Company is also past due on interest payments with
respect to that loan for approximately $45,800. The loan is guaranteed by PA&E.
As of February 3, 1999, the Company has not received a formal notice of default
or demand for payment from the bank. The Company is currently discussing the
status of the loan and the default with the bank. (See Note 4 to the Financial
Statements contained in Part I - Item 1.)
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-B.
See Exhibit Table on page 20.
(b) Reports on Form 8-K. During the quarter ended December 31, 1998, the
Company filed the following current reports on Form 8-K:
1. December 2, 1998 to report sale of common stock
2. December 16, 1998 to report sale of common stock
18
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated this 12th day ORCA TECHNOLOGIES, INC.
of February, 1999
/s/ Roger P. Vallo
--------------------------------------------
Roger P. Vallo, Chairman and President
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
19
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit Name
- -------------- ------------
<S> <C>
4.1 Common Stock Purchase Warrant, dated November 27, 1998, issued to UTCO
Associates, Ltd. by Orca Technologies, Inc.
10.1 Promissory Note from Orca Technologies, Inc. to Norman Plummer, dated
October 29, 1998
10.2 Promissory Note from Orca Technologies, Inc. to Roger P, Vallo, dated
November 3, 1998
10.3 Promissory Note from Orca Technologies, Inc. to Roger P. Vallo, dated
November 9, 1998
10.4 Replacement promissory note from Orca Technologies, Inc., Televar, Inc.,
MONITRx, Inc. and Digital Network Associates, Inc. to UTCO Associates,
Ltd., dated November 27, 1998
10.5 Asset Purchase Agreement effective as of September 28, 1998, by and among
Tel-Sub Corp., Televar Acquisition Corp., Televar, Inc., and Orca
Technologies, Inc.
10.6 Amendment Agreement made as of January 13, 1999, by and among Televar
Acquisition Corp., BOSS Internet Group, Inc., Televar, Inc. and Orca
Technologies, Inc.
10.7 Asset Purchase and Development Agreement between Orca Technologies, Inc.
and Kent Marsh and Millennium Software, Inc., dated November 15, 1998
10.8 Employment Agreement between Orca Technologies, Inc. and Kent Marsh, dated
November 15, 1998
27.1 Financial Data Schedule
</TABLE>
20
<PAGE>
EXHIBIT 4.1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
Orca Technologies, Inc.
COMMON STOCK PURCHASE WARRANT
Expiring November 27, 2003
Warrant No. _____ Dated November 27, 1998
Orca Technologies, Inc., a Utah corporation (the "Company"), hereby
certifies that, for value received, UTCO Associates, Ltd., or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to a total of 50,000 shares of Common Stock, $.001
par value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $1.00 per share (as adjusted from time to time as provided in Section
7) (the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including November 27, 2003 (the "Expiration Date").
In the event the Company fails to pay as and when they become due, any one or
more payments of principal, interest, costs or expenses owing to Holder on
account of any loan or loans extended to Company by Holder or its affiliates,
then the Exercise Price shall be reduced by seventy-five percent (75%) (the
"Exercise Price") without notice, demand or declaration of default and
thereafter all purchases of Warrant Shares pursuant to this Warrant shall be
based upon the Reduced Exercise Price.
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
<PAGE>
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Transfer
Agent or to the Company at the office specified in or pursuant to Section 3(b),
provided, however that the Holder shall not make any transfers to any transferee
pursuant to this Section for the right to acquire less than 10,000 Warrant
Shares (or the balance of the Warrant Shares to which this Warrant relates).
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after the date hereof, to and including the
Expiration Date. At 5:00 P.M., Salt Lake City, Utah time on the Expiration Date,
the portion of this Warrant not exercised prior thereto shall be and become void
and of no value. Prior to the Expiration Date, the Company may not call or
otherwise redeem this Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its office at 24000 35th Avenue SE, Suite 200,
Bothell, Washington 98021, Attention: Chief Financial Officer, or at such other
address as the Company may specify in writing to the then registered Holder, and
upon payment of the Exercise Price or Reduced Exercise Price, if applicable,
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, in lawful money of the United States of America, in cash or by
certified or official bank check or checks, all as specified by the Holder in
the Form of Election to Purchase, the Company shall promptly (but in no event
later than three (3) business days after the Date of Exercise) issue or cause to
be issued and cause to be delivered to or upon the written
2
<PAGE>
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise, free of
restrictive legends other than as required by applicable law. In lieu of the
foregoing cash exercise, the Holder may elect, by notice to the Company at the
time of the surrender of this Warrant, to make a "cashless" exercise whereupon
the Holder shall be entitled to receive the number of Warrant Shares it is
otherwise entitled to receive hereunder less a number of Warrant Shares then
having a fair market value equal to the Exercise Price or Reduced Exercise
Price, if applicable, times the percentage of Warrant Shares being acquired at
the time of exercise. Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become holder of record of such Warrant Shares as
of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
or Reduced Exercise Price, if applicable, for the number of Warrant Shares so
indicated by the Holder hereof to be purchased or notice of a "cashless"
exercise of the Warrant.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; 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 registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company may in its discretion issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in lieu
of and substitution for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity, if requested, satisfactory to it. Applicants for a
New Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable charges as
the Company may prescribe.
3
<PAGE>
6. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 7). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment the Exercise Price or Reduced Exercise Price, if
applicable, in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
7. Certain Adjustments. The Exercise Price, Reduced Exercise Price
-------------------
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 7. Upon each such
adjustment of the Exercise Price or Reduced Exercise Price pursuant to this
Section 9, the Holder shall thereafter prior to the Expiration Date be entitled
to purchase, at the Exercise Price or Reduced Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price or Reduced
Exercise Price, if applicable, resulting from such adjustment, provided,
however, that no such adjustment or act requiring adjustment hereunder will be
undertaken without first giving Holder five (5) business days advance notice,
during which time, Holder may exercise the Warrant on its original terms.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated divided
rate) or otherwise make a distribution or distributions on shares of its Common
Stock (as defined below) or on any other class of capital stock and not the
Common Stock) payable in shares of Common Stock, (ii) subdivide outstanding
shares of Common Stock into a larger number of shares, or (iii) combine
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price or Reduced Exercise Price, if applicable, shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
4
<PAGE>
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 7(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 7(a), (b) and (d)), then in each such case the Exercise Price or
Reduced Exercise Price, if applicable, shall be determined by multiplying the
Exercise Price or Reduced Exercise Price, if applicable, in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Exercise Price or Reduced Exercise Price, if applicable, determined as of the
record date mentioned above, and of which the numerator shall be such Exercise
Price or Reduced Exercise Price, if applicable, on such record date less the
then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Company's independent certified public
accountants that regularly examines the financial statements of the Company (an
"Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price or Reduced
Exercise Price, if applicable, then in effect, then, forthwith upon such issue
or sale, the Exercise Price or Reduced Exercise Price, if applicable, shall be
reduced to the price (calculated to the nearest cent) determined by dividing (i)
an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the Exercise
Price, or Reduced Exercise Price, if applicable, and (B) the consideration, if
any, received or receivable by the Company upon such issue or sale by (ii) the
total number of shares of Common Stock outstanding immediately after such issue
or sale.
5
<PAGE>
(e) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock (other than shares of Common
Stock issued pursuant to (i) the exercise of options granted pursuant to the
Company's employee stock option plan or (ii) the conversion of any outstanding
convertible security) for a consideration per share less than the Exercise Price
or Reduced Exercise Price, if applicable, then in effect, then, forthwith upon
such sale or issuance, the Exercise Price or Reduced Exercise Price, if
applicable, shall be reduced to the price (calculated to the nearest cent)
determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Exercise Price or Reduced Exercise Price, if applicable, and
(2) the consideration, if any, received or receivable by the Company upon such
issue or sale by (B) the total number of shares of Common Stock outstanding
immediately after to such issue or sale.
(f) For the purposes of this Section 7, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a
-----------
record of the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g) All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price or Reduced Exercise Price, if
applicable, is adjusted pursuant to Section 7(c) above, the Holder, after
receipt of the determination by the Appraiser, shall have the right to select an
additional appraiser (which shall be a nationally recognized accounting firm),
in which case the adjustment shall be equal to the average of the adjustments
recommended by each of the Appraiser and such appraiser. The Holder shall
promptly mail or cause to be mailed to the Company, a notice setting forth the
Exercise Price or Reduced Exercise Price, if applicable, after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
Such adjustment shall become effective immediately after the record date
mentioned above.
6
<PAGE>
(i) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least thirty (30) calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
7
<PAGE>
8. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 7, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price or Reduced Exercise Price, if applicable, multiplied by
such fraction.
9. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m. (Salt Lake City, Utah time) on a business day, (ii)
the business day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section later than 5:00 p.m. (Salt Lake City, Utah time) on any date and earlier
than 11:59 p.m. (Salt Lake City, Utah time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if
to the Company, to Orca Technologies, Inc., 24000 35th Avenue SE, Suite 200,
Bothell, Washington 98021, Attention: Chief Financial Officer, or to facsimile
no. (425) 806-5521 or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 9.
10. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
11. Piggyback Registration Rights. During the term of this Warrant
-----------------------------
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4 including supplements thereto, but not additionally filed
registration statements in respect of such
8
<PAGE>
securities, each as promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to which the Company is registering securities
pursuant to a Company employee benefit plan or pursuant to a merger, acquisition
or similar transaction) unless the Company provides the Holder with not less
than ten (10) business days notice to the Holder of its intention to file such
registration statement and provides the Holder the option to include any or all
of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until all of the
Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the expiration of this Warrant. The Company will
pay all registration expenses in connection therewith.
12. Demand Registration Rights. At any time during the term of this
--------------------------
Warrant when the Warrant Shares are not registered pursuant to an effective
registration statement the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all or any
portion of the Warrant Shares, and the Company shall use its best efforts to
effect such Demand Registration as promptly as possible, but in any case within
90 days thereafter. Any request for a Demand Registration shall specify the
aggregate number of Warrant Shares proposed to be sold and shall also specify
the intended method of disposition thereof. The right to cause a registration
of the Warrant Shares under this Section 12 shall be limited to two such
registrations. In any registration initiated as a Demand Registration, the
Company will pay all registration expenses in connection therewith. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least two
(2) years or such shorter period when all Warrant Shares included therein have
been sold in accordance with such Demand Registration; provided, however that
any days on which such registration statement is not effective or on which the
Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
two (2) year period.
13. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of Utah without regard to the
principles of conflicts of law thereof. Any dispute, controversy or claim
arising under, out of or in connection with this
9
<PAGE>
Warrant shall be filed in the state or federal courts located in Salt Lake City,
Utah, and the Company agrees that such courts shall have exclusive jurisdiction
for all purposes relating to such suit(s).
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ORCA TECHNOLOGIES, INC.
By: __________________________
Name: __________________________
Title: __________________________
10
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Orca Technologies, Inc.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.001 par value per share, of Orca
Technologies, Inc. and encloses herewith $________ in cash, certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
______
______
______
(Please print name and address)
Dated:_____________, _____
By:_______________________________________
Its:______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
11
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Orca Technologies,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Orca Technologies, Inc. with full power
of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
12
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
$30,000.00 Bothell, Washington
October 29, 1998
FOR VALUE RECEIVED, Orca Technologies, Inc. (the undersigned) agrees to pay to
the order of Norman Plummer, the sum of Thirty Thousand and 00/100ths Dollars
($30,000.00) in lawful money of the United States of America.
(a) This Note bears interest at the rate of 8% (eight percent) per annum.
(b) This Note is payable January 27, 1999.
After default, at the option of the holder, the entire indebtedness evidenced
hereby shall become immediately due and payable. Failure to exercise the rights
and remedies available to the holder of this Note shall not waive the right to
exercise them in the event of any subsequent default. In the event of default,
the undersigned promises to pay collection expenses, including reasonable
attorneys' fees, incurred by the holder of this note, with or without suit on
appeal and in bankruptcy or other insolvency proceedings.
The Note is delivered to the payee in the state of Washington and is made with
reference to, and shall be construed in accordance with, the laws of the state
of Washington without reference to their conflict of law principles.
/s/ Roger P. Vallo
-----------------------
Roger P. Vallo
Orca Technologies, Inc.
Chief Executive Officer
Date: October 29, 1998
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
$87,500.00 Bothell, Washington
November 3, 1998
FOR VALUE RECEIVED, Orca Technologies, Inc. (the undersigned) agrees to pay to
the order of Roger P. Vallo, the sum of Eighty Seven Thousand Five Hundred and
00/100ths Dollars ($87,500.00) in lawful money of the United States of America.
(a) This Note bears interest at the rate of 8% (eight percent) per annum.
(b) This Note is payable February 2, 1999.
After default, at the option of the holder, the entire indebtedness evidenced
hereby shall become immediately due and payable. Failure to exercise the rights
and remedies available to the holder of this Note shall not waive the right to
exercise them in the event of any subsequent default. In the event of default,
the undersigned promises to pay collection expenses, including reasonable
attorneys' fees, incurred by the holder of this note, with or without suit on
appeal and in bankruptcy or other insolvency proceedings.
The Note is delivered to the payee in the state of Washington and is made with
reference to, and shall be construed in accordance with, the laws of the state
of Washington without reference to their conflict of law principles.
/s/ Casey F. Seremek
------------------------
Casey F. Seremek
Orca Technologies, Inc.
Controller
Date: November 3, 1998
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$12,500.00 Bothell, Washington
November 9, 1998
FOR VALUE RECEIVED, Orca Technologies, Inc. (the undersigned) agrees to pay to
the order of Roger P. Vallo, the sum of Twelve Thousand Five Hundred and
00/100ths Dollars ($12,500.00) in lawful money of the United States of America.
(a) This Note bears interest at the rate of 8% (eight percent) per annum.
(b) This Note is payable February 8, 1999.
After default, at the option of the holder, the entire indebtedness evidenced
hereby shall become immediately due and payable. Failure to exercise the rights
and remedies available to the holder of this Note shall not waive the right to
exercise them in the event of any subsequent default. In the event of default,
the undersigned promises to pay collection expenses, including reasonable
attorneys' fees, incurred by the holder of this note, with or without suit on
appeal and in bankruptcy or other insolvency proceedings.
The Note is delivered to the payee in the state of Washington and is made with
reference to, and shall be construed in accordance with, the laws of the state
of Washington without reference to their conflict of law principles.
/s/ Casey F. Seremek
------------------------
Casey F. Seremek
Orca Technologies, Inc.
Controller
Date: November, 8, 1998
<PAGE>
EXHIBIT 10.4
$700,000.00 November 27, 1998
REPLACEMENT
PROMISSORY NOTE
(Secured)
FOR VALUE RECEIVED, ORCA TECHNOLOGIES, INC., a Utah corporation, TELEVAR
INC., a Washington corporation, MONITRx, INC., a Utah corporation, and DIGITAL
NETWORK ASSOCIATES, INC., a Utah corporation (hereinafter collectively
"Borrower"), promises to UTCO ASSOCIATES, LTD., a Utah limited partnership
(hereinafter "Lender"), as follows:
1. Principal and Interest. Borrower promises to pay to Lender or its
----------------------
order at 230 West 200 South, Suite 2601, P.O. Box 3683, Salt Lake City, Utah
84101, in lawful money of the United States of America, the principal sum of
SEVEN HUNDRED THOUSAND DOLLARS ($700,000.00) together with interest on the
unpaid principal balance thereon from the date hereof until paid in full at a
rate of eighteen percent (18%) per annum (compounded monthly).
2. Nature of Indebtedness. This Note evidences a loan to Borrower for
-----------------------
Borrower's use in purchasing equipment and for short-term operating capital. No
part of the proceeds of this Note shall be used for personal, family, household,
consumer or other purposes.
3. Repayment. Borrower shall pay principal and interest as follows:
----------
a. The entire unpaid principal balance, together with accrued interest
thereon, shall be due and payable on or before February 28, 1999 (the "Original
Maturity Date"); provided that Borrower may extend the maturity of this Note as
follows if it is not in default under the loan documents executed in connection
herewith:
(i) Borrower may extend the maturity of this Note to March 31,
1999 (the "First Extended Maturity Date") by providing
written notice to Lender and paying a one percent (1%) fee
($7,000.00) prior to the Original Maturity Date.
(ii) If Borrower has previously extended the maturity of this
Note to the First Extended Maturity Date, Borrower may
further extend the maturity of this Note April 30, 1999
(the "Second Extended Maturity Date") by providing written
notice to Lender and paying a one and one-half percent
(1.5%) fee ($10,500.00) prior to the First Extended
Maturity Date.
(iii) If Borrower has previously extended the maturity of this
Note to the Second Extended Maturity Date, Borrower may
further extend the maturity of this Note to May 30, 1999 by
providing written
<PAGE>
notice to Lender and paying a two percent (2%) fee
($14,000.00) prior to the Second Extended Maturity Date.
b. Borrower shall pay interest-only payments on the first (1st) day
of each month, commencing on the first day of the first full month following the
date hereof.
c. All payments received shall be applied first to any late charges,
attorneys fees and other such costs, second to accrued interest, and the
balance, if any, to the reduction of principal.
4. Fees. In addition to the foregoing, Borrower shall pay to Lender (i)
----
reasonable attorneys' fees incurred by Lender in connection herewith, and (ii) a
closing fee of $21,000.00 upon execution of this Note; provided, however, that
Lender has previously received payment of $5,000.00 toward said closing fee.
5. Representations and Warranties. In order to induce Lender to make the
-------------------------------
loan contemplated herein, Borrower represents and warrants to Lender as follows:
a. The execution, delivery and performance of this Note will not
violate any provision of any applicable law, regulation, order, judgment,
decree, contract, security agreement, deed of trust, mortgage, agreement or
undertaking to which Borrower is a party or which purports to be binding on
Borrower or its assets and will not result in the creation or imposition of any
lien on its assets.
b. There is no action, suit, investigation or proceeding pending, or
to the knowledge of Borrower, threatened, against Borrower or any of its assets,
which, if adversely determined would have a material adverse effect on the
financial condition of Borrower.
c. No information or report furnished by Borrower to Lender (whether
directly or indirectly, through an agent, or otherwise) in connection with this
Note contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
d. Televar, Inc., MONITRx , Inc. and Digital Network Associates,
Inc. (the "Subsidiaries") are subsidiary companies of Orca Technologies, Inc.
("Orca"). Orca owns all of the issued and outstanding shares in the
Subsidiaries.
e. Borrower owns the personal property that is the subject of the
Security Agreement between Borrower and Lender dated as of the date hereof.
Borrower has granted to Lender a valid, enforceable first position security
interest in the personal property pursuant to the above-referenced Security
Agreement.
f. Within five (5) days after the filing of any report with the
Securities and Exchange Commission under the Securities Act of 1934, as
amended, Borrower will provide Lender with a complete copy thereof.
2
<PAGE>
6. Covenants. Borrower covenants and agrees with Lender as follows:
----------
a. Borrower shall notify Lender (i) of any default under the terms
of this Note or the Security Agreement and/or (ii) of any litigation, proceeding
or development which may have a material adverse affect on Borrower's ability to
perform under the terms of this Note or any assignment or security agreement
given in connection herewith.
b. Borrower shall duly observe and conform to all valid requirements
of any governmental authority relative to the conduct of its business or to its
properties or assets.
c. Borrower shall not sell, assign, convey, hypothecate, pledge, or
alienate its interest in its personal property or any part thereof, or permit
any divestiture of title, whether voluntary or involuntary, without Lender's
prior written consent, which consent shall not be unreasonably withheld.
d. Borrower shall duly observe and conform to all terms and
conditions of any and all loan agreements, promissory notes, security agreements
and the like between Borrower and third parties pertaining to its personal
property.
7. Events of Default. An Event of Default shall occur if any of the
------------------
following events shall occur:
a. Failure to pay any principal or interest hereunder or under any
other obligation between Borrower, as debtor, and Lender, as creditor, whether
created before, concurrent with or after the date hereof, within five (5)
calendar days after such payment becomes due.
b. Any representation or warranty made by Borrower in this Note or
otherwise delivered to Lender in connection with this Note is untrue in any
material respect at the time when made.
c. Any of the documents executed and delivered in connection
herewith shall for any reason cease to be in full force and effect.
d. Filing by Borrower of a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, adjustment, readjustment of debts or
any other relief under the Bankruptcy Code as amended or any insolvency act or
law, state or federal, now or hereafter existing.
e. Filing of an involuntary petition against Borrower in bankruptcy
or seeking reorganization, arrangement, readjustment of debts or any other
relief under the Bankruptcy Code as amended or under any other insolvency act or
law, state or federal, now or hereafter existing, and the continuance thereof
for 60 days undismissed, unbonded, or undischarged.
3
<PAGE>
f. All or any substantial part of the property of Borrower shall be
condemned, seized or otherwise appropriated or custody or control of such
property shall be assumed by any governmental agency or any court of competent
jurisdiction and shall be retained for a period of 30 days.
g. There is a default in any term, condition, or covenant hereof, or
contained in any document given in connection herewith.
8. Remedies. Upon default by Borrower as defined above, Lender may
---------
declare the entire unpaid balance, together with accrued interest, to be
immediately due and payable without presentment, demand, protest or other notice
of any kind and may take such other actions as permitted by law and specified in
the documents executed and delivered in connection herewith. To the extent
permitted by law, Borrower waives any rights to presentment, demand, protest, or
notice of any kind in connection with this Note. No failure or delay on the
part of Lender in exercising any right, power, or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege provided at law, in equity, or by contract. The
rights and remedies provided herein are cumulative and not exclusive of any
other rights or remedies. Borrower agrees to pay all costs of collection
incurred by reason of the default, including court costs, and reasonable
attorney's fees, including such expenses incurred before legal action or
bankruptcy proceedings, during the pendency thereof, and continuing to all such
expenses in connection with appeals to high courts arising out of matters
associated herewith.
9. Late Charge for Overdue Payments. If Lender has not received the full
--------------------------------
amount of any payment by the end of five (5) calendar days after the date it is
due, Borrower will pay a late charge to Lender. The amount of the charge will
be ten percent (10%) of Borrower's overdue payment of principal and/or interest.
The late penalty shall apply to the interest-only payments and the payments due
on the maturity date, if not paid when due. Borrower will pay this late charge
promptly but only once on each late payment. In addition, if this Note is in
default, the interest rate will increase to thirty-six percent (36%) per annum
during the time the loan is in default. Such amount will be compounded monthly.
10. Maximum Loan Charges. If a law, that applies to this loan and sets
--------------------
maximum loan charges is finally interpreted so that the interest or other loan
charges collected or to be collected in connection with this loan exceeds any
permitted legal limits, then: (i) any such loan charge shall be reduced by the
amount necessary to reduce the charge to the permitted limit; and (ii) any sums
already collected from Borrower which exceeded the permitted limits will be
refunded to Borrower. Lender may choose to make this refund by reducing the
principal Borrower owes under this Note or by making a direct payment to
Borrower. If a refund reduces principal, the reduction will be treated as a
partial payment.
11. Conversion. At any time after the occurrence of an Event of Default,
----------
the holder(s) hereof may convert all or part of the balance of principal and
interest due under the Note (or any portion thereof which is $1,000 or a
multiple thereof) into shares of common stock of Orca, $.001 par value per
share, at the conversion price equal to the lesser of (i) $.50 per share or (ii)
50% of the market price per share on the date of such Event of Default. The
amount of the
4
<PAGE>
conversion price will be subject to adjustment in the event of any split or
reverse split of such common stock, in which event the conversion price will be
adjusted as of the close of business on the date such split or reverse split
becomes effective by a proportionate reduction or increase (as the case may be)
therein. In the event Orca consolidates with or merges into any other
corporation or transfers substantially all of its assets to any other
corporation, the surviving or acquiring corporation will execute and deliver to
the holder(s) at that time a supplement to the Note providing that such holders
have the right to thereafter convert the Note into the kind and amount of stock
or other securities receivable upon such consolidation, merger or transfer by
the holder(s) of the number of shares of Orca's common stock into which the Note
might have been converted immediately prior to such consolidation, merger or
transfer, and such supplement will provide for adjustments as nearly equivalent
as practicable to the adjustments provided for by the foregoing provisions of
this paragraph. The foregoing provisions of this paragraph will apply to
successive occurrences requiring adjustment as aforesaid.
Orca will at all times reserve and keep available, free from pre-emptive
rights, out of its authorized but unissued common stock, $.001 par value per
share, for the purpose of effecting the conversion of the Note as herein
provided, the full number of shares of such common stock then issuable upon the
conversion of the Note. All shares of such common stock which may be issued
upon the conversion of the Note will, upon the issuance thereof, be fully paid
and nonassessable.
Lender acknowledges that the common stock to be issued upon exercise of the
conversion right described has not been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws, and will be issued
in reliance upon certain exemptions from the registration requirements of those
laws, and thus cannot be resold unless subsequently registered under the Act or
unless Orca has first received an opinion of competent securities counsel that
an exemption from registration is available for such resale. With regard to the
restrictions on resales of such common stock, Lender is aware (i) of the
limitations and applicability of Securities and Exchange Commission Rule 144;
and (ii) that a restrictive legend will be placed on certificates representing
the common stock which legend will read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
A CLAIM OF EXEMPTION FROM THE REGISTRATION OR QUALIFICATION PROVISIONS OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND STATE SECURITIES
LAWS AND THEREFORE HAVE NOT BEEN REGISTERED UNDER THE ACT OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF THE ACT OR APPLICABLE STATE
LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS. FURTHERMORE, THE COMPANY WILL INSTRUCT ITS STOCK TRANSFER
AGENT NOT TO RECOGNIZE ANY SALE OF THESE SECURITIES UNLESS THE COMPANY HAS
FIRST RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
5
<PAGE>
SECURITIES COUNSEL, THAT AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS
IS AVAILABLE.
12. Piggyback Registration Rights. During the term of this Note the
------------------------------
Company may not file any registration statement with the Securities and Exchange
commission (other than registration statements of the company filed on Form S-8
or Form S-4 including supplements thereto, but not additionally filed
registration statements in respect of such securities, each as promulgated under
the Act, pursuant to which the company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction) unless the Company provides the Holder with not less than ten (10)
business days notice to the Holder of its intention to file such registration
statement and provides the Holder the option to include therein any or all of
the shares issuable upon conversion of this Note pursuant to paragraph 11 hereof
(the "Conversion Shares"). The piggyback registration rights granted to the
Holder pursuant to this Section shall continue until all of the Holder's
Conversion Shares have been sold in accordance with an effective registration
statement of upon payment in full of this Note. The Company will pay all
registration expenses in connection therewith.
13. Demand Registration Rights. At any time during the term of this Note
---------------------------
when the Conversion Shares are not registered pursuant to an effective
registration statement the Holder may make a written request for the
registration under the Act (a "Demand Registration"), of all or any portion of
the Conversion Shares, and the Company shall use its best efforts to effect such
Demand Registration as promptly as possible, but in any case within 90 days
thereafter. Any request for a Demand Registration shall specify the aggregate
number of Conversion Shares proposed to be sold and shall also specify the
intended method of disposition thereof. The right to cause a registration of
the Conversion Shares under this paragraph 13 shall be limited to two such
registrations. In any registration initiated as a Demand Registration, the
Company will pay all registration expenses in connection therewith. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least two
(2) years or such shorter period when all Conversion Shares included therein
have been sold in accordance with such Demand Registration; provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the company or any governmental authority to sell
Conversion Shares under such registration statement shall not count towards such
two (2) year period.
14. Waivers. Borrower and any other person who have obligations under
-------
this Note waive the rights of presentment, notice of dishonor, notice of protest
and notices of every other kind and natures. Borrower also waives any defense
based upon an election of remedies.
15. General Provisions. This Note shall be binding upon Borrower, its
-------------------
successors and assigns. This Note and all documents and instruments associated
herewith shall be governed by and construed and interpreted in accordance with
the laws of the State of Utah, without regard to its conflict of laws
principles. Time is of the essence hereof.
16. Governing Law; Jurisdiction; Venue. This Note and all acts and
-----------------------------------
transactions hereunder and all rights and obligations of Lender and Borrower
shall be governed by, and
6
<PAGE>
construed in accordance with, the laws of the State of Utah, without regard to
its conflict of laws principles. Any undefined term used in this Note that is
defined in the Utah Uniform Commercial Code shall have the meaning assigned to
that term in the Utah Uniform Commercial Code. As a material part of the
consideration to Lender to enter into this Note, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly hereto shall at Lender's
option, be litigated in courts located within Utah, and that the exclusive venue
therefor shall be, at Lender's option, Salt Lake County or the county in which
Borrower's chief executive office is located; (ii) consents to the jurisdiction
and venue of any such court and consents to service of process in any such
action or proceeding by persona delivery of any other method permitted by law;
and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
17. Security Agreement. The obligation evidenced by this Note is secured
------------------
by that certain Security Agreement executed on or about August 28, 1998 by
Borrower in favor of Lender.
18. Entire Agreement in Writing. This written agreement, and any other
----------------------------
documents executed in connection herewith, are the final expression of the
agreement and understanding of Borrower and Lender with respect to the general
subject matter hereof and supersede any previous understanding, negotiations or
discussions, whether written or oral. This written agreement, and any other
documents executed in connection herewith, may not be contradicted by evidence
of any alleged oral agreement.
DATED as of the date first above written.
ORCA TECHNOLOGIES, INC.,
a Utah corporation
By:
Its: Roger P. Vallo, President
TELEVAR, INC., a Washington corporation
By: /s/ Roger P. Vallo
____________________________________
Its: Roger P. Vallo, President
MONITRx , INC., a Utah corporation
By: /s/ Roger P. Vallo
____________________________________
Its: Roger P. Vallo, President
DIGITAL NETWORK ASSOCIATES, INC.,
a Utah corporation
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By: /s/ Roger P. Vallo
____________________________________
Its: Roger P. Vallo, President
8
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EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT ("Agreement") effective as of September 28,
1998 (the "Closing Date"), by and among TEL-SUB CORP., a Washington corporation
("Buyer") TELEVAR ACQUISITION CORP., a Washington corporation, ("Parent"),
TELEVAR, INC., a Washington corporation ("Seller") and Orca Technologies, Inc.,
a Utah corporation ("Orca").
RECITALS
A. Seller is engaged in the business of providing Internet access, content
and consulting services (the "Business"). Orca is the sole shareholder of
Seller.
B. Seller now desires to sell, and Buyer desires to purchase,
substantially all of Seller's assets, on the terms and conditions set forth in
this Agreement.
AGREEMENT
In consideration of the covenants in this Agreement, the parties agree as
follows:
Section 1
Purchase and Sale of Assets.
1.1. Purchase and Sale. On the Closing Date, subject to the terms and
conditions contained herein, Seller will sell, transfer, assign, convey and
deliver to Buyer, and Buyer will purchase from Seller, all of Seller's assets,
properties and rights (except the Excluded Assets, as defined below), tangible
and intangible, and wherever located which existed as of 5:00 p.m. Pacific
Standard Time on September 25, 1998 (the "Assets"), including but not limited
to, all of Seller's:
a. tangible personal property (the "Personal Property"), including
but not limited to computers, computer software and hardware, routers,
modems, servers, office equipment, inventory, furniture in storage at
Orca's facility in Bothell, Washington (including desks, workstations and
reception counter), motor vehicles (including, without limitation, the
Chevrolet Blazer currently leased by Televar), fixtures, drawings, designs
and blueprints, materials and supplies, and spare and replacement parts;
b. contracts, agreements, commitments, dial-up accounts, dedicated
accounts, leases (including the lease of Seller's facility in Wenatchee,
Washington) licenses, purchase orders, sales orders, and documents (the
"Contracts");
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c. governmental licenses, permits, approvals, authorizations,
consents, franchises, tariffs, orders and other registrations required for
the conduct of the Business, to the extent that they are assignable (the
"Licenses");
d. patents, trademarks, trade names, including the exclusive right
to use the names Televar, and all derivatives thereof, copyrights and
service marks; all registrations therefor; all applications pending
therefor; and all other proprietary rights and intangible property, such
as trade secrets, technology, software, networks, operating systems,
customer and supplier lists, customer contacts, web services, know-how,
formulae, slogans, processes and operating rights (the "Intellectual
Property");
e. accounts receivable (the "Accounts Receivable");
f. prepaid and deferred items ("Prepaids"), including but not
limited to prepaid access charges, taxes and unbilled charges and
deposits;
g. operating data and records, including but not limited to,
financial and accounting records, correspondence, budgets, and engineering
and manufacturing records ("Records");
h. goodwill; and
i. telephone lines and numbers.
1.2. Excluded Assets. The Assets shall not include Seller's corporate
seal, minute books, charter documents and corporate stock record books, and any
assets set forth on Schedule 1.2 (collectively, the "Excluded Assets").
1.3. Conveyance of Assets. Subject to the terms and conditions of this
Agreement, the sale, assignment, transfer and delivery of the Assets, shall be
effected by Seller's execution and delivery to Buyer at Closing of a General
Assignment and Bill of Sale in substantially the form attached as Exhibit A (the
"Bill of Sale") and all titles to any vehicles acquired by Buyer, together with
any other instruments of transfer requested by Buyer, in form and substance
sufficient to vest in Buyer all right, title and interest in and to such Assets,
free and clear of any liens, claims or encumbrances of any kind except for those
liens, claims or encumbrances listed on Schedule 1.3 (the "Permitted Liens").
Notwithstanding the foregoing, the Bill of Sale shall not be effective to assign
any Contracts which are not assignable by their terms without the consent of the
other parties thereto and which consent has not been obtained as of the Closing
Date (the "Nonassignable Contracts") until such time as any such consents to
assignment are obtained. Seller and Orca shall remain parties to the
Nonassignable Contracts until the necessary consents to their assignment have
been obtained and their assignment may be
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effected through the Bill of Sale or any such other assignment agreement
required to be entered into by the other parties to such Nonassignable
Contracts. Seller and Orca agree to (a) use their best efforts to obtain the
consent to assignment of all Nonassignable Contracts as soon as practicable
following the Closing Date and (b) continue to perform their obligations under
such Nonassignable Contracts and to take all other necessary action to allow
Buyer to enjoy the benefits of such Nonassignable Contracts until they may be
assigned, provided that Buyer reimburses Seller or Orca for all payments
required to be made under such Nonassignable Contracts in respect of periods (or
portions thereof) commencing after the Closing Date.
1.4. Further Assurances. Upon Buyer's request and without further
consideration, Seller will take such further actions and will execute such
further documents, on and after the Closing Date, as are reasonably necessary to
(a) place Buyer in possession and operating control of the Assets (including,
without limitation, to effectively assign to Buyer all Nonassignable Contracts),
(b) vest in Buyer good, valid and marketable title to the Assets, free and clear
of any liens, claims or encumbrances of any kind except for the Permitted Liens,
(c) complete the transactions described in this Agreement, and (d) comply with
all laws and regulations applicable to such transactions.
Section 2
Assignment and Assumption of Liabilities.
2.1. Assignment and Assumption. On the Closing Date, as defined in
Section 4, Seller will assign to Buyer, and Buyer will assume, certain of
Seller's liabilities and obligations known or existing as of the Closing Date
(collectively, the "Liabilities"), pursuant to the terms of an Assignment and
Assumption Agreement in substantially the form attached as Exhibit B (the
"Assumption Agreement").
2.2. Excluded Liabilities. Except as specifically set forth in the
Assumption Agreement, Buyer will not assume and will not be liable for any
liabilities of Seller, known or unknown, contingent or absolute, accrued or
otherwise, including but not limited to liabilities or obligations of Seller (a)
for Taxes, as defined in Section 6.6; (b) to Seller's shareholders, directors,
officers or employees (including without limitation all (i) loans, and (ii)
salaries, vacation pay, medical pay and other employee benefits or severance
arrangements, earned or accrued through the Closing Date; (c) relating to
Seller's or Orca's issuances of securities; (d) incurred in connection with
distributions to shareholders or in connection with any corporate dissolution;
(e) under any "Environmental Law," as defined in Section 6.13; or (f) for any
Indebtedness (as defined in Section 6.7) of Seller (except trade payables to the
extent the same do not exceed $550,000).
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Section 3
Purchase Price.
3.1. Consideration for Assets. In full consideration for the Assets,
Buyer shall, simultaneously with the execution and delivery of this Agreement,
issue and deliver to Seller 510 shares of common stock of Buyer, no par value
(the "Shares") and assume the Liabilities pursuant to Section 2.1.
3.2. Purchase Price for Shares. At the Closing, following issuance of the
Shares to Seller, Seller shall sell, assign, transfer and deliver the Shares to
Parent, and in full consideration for the Shares, Parent shall pay to Seller and
Orca a total purchase price (the "Purchase Price") consisting of (i) a cash
deposit in the amount of $50,000 which has been paid prior to the date hereof
(the "Deposit") and (ii) a cash payment in the amount of $250,000 payable on the
Closing Date (the "Closing Date Payment").
3.3. Payment of Purchase Price. Subject to the terms and conditions of
this Agreement, Parent shall pay the Closing Date Payment portion of the
Purchase Price to Seller at Closing by delivery of immediately available good
funds in the form of a check payable to the order of Seller or a transfer of
funds to an account designated by Seller by wire transfer.
3.4. Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets as set forth on Schedule 3.3. The parties agree that the fair
market value of the Assets which constitute Class I, II, III, IV and V Assets
(as defined in Treasure Regulation Section 1.1060-1T(d), as amended) will be as
set forth on Internal Revenue Service Form 8594 in the form attached to this
Agreement before Closing as Exhibit C (the "Form 8594"). The allocation set
forth in the Form 8594 will be binding on Buyer and Seller for all federal,
state and local tax purposes. Buyer and Seller agree to attach the Form 8594 in
such form to their respective federal income tax returns filed under Section
1060 of the Internal Revenue Code, as amended, and the failure to do so will
constitute a material breach of this Agreement.
Section 4
Closing.
Subject to satisfaction of the closing conditions set forth in Section 9
and provided that this Agreement has not been terminated pursuant to Section 11,
the closing of the transactions contemplated in this Agreement (the "Closing")
shall take place at 10:00 a.m. on September 28, 1998 (the "Closing Date") at
Orca's offices at 24000 35th Avenue Southeast, Suite 200, Bothell, Washington
98021, or at such other time and place as the parties may agree upon.
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Section 5
Representations and Warranties of Buyer and Parent.
--------------------------------------------------
Buyer and Parent represent and warrant to Seller that the following are
true and correct as of the date of this Agreement, and will be true and correct
as of the Closing Date.
5.1. Organization, Standing and Power. Each of Parent and Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Parent and Buyer has the corporate
power to own and operate its properties and to carry on its business and is in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing would have a material adverse effect on Seller or Orca.
Neither Parent nor Buyer is in violation of any provisions of its Articles of
Incorporation or Bylaws.
5.2. Capital Structure. Buyer has an authorized capitalization consisting
of 1000 shares of common stock, no par value. As of the Closing Date, 490 shares
of common stock were issued (without giving effect to the issuance of the Shares
to Seller pursuant to this Agreement).
5.3. Authorization. Each of Parent and Buyer has taken all corporate
action necessary to authorize execution and delivery of this Agreement and
performance of its obligations hereunder. Each of Parent and Buyer has full
corporate power and authority to enter into this Agreement and to carry out the
terms hereof. Each of Parent and Buyer has duly executed and delivered this
Agreement, and this Agreement is a valid and binding obligation of such Person,
enforceable in accordance with its terms.
5.4. No Violations; Consents. The execution, delivery and performance of
this Agreement by each of Buyer and Parent will not conflict with, result in the
breach of, or constitute a material default under: (a) the articles of
incorporation or bylaws of such Person, or (b) any statute, order, injunction,
judgment, decree, rule or regulation of any court or regulatory authority or
governmental body applicable to such Person. No consent or approval by any third
person or public authority is required to authorize, or is required in
connection with, the execution, delivery or performance of this Agreement by
Buyer and Parent, or (c) any note, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which Buyer or Parent is party or by
which either of them is bound. No consent or approval by any third person or
public authority is required to authorize, or is required in connection with,
the execution, delivery of performance of this Agreement by Buyer or Parent.
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5.5. Brokers. Neither Buyer nor Parent has entered into or authorized any
arrangements with any broker, finder, or investment banker that will result in
payment of a fee in connection with this transaction.
5.6. Litigation. There is no action, dispute, claim, proceeding, suit,
appeal or investigation pending or, to the knowledge of Buyer or Parent,
threatened against Buyer, except as previously disclosed to Seller or Orca in
writing, that questions the validity of this Agreement. To Buyer's and Parent's
knowledge, there are no facts that could reasonably be expected to result in a
judgment or other determination that would cause this Agreement to be prohibited
or enjoined.
5.7. Reliance. Buyer and Parent recognize and agree that Seller and its
shareholders are relying upon the representations and warranties made by Buyer
and Parent in this Agreement, notwithstanding any investigation by Seller and
Orca.
5.8. Disclosure. No representation or warranty by Buyer or Parent made in
this Agreement, and no statement or certificate furnished or to be furnished by
Buyer or Parent to Seller or Orca in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading.
Section 6
Representations and Warranties of Seller and Orca.
Seller and Orca, jointly and severally, represent and warrant to Buyer that
the following are true and correct as of the date of this Agreement, and will be
true and correct as of the Closing Date:
6.1. Authorization. Seller is a corporation, duly organized and validly
existing under the laws of the State of Washington. Orca is a corporation, duly
organized and validly existing under the laws of the State of Utah. Each of
Orca and Seller has taken all corporate action necessary to authorize, and
Seller's shareholder has approved, the execution and delivery of this Agreement
and the performance of their respective obligations hereunder. Each of Orca and
Seller has full corporate power and authority to enter into this Agreement and
to carry out the terms hereof. Each of Orca and Seller has duly executed and
delivered this Agreement, and this Agreement is a valid and binding obligation
of each such Person, enforceable in accordance with its terms.
6.2. No Violations. The execution, delivery and performance of this
Agreement by Seller and Orca will not conflict with, result in the breach of, or
constitute a material default under (a) their respective articles of
incorporation or bylaws, (b) any note, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which
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Seller or Orca is party or by which either of them is bound, or (c) any statute,
order, injunction, judgment, decree, rule or regulation of any court or
regulatory authority or governmental body applicable to either Orca or Seller.
6.3. Consents. No consent or approval by any third person or public
authority is required to authorize, or is required in connection with, the
execution, delivery of performance of this Agreement by Seller and Orca.
6.4. Financial Statements. Seller has furnished to Buyer Seller's
preliminary, unaudited internal financial statements dated June 30, 1998 and
Seller's internal unaudited financial statements for the fiscal year ended
December 31, 1997 (the "Seller's Financial Statements"). The Seller's Financial
Statements have been prepared on a basis consistent with past practices and
fairly present, the financial condition of the Seller as of the dates specified
and the results of its operations for the periods specified.
6.5. Material Adverse Changes. There has been no material adverse change
to Seller, the Assets or the Business since June 30, 1998.
6.6. Taxes. Seller has timely paid all federal, state, local or foreign
taxes, assessments, fees, imposts, levies and other charges, including without
limitation all income, sales, use, business and occupation, withholding,
payroll, employment, excise or property taxes or assessments, and interest and
penalties thereon (collectively, "Taxes") that have become due and payable.
Seller has timely filed all required returns and reports with respect to such
Taxes. Seller has not waived any statute of limitations relating to Taxes. To
the best of Seller's and Orca's knowledge, the charges, accruals and reserves
shown in Seller's Financial Statements are adequate to cover all Taxes currently
due and payable, except to the extent disclosed in notes to the Financial
Statements. Seller is not subject to any dispute regarding Taxes. Seller is not
a party to any Tax allocation or sharing agreement. No federal, state or local
audits or administrative court proceedings are presently pending or, to the best
of Seller's and Orca's knowledge, threatened with regard to any Taxes.
6.7. Absence of Indebtedness and Other Obligations. Except as set forth
in Seller's Financial Statements, (a) Seller has no Indebtedness (as defined
below) of a material nature, and (b) Seller has, to the best of its knowledge,
no other obligations of a material nature, whether accrued, absolute, contingent
or otherwise (including without limitation liabilities as a surety or guarantor)
and whether due or to become due, including without limitation any liabilities
for Taxes. "Indebtedness" means (i) all indebtedness of Seller for borrowed
money or for the deferred purchase price of property or services or obligations
under capital leases, including without limitation any indebtedness of Seller
with respect to any shareholder of Seller, and (ii) any other
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indebtedness of Seller which is evidenced by a note, bond, debenture or similar
instrument.
6.8. Assets.
6.8.1 Personal Property. A complete and correct description of the
-----------------
Personal Property, except for the Excluded Assets, is set forth in the Bill of
Sale. Except as set forth on Schedule 6.8.1, (a) Seller is not a party to any
lease of personal property, (b) Seller owns the Personal Property free of all
liabilities, claims, liens, sales agreements (conditional or otherwise), leases,
or other encumbrances of any kind, and (c) to the best of Seller's and Orca's
knowledge, all of the Personal Property is in good operating condition and free
from material defects.
6.8.2 Real Property. Seller owns no real property. Schedule 6.8.2
-------------
sets forth all real property leased to Seller, specifying the location of the
property, the square footage of the leased facility and the name of the lessor.
Seller has not received any notice from any governmental agency, board or other
authority with respect to a defect in or violation of law concerning the use of
any of such real property. Except as set forth in Schedule 6.8.2, to the best of
Seller's knowledge, there is no easement, right-of-way agreement, license,
sublease, occupancy agreement or other encumbrance with respect to any of the
leased real property.
6.8.3 Contracts. Schedule 6.8.3 sets forth a complete list of all
---------
Contracts which will be assigned to Buyer pursuant to Section 1.1 of this
Agreement (including, without limitation, the leases described in Section 6.8.2
above). Seller has provided Buyer with true and correct copies of each of such
Contracts. Except as set forth in Schedule 6.8.3, subject to the effect of
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as the availability of
equitable remedies may be limited by general principles of equity (a) the
Contracts are valid, binding and enforceable in accordance with their terms; (b)
Seller has performed, or is now performing, the obligations of, and is not in
material default (and would not by the lapse of time or the giving of notice be
in material default) under, any Contract; (c) no party has raised any claim,
dispute or controversy or withheld payments from Seller with respect to any
Contract, which claim, dispute, controversy or withholding of payment could, if
such party were to prevail, have a material adverse effect, either individually
or in the aggregate, on the Contract; (d) to the best of the knowledge of
Seller, no other party to a Contract is in material default or has breached any
material term or provision of such Contract that has not previously been cured;
and (e) Seller has not received notice or warning of alleged nonperformance,
delay in delivery or other noncompliance with respect to any of the Contracts,
nor any notice that the other parties may totally or partially terminate any of
the Contracts. Except as set forth on
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Schedule 6.8.3, no other party to a Contract is required to consent to the
assignment of such Contract to Buyer.
6.8.4 Intellectual Property Rights. Schedule 6.8.4 sets forth a
----------------------------
complete list of all Intellectual Property which will be assigned to Buyer
pursuant to Section 1.1 of this Agreement. Seller owns, or has the right to use
and transfer the Intellectual Property to Buyer, free and clear of all
liabilities, claims, liens, licenses, or other encumbrances of any kind. To the
best of Seller's and Orca's knowledge, Seller's use of the Intellectual Property
has not conflicted with or infringed, and no one has asserted that such use
conflicts with or infringes, upon any proprietary rights owned, possessed or
used by any third party. Seller has not received notice of any claims, disputes,
actions, proceedings, suits or appeals pending with respect to any of the
Intellectual Property, and none has been threatened.
6.8.5 Accounts Receivable. Seller has furnished to Buyer a complete
-------------------
and accurate aging of Seller's Accounts Receivable as of September 21, 1998,
which will be updated to be accurate and complete in all material respects as of
the Closing Date. The Accounts Receivable (a) have arisen in the ordinary course
of Seller's Business, (b) represent valid obligations due to Seller enforceable
in accordance with their terms except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or (ii) general
principles or equity which are within the discretion of courts of applicable
jurisdiction, (c) have been collected or will be collected in the ordinary
course of Seller's Business subject only to reserves for bad debts set forth on
the Seller's Financial Statements, and (d) to the best of Seller's and Orca's
knowledge, will not be subject to any recoupments, setoffs or counterclaims.
6.8.6 Customer and Supplier Lists. Schedule 6.8.6 sets forth (a) a
---------------------------
true and correct list of Seller's ten largest customers in terms of sales, and
(b) a true and correct list of Seller's ten largest suppliers, in terms of
purchases; both during the fiscal year ended December 31, 1997, and during the
six months ended June 30, 1998. There has not been any material adverse change
in the business relationship of Seller with any such customer or supplier since
December 31, 1997. Seller has no reason to believe that any such customer or
supplier intends to materially reduce the amount of business it conducts with
Seller.
6.8.7 Location of Points of Presence. Schedule 6.8.7 sets forth a
------------------------------
true and complete list of all locations of phone line connection, routers and
points of presence used by Televar for each of its value added resellers (VARs).
6.9. Compliance. Schedule 6.9 sets forth all governmental permits
required to be obtained in order to operate the Business. Except as set forth on
Schedule 6.9, Seller
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has all such permits. Seller has exercised and will exercise, until the Closing,
its best efforts to maintain and operate the Assets in compliance with all
applicable laws, ordinances, codes and regulations. Except as set forth on
Schedule 6.9 Seller has not received notice of violation of any applicable
governmental permit, zoning regulation or ordinance, environmental, Federal
Occupational, Safety and Hazards Act, or comparable state laws, regulations and
rulings, or other law, order, regulation or requirement relating to the Business
or the Assets, and so far as is known to Seller, there is no such violation.
6.10. Certain Interests. No current or former shareholder of Seller and
no entity owned or controlled by any of them (a) has any material interest in
the Assets, (b) is indebted to Seller, or (c) has any financial interest, direct
or indirect, in any supplier or customer of, or other outside business which has
any transactions with, Seller.
6.11. Employment Agreements. Seller is not a party to or bound by any
employment, or consulting agreement, other than "at will" employment agreements,
none of which contains any unusual term or conditions with the exception of Mr.
Douglass Ebstyne's Employment Agreement, a copy of which has been provided to
Buyer.
6.12. Labor Matters. Seller is not a party to or bound by any collective
bargaining or other labor contract. Seller is in compliance with applicable
laws respecting employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice.
6.13. Environmental Matters. To the best of Seller's and Orca's
knowledge, the Business is and since its inception has been conducted in
compliance with all Environmental Laws. To the best of Seller's and Orca's
knowledge, no Hazardous Substance has been stored or disposed of in the conduct
of the Business, except for lawful storage or disposal undertaken as part of the
ordinary course of the Business in full compliance with all pertinent handling,
storage, labeling, use, disposal and other applicable laws, regulations, and
ordinances. "Hazardous Substance" means any hazardous, toxic, radioactive or
infectious substance, material or waste as defined or listed under any
Environmental Law. "Environmental Law" means any federal, state or local
statute, regulation or ordinance pertaining to the protection of human health or
the environment.
6.14. Litigation. Except as set forth on Schedule 6.14 there is no
action, dispute, claim, proceeding, suit, appeal or investigation pending or, to
the knowledge of Seller or Orca, threatened against Seller, except as previously
disclosed to Buyer in writing, that involves the Assets or that questions the
validity of this Agreement. To Seller's knowledge, there are no facts that could
reasonably be expected to result in a judgment or other determination that would
have a material adverse effect on Seller or the Assets, or that would cause this
Agreement to be prohibited or enjoined.
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6.15. Powers of Attorney. Seller does not have outstanding any power of
attorney which relates to or could in any way affect the disposition of the
Assets.
6.16. Brokers. Neither Seller nor Orca has entered into or authorized any
arrangements with any broker, finder, or investment banker that will result in
payment of a fee in connection with this transaction.
6.17. Reliance. Seller and Orca recognize and agree that Buyer and its
shareholders are relying upon the representations and warranties made by Seller
and Orca in this Agreement, notwithstanding any investigation by Buyer.
6.18. Disclosure. No representation or warranty by Seller or Orca made in
this Agreement, and no statement or certificate furnished or to be furnished by
Seller or Orca to Buyer in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
Section 7
Pre-Closing Covenants.
7.1. Conduct of the Parties. Before the Closing, each of the parties will
fully cooperate with the other parties and their counsel and accountants in
connection with any steps required to be taken as part of the obligations of the
parties under this Agreement. Each party will use its best efforts to close the
transactions described by this Agreement, and will take no action inconsistent
with its obligations under this Agreement or that could hinder or delay Closing,
except that nothing in this Section will limit the rights of the parties under
Section 9 or 11. None of the parties will take any actions prior to the Closing
that would cause their respective representations and warranties made in this
Agreement to become untrue, without the other parties' prior written consent.
7.2. Access to Properties, Books and Records. To permit Buyer to conduct
its due diligence investigation, Seller and Orca will permit Buyer and its
agents to have reasonable access to the premises in which Seller conducts its
Business and to all of its books, records, and personnel files, and will furnish
to Buyer such financial data, operating data, and other information as it shall
reasonably request.
7.3. Financial Examination. If Buyer, and its independent accountants
determine that it is necessary or appropriate, Seller and Orca shall permit the
audit or other examination by Buyer, or its independent public accounting firm
of Seller's financial statements for the two most recent fiscal years, or such
shorter period as Buyer deems appropriate, in its sole discretion. Fees
incurred for the audit services shall be the responsibility of Buyer.
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7.4. Solicitation of Seller's Employees. Seller consents to Buyer's
solicitation before the Closing of Seller's employees for employment with Buyer
after the Closing. Buyer agrees to provide Seller with a list detailing which
employees of Seller, Buyer desires to retain after the Closing Date.
7.5. Operation of the Business. Before the Closing, unless otherwise
agreed by Buyer, Seller and Orca agree to operate the Business as follows:
7.5.1 Seller will operate the Business in a reasonable and prudent
manner, in accordance with past practices to the extent such past practices are
reasonable and prudent under current circumstances.
7.5.2 Seller will retain all cash received from operations from and
after the date hereof in Seller's operating account to be used only for
operating expenses incurred in the ordinary course of business.
7.5.3 Except as permitted under Section 7.5.4, Seller will not and
will not agree to (a) transfer, lease, or dispose of any Asset, except in the
ordinary course of the Business, (b) grant any powers of attorney pertaining in
any way to the Assets, or (c) acquire any assets which would be material to the
Business, without Buyer's prior written consent.
7.5.4 Seller will not, and will not agree to, (a) merge or
consolidate with, or sell the Assets to, any other entity, (b) make any
distribution or dividend payments to shareholders, or (c) engage in any long-
term borrowings. Orca will not, and will not agree to, sell its stock in Seller
to a third person.
7.5.5 Seller will not enter into any transaction, contract or
commitment, except in the ordinary course of the Business.
7.5.6 Seller will use its best efforts to (a) preserve its existing
businesses and relationships with its employees, customers, suppliers and
others, (b) preserve the Assets, and (c) conduct it business in compliance with
all applicable laws and regulations.
7.5.7 Seller will advise Buyer in writing of (a) any litigation or
administrative proceeding that challenges or otherwise materially affects the
transactions described in this Agreement, or (b) any material adverse change or
any event, occurrence or circumstance which is likely to cause a material
adverse change in the Assets or the Business.
7.5.8 Seller will maintain its books and records in accordance with
past practices, and will not change its accounting methods, policies or
practices.
12
<PAGE>
Section 8
Further Agreements.
8.1. News Releases. Except as otherwise required by law, neither Buyer,
Parent, Seller, Orca, nor any person affiliated with any of them, will issue or
approve a news release or other announcement concerning this Agreement or the
transactions contemplated by this Agreement without the prior approval of the
other parties as to the contents of the announcement and its release.
8.2. Confidentiality. No information concerning one party that has been
furnished to or obtained by any of the other parties in connection with this
Agreement may be disclosed to any person other than in confidence to employees,
legal counsel, financial advisers or independent public accountants who
reasonably need to know such information in connection with the transactions
contemplated by this Agreement and who agree to be bound by this Section.
Notwithstanding the foregoing, this obligation shall not apply to information
that (a) is, or becomes, publicly available from a source other than the other
party; (b) was known and can be shown to have been known by the other party at
the time of its receipt; (c) is received by the other party from a third party
without breach of this Agreement; (d) is required by law or court order to be
disclosed; or (e) is disclosed in accordance with the written consent of the
other party.
8.3. Covenants Not to Compete or Solicit.
8.3.1 Non-Competition Covenant. Neither Seller nor Orca will,
------------------------
without the prior written consent of Buyer or Parent, for a period of five (5)
years following the Closing Date, directly or indirectly engage in, or have any
interest in any corporation, partnership or other enterprise that engages in,
any Competitive Activity in the States of Washington, Oregon, Montana or Idaho.
"Competitive Activity" means the ownership, operation or management of a
business engaged in proving Internet access, content for Internet users or
consulting to or for the benefit of the foregoing. Competitive Activity does not
include the ownership by Seller of equity securities in any publicly-traded
corporation that does not exceed 5% of the outstanding capital stock of such
corporation, or content that Orca transmits in the course of serving its
software customers.
8.3.2 Non-Solicitation Covenant. Seller and Orca covenant and agree
-------------------------
that for a period of five years following the Closing Date, they shall not,
directly or indirectly, for either of their benefit or for the benefit of any
other person, with respect to the Business as conducted by Buyer or Parent (a)
solicit any such business from any customer or supplier of Buyer or Parent, (b)
induce or cause any customer to cease purchasing any service or product from
Buyer or Parent or to terminate or change such customer's business relationship
with Buyer or Parent in any manner, (c) induce or cause
13
<PAGE>
any supplier to cease providing or selling any service or product to Buyer or
Parent or to terminate or change such supplier's business relationship with
Buyer or Parent in any manner, or (d) induce or solicit any person who is then
employed by Buyer or Parent to leave such employment or other position with
Buyer or Parent or to accept any other employment or position.
8.3.3 Reasonableness. Seller and Orca acknowledge that the
--------------
covenants set forth in Section 8.3.1 and Section 8.3.2 do not (a) impose
unreasonable restrictions or work a hardship on them, (b) are necessary and
fundamental to the protection of the Business to be conducted by Buyer and
Parent, (c) are reasonable as to scope, duration, and territory, (d) are given
as a condition to Buyer and Parent entering into this Agreement, (e) are
necessary to preserve the value of the Assets, and (f) are for the purpose of
restricting the activities of Seller and Orca only to the extent necessary for
the protection of the legitimate business interests of Buyer and Parent. Seller
and Orca agree that such covenants are reasonable and do not and will not impose
an undue hardship on them.
8.3.4 Equitable Relief. Seller and Orca acknowledge and agree (a)
----------------
that any damages sustained by Buyer, Parent or their shareholders as a result of
a breach of this Section 8.3 cannot be adequately remedied by damages, and (b)
that Buyer, Parent or their shareholders, not withstanding any other provision
of this Agreement, and in addition to any other remedy they may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of any provision of this Section 8.3.
8.4. Relocation. Buyer and Parent agree to use their reasonable best
----------
efforts to relocate Seller's operations currently located at Orca's premises in
Bothell, Washington. Prior to relocating, Seller will pay monthly its pro rata
share (based on Seller's proportionate use of square footage of such facility
and the period of such use) of the rental payments and utility and other
incidental costs relating to such facility.
Section 9
Closing Conditions.
9.1. Closing Conditions of Buyer and Parent. The obligations of Buyer and
Parent to close the transactions described in this Agreement are subject to
satisfaction, at or before the Closing, of each of the following conditions:
9.1.1 Consents. All releases, authorizations, consents, and
--------
approvals required to be obtained from any third-party, including the Seller's
landlord, or any state or federal regulatory authority, have been obtained in a
form satisfactory to Buyer and Parent.
14
<PAGE>
9.1.2 Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties of Seller and Orca contained in this Agreement
are true and correct as of the Closing Date in all material respects. Seller and
Orca have performed, in all material respects, all covenants, obligations and
agreements to be complied with and performed by them at or before the Closing
Date.
9.1.3 Litigation. No litigation, investigation or proceeding has
----------
been instituted or threatened by any third party which would materially
adversely affect the ability of any party to this Agreement to comply with the
provisions of this Agreement.
9.1.4 Officer's Certificate. Seller and Orca have each delivered to
---------------------
Buyer and Parent an Officer's Certificate, in which the respective Chief
Executive Officer of Seller and Orca certifies (a) satisfaction of the
conditions set forth in Sections 9.1.1, 9.1.2 and 9.1.3 as of the Closing Date,
(b) copies of the resolutions of Seller's and Orca's Board of Directors and
Seller's shareholders authorizing the execution, delivery and performance of
this Agreement and all other agreements executed in connection with this
Agreement, (c) copies of Seller's and Orca's certificate of incorporation and
bylaws, and all amendments, and (d) a recent certificate of good standing of
Seller and Orca from their respective states of incorporation.
9.1.5 Corporate Approval. The execution, delivery and performance
------------------
of this Agreement have been approved by the Boards of Directors of Buyer,
Parent, Orca and Seller.
9.1.6 Due Diligence. Buyer has completed its due diligence review
-------------
of the Assets and the Business and the results of such review are satisfactory
to it in its sole discretion.
9.1.7 Bankruptcy Claim. Orca has assigned and transferred to
----------------
Parent, in a form acceptable to Parent, all of Orca's rights and claims in that
certain Chapter 11 bankruptcy proceeding pending with respect to Brigadoon.com,
Inc.
9.1.8 Conveyance. Seller has executed and delivered to Buyer the
----------
Bill of Sale, the titles to all vehicles contained in the Personal Property, and
such other bills of sale, change of title forms, endorsements, assignments, tax
forms and other instruments of conveyance of the Assets.
9.1.9 Control of Assets. All steps necessary or desirable to place
-----------------
Buyer in actual possession and operating control of the Assets have occurred.
9.1.10 Other Agreements. Seller has executed and delivered the
----------------
Assumption Agreement to Buyer.
15
<PAGE>
9.1.11 Actions Satisfactory to Buyer's Counsel. All actions,
---------------------------------------
proceedings, instruments and documents required to be carried out by or in
connection with this Agreement, and all other relevant legal matters, will be
reasonably satisfactory to counsel for Buyer and Parent.
9.2. Closing Conditions of Seller. The obligations of Seller to close the
transactions described in this Agreement are subject to satisfaction, at or
before the Closing, of each of the following conditions:
9.2.1 Consents. All third-party and governmental consents,
--------
approvals, authorizations and releases required to be obtained in order to
permit Closing of the transactions described in this Agreement have been
obtained in a form reasonably satisfactory to Seller.
9.2.2 Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties of Buyer and Parent contained in this Agreement
are true and correct as if made at Closing in all material respects. Parent and
Buyer have performed, in all material respects, all covenants, obligations and
agreements to be complied with and performed by Parent and Buyer at or before
the Closing Date.
9.2.3 Litigation. No litigation, investigation or proceeding has
----------
been instituted or threatened by a third party which would materially adversely
affect the ability of Seller to comply with the provisions of this Agreement.
9.2.4 Officers' Certificate. Buyer and Parent have delivered to
---------------------
Seller an Officer's Certificate, certifying (a) satisfaction of the conditions
set forth in Sections 9.2.1, 9.2.2 and 9.2.3 as of the Closing Date, and (b)
copies of the resolutions of the Board of Directors of Buyer and Parent,
respectively, authorizing the execution, delivery and performance of this
Agreement.
9.2.5 Agreements. Buyer has executed and delivered the Assumption
----------
Agreement.
9.2.6 Actions Satisfactory to Seller's Counsel. All actions,
----------------------------------------
proceedings, instruments and documents required to be carried out by or in
connection with this Agreement, and all other relevant legal matters, are
reasonably satisfactory to Seller's counsel.
16
<PAGE>
Section 10
Closing Costs.
10.1. Closing Costs and Prorations.
10.1.1 Seller Closing Costs. Except as otherwise agreed by the
--------------------
parties in writing, Seller will pay (a) any sums due with respect to licenses,
fees, and charges related to the Assets and the discharge of any encumbrances
affecting the Assets, except Permitted Liens, (b) the prorations described
below, and (c) the other usual and customary closing costs paid by sellers.
10.1.2 Buyer's Closing Costs. Except as otherwise agreed by the
---------------------
parties in writing, Buyer and Parent will pay (a) any recordation fees in
connection with conveyance of the Assets, (b) all sales or use taxes on the
conveyance of the tangible Personal Property, (c) the prorations described
below, and (d) the other usual and customary closing costs paid by buyers.
10.1.3 Prorations. Except as required under the Assumption
----------
Agreement, Buyer and Seller agree to pay their respective prorated shares of all
operating expenses of the Business, included but not limited to real and
personal property taxes and assessments, both general and special, due in the
calendar year in which the Closing Date occurs, and rents, utility costs and
incidental costs for such calendar year. All prorations shall be as of the
Closing Date.
10.1.4 Insurance. Seller is solely responsible for insuring the
---------
Assets against casualty and general private and public liability to and
including the Closing Date. After the Closing Date, Buyer is solely responsible
for obtaining replacement coverages.
10.2. Other Costs, Expenses and Professional Fees. Except as provided
otherwise in this Agreement, the parties each agree to bear their own costs and
expenses, including without limitation all fees of attorneys, accountants,
brokers and other service providers incurred in connection with the negotiation
and preparation of this Agreement, and with any due diligence conducted, and
documents required to be executed, in connection with this Agreement.
Section 11
Termination.
11.1. Right to Terminate. This Agreement may be terminated:
a. by written agreement of the parties;
17
<PAGE>
b. by either Seller or Buyer if the Closing has not
occurred on or before September 30, 1998, unless the terminating party's
failure to fulfill or perform any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur on or
before such date; or
c. by Buyer in the event the number of customer accounts of
Seller is less than 12,500 (other than accounts of Brigadoon.com) as of the
Closing Date.
11.2. Effect of Termination. The party choosing to terminate this
Agreement under Section 11.1 will give written notice of termination to the
other party. The parties will thereafter be released from all liabilities and
obligations arising under this Agreement, unless such termination arises from a
breach of this Agreement or except as otherwise provided in this Agreement.
Notwithstanding the foregoing, if this Agreement is terminated by Seller or by
Buyer due to (a) Seller's failure to fulfill any of the conditions to Closing
set forth in Section 9.1 prior to September 30, 1998 or (b) Buyer's failure to
be satisfied with the results of its due diligence investigation conducted
pursuant to Section 9.1.6, Seller shall return the Deposit to Buyer within two
business days of such termination.
Section 12
Survival; Indemnification.
12.1. Survival. The representations, warranties, covenants and agreements
of the parties contained in this Agreement or in any certificate or agreement
delivered in accordance with this Agreement shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of any party, and
the consummation of the transactions contemplated hereby.
12.2. Indemnification by Seller and Orca. Seller and Orca, jointly and
severally, shall indemnify Buyer, Parent and their shareholders and hold them
harmless from and against all losses, costs, expenses, damages or liabilities,
including reasonable attorney fees (collectively, "Damages"), incurred by Buyer,
Parent or their shareholders as the result of or in connection with: (a) any
breach or inaccuracy of any representation or warranty of Seller or Orca made in
this Agreement, (b) any failure by Seller or Orca to fulfill any of their
covenants or other agreements contained in this Agreement or in any agreement
delivered pursuant to this Agreement, (c) any liability or obligation of Seller
to any third party not expressly assumed by Buyer in accordance with the terms
of this Agreement, (d) any governmentally required remedial action or cleanup
arising out of or related to any uses of the real property occupied by the
Business and occurring before the Closing Date, or (e) any environmental issues
relating to any real property occupied by
18
<PAGE>
the Business, which existed or was caused by activities or occurring conditions
existing prior to the Closing Date.
12.3. Indemnification by Buyer and Parent. Buyer and Parent will
indemnify Seller and Orca and hold them harmless from and against all Damages
incurred by Seller or Orca by reason of or arising out of or in connection with:
(a) any breach or inaccuracy of any representation or warranty of Buyer or
Parent made in this Agreement or (b) any failure by Buyer or Parent to fulfill
any of Buyer's or Parent's covenants or other agreements contained in this
Agreement or in any agreement delivered pursuant to this Agreement.
12.4. Indemnification Period. Except as otherwise specified in this
Agreement, no claim for indemnity will be effective if not made within two years
after the Closing Date (the "Indemnification Period"). Claims (i) based upon the
assertion that either the Seller or Orca had actual knowledge that a
representation or warranty made by either of them was materially false when made
or was made with the intent to deceive, and (ii) based on Sections 6.4, 6.8.1,
6.8.2, 6.9, 6.13, or 12.2.1(d) or (e), or (iii) arising with respect to
Liabilities excluded from the Assets pursuant to Section 2.2 of this Agreement
may be made at any time up to the applicable statute of limitations.
12.5. Indemnification Procedures.
12.5.1 Claim Notice. Any claim for indemnification under this
------------
Section 12 must be made in writing and delivered as a notice by the party
seeking indemnification to the party from whom indemnification is sought within
the Indemnification Period, specifying in reasonable detail the nature and
estimated amount of the claim.
12.5.2 Third-Party Claims. If the claim specified in the claim
------------------
notice relates to a third-party claim, the indemnifying persons shall have 15
days after their receipt of the claim notice to notify the indemnified person
whether the indemnifying persons agree that the claim is subject to
indemnification pursuant to this Section 12 and whether the indemnifying persons
elect to defend such third-party claim at their own expense. If the claim
relates to a third-party claim that the indemnifying persons elect to defend,
the indemnified person shall reasonably cooperate with such defense. The
indemnified person shall, however, be entitled to participate in the defense or
settlement of such a third-party claim through its own counsel and at its own
expense and shall be entitled to approve or disapprove any proposed settlement
that would impose a duty or obligation on the indemnified person. If the
indemnifying persons do not timely elect to defend a third-party claim, or if
the indemnifying persons fail to conduct such defense with reasonable diligence,
the indemnified party may conduct the defense of, or settle, such claim at the
risk and expense of the indemnifying persons.
19
<PAGE>
12.5.3 Claims Other Than Third-Party Claims. If the claim does not
------------------------------------
relate to a third-party claim, the indemnifying persons shall have 30 days after
receipt of the claim notice to notify the indemnified party in writing whether
the indemnifying persons accept liability for all or any part of the claim and
the method and timing of any proposed payment. If the indemnifying persons do
not so notify the indemnified party, the indemnifying persons shall be deemed to
have accepted liability for all damages described in the claim notice.
12.6. Limitation on Indemnification. Notwithstanding anything to the
contrary contained herein, Seller and Orca shall have no obligation to indemnify
Buyer and Parent for any Damages pursuant to Section 12.2 unless the aggregate
amount of such Damages equals or exceeds $10,000 in which event Seller and Orca
shall indemnify Buyer and Parent for the entire amount of such Damages. In
addition, notwithstanding anything to the contrary contained herein, Buyer and
Parent shall have no obligation to indemnify Seller and Orca for any Damages
pursuant to Section 12.3 unless the aggregate amount of such Damages equals or
exceeds $10,000 in which event Buyer and Parent shall indemnify Orca and Seller
for the entire amount of such Damages.
Section 13
Other Provisions.
13.1. Assignment; Benefit. No party may voluntarily or involuntarily
-------------------
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective successors
and assigns.
13.2. Amendment; Waiver. The provisions of this Agreement, or of any
-----------------
agreement or document executed in connection with this Agreement, may be amended
or waived only in writing by the party against which enforcement of such
amendment or waiver is sought.
13.3. Severability. If any portion of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
13.4. Governing Law. The construction and performance of this Agreement
-------------
will be governed by the laws of the State of Washington (except for the choice
of law provisions thereof). Any litigation or arbitration proceeding between the
parties concerning this Agreement or the duties, obligations or actions of any
party hereunder shall be filed in the State of Washington.
20
<PAGE>
13.5. Independent Counsel. Seller and Orca acknowledge that they have
-------------------
been represented by independent legal counsel with regard to this Agreement, and
have had an adequate opportunity to seek independent legal counsel with regard
to all documents executed in connection with this Agreement. Seller and Orca
acknowledge that Heller Ehrman White & McAuliffe have not represented either of
them and Buyer and Parent acknowledge that Durham Evans Jones & Pinegar have not
represented either of them.
13.6. Notices. The parties shall deliver any notices required under this
-------
Agreement in writing by personal or courier delivery, facsimile transmission, or
by registered or certified U.S. mail, return receipt requested, postage prepaid,
to the addresses set forth below, or the such other address as specified by a
party in writing. Notices shall be deemed effective as of the date of personal
or courier delivery, confirmed facsimile transmission, or the date on the U.S.
postmark affixed to the notice.
21
<PAGE>
Executed on the date first written above.
TEL-SUB CORP.,
a Washington corporation
By:
--------------------------------
Its:
-------------------------------
TELEVAR ACQUISITION CORP.,
a Washington corporation
By:
--------------------------------
Its:
-------------------------------
TELEVAR, INC., a Utah corporation
By:
--------------------------------
Its:
-------------------------------
ORCA TECHNOLOGIES, INC., a Utah corporation
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT 10.6
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Agreement") is made as of January 13, 1999,
by and among TELEVAR ACQUISITION CORP., a Washington corporation
("Acquisition"), BOSS INTERNET GROUP, INC., a Washington corporation ("Boss"),
[TELEVAR, INC.], a Washington corporation ("Televar") and ORCA TECHNOLOGIES,
INC., a Utah corporation ("Orca").
WHEREAS, Televar, Orca Acquisition and Tel-Sub Corp., a wholly-owned
subsidiary of Acquisition which has been merged with and into Acquisition
("Acquisition Sub"), are parties to that certain Asset Purchase Agreement, dated
as of September 28, 1998 (the "Purchase Agreement"), pursuant to which
Acquisition, through Acquisition Sub, acquired substantially all of the assets,
and assumed certain designated liabilities, of Televar; and
WHEREAS, in connection with the Purchase Agreement, Acquisition Sub and
Boss executed an Assumption of Liabilities (the "Assumption Agreement"),
pursuant to which Acquisition Sub assumed those liabilities of Televar
designated as "Assumed Liabilities" therein, and Boss guaranteed payment of all
such liabilities; and
WHEREAS, certain liabilities of Televar were not included in the designated
liabilities assumed by Acquisition Sub pursuant to the Purchase Agreement and
the Assumption Agreement and, therefore, remain liabilities of Televar and Orca
(the "Excluded Liabilities"); and
WHEREAS, the Excluded Liabilities include, among others, (a) all
liabilities and obligations relating to that certain lawsuit between Televar and
Advanced Data Systems, Inc., Christopher Schmidt and Heidi Shaw (collectively,
"ADS"), filed in Chelan County Superior Court, and certain agreements entered
into between ADS and Televar (the "ADS Dispute"), and (b) all liabilities and
obligations relating to an action filed by Televar against Corkrum Computers,
Inc. ("Corkrum") and certain agreements entered into between Televar or Orca and
Corkrum (the "Corkrum Dispute"); and
WHEREAS, Acquisition has paid, on Televar's behalf, certain amounts owed by
Televar to Corkrum; and
WHEREAS, the parties to the ADS Dispute and Acquisition propose to enter
into a settlement agreement in that dispute, and in aid of effecting this
settlement, Acquisition has agreed to pay, on Televar's behalf, certain amounts
payable to ADS in connection therewith; and
WHEREAS, in consideration of Acquisition paying certain amounts owed to
Corkrum and as a condition to Acquisition paying certain amounts payable in
connection
<PAGE>
with the settlement of the ADS Dispute, the parties have agreed to amend the
Purchase Agreement and the Assumption Agreement in the manner set forth below.
NOW THEREFORE, in consideration of the covenants in this Agreement, the
parties agree as follows:
1. Assumption Agreement Amendment. Schedule A to the Assumption Agreement
------------------------------
is hereby amended and restated in its entirety to read as the Amended Schedule A
attached hereto. In connection therewith, the Purchase Agreement is also amended
by replacing the Assumption Agreement attached as Exhibit B thereto with the
Assumption Agreement as so amended hereby.
2. Settlement of ADS Litigation. On the terms and subject to the
----------------------------
conditions set forth below and elsewhere in this Agreement, Acquisition agrees
to pay to ADS, on behalf of Televar, an aggregate amount of $28,000 (the "ADS
Settlement Amount"), pursuant to that certain Confidential Settlement Agreement,
dated January 19, 1999, by and among ADS, Orca, Televar, and Acquisition (the
"ADS Settlement Agreement"), and to enter into the ADS Settlement Agreement;
provided that Acquisition's only participation in the ADS Settlement Agreement
is to consent to termination of that certain Exclusive Sales Agency Agreement
between Televar and ADS which was assigned to Acquisition pursuant to the
Purchase Agreement. The agreement of Acquisition to pay the ADS Settlement
Amount and to enter into the ADS Settlement Agreement is conditioned upon the
following:
(a) agreement by all parties as to the identity of the trade accounts
payable to be removed from Schedule A to the Assumption Agreement and execution
of this Agreement by Orca and Televar;
(b) execution by Orca and Televar of the ADS Settlement Agreement and
performance of all obligations to be performed by them thereunder; and
(c) settlement by Televar and Orca of the Corkrum Dispute in a manner
reasonably satisfactory to Acquisition which shall include, without limitation,
(i) cancellation of, and release of Corkrum and all of its affiliates from, all
obligations of Corkrum or any of its affiliates owed to Televar, Orca or any of
their affiliates, (ii) return of all promissory notes or other evidences of
indebtedness issued to Televar, Orca or any of their affiliates by Corkrum or
any of its affiliates, marked "canceled" and (iii) release of any security
interest granted by Corkrum or any of its affiliates in connection with any such
canceled or released obligations.
2
<PAGE>
2. Miscellaneous
-------------
(a) Assignment: Benefit. No party may voluntarily or involuntarily
-------------------
assign its interest under this Agreement without the prior written consent of
the other parties. Subject to the foregoing, this Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns.
(b) Amendment; Waiver. The provisions of this Agreement, or of any
------------------
agreement or document executed in connection with this Agreement, may be amended
or waived only in writing by the party against which enforcement of such
amendment or waiver is sought.
(c) Severability. If any portion of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
(d) Governing Law. The construction and performance of this Agreement
-------------
will be governed by the laws of the State of Washington (except for the choice
of law provisions thereof). Any litigation or arbitration proceeding between
the parties concerning this Agreement or the duties, obligations or actions of
any party hereunder shall be filed in the State of Washington.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
(f) Continuance of Purchase Agreement and Assumption Agreement.
----------------------------------------------------------
Except as otherwise expressly modified herein, the terms of the Purchase
Agreement and the Assumption Agreement (i) are not amended, modified or altered
in any way and (ii) shall remain in full force and effect.
(g) Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined shall have the meanings ascribed to them in the Purchase Agreement.
3
<PAGE>
Executed on the date first written above.
TELEVAR ACQUISITION CORP.,
a Washington corporation
By:________________________
Its:_______________________
BOSS INTERNET GROUP, INC.,
a Washington corporation
By:________________________
Its:_______________________
TELEVAR, INC.,
a Washington corporation
By:________________________
Its:_______________________
ORCA TECHNOLOGIES, INC.,
a Utah corporation
By:________________________
Its:_______________________
4
<PAGE>
AMENDED SCHEDULE A
------------------
ASSUMED LIABILITIES
-------------------
1) Up to $514,000 of those Trade Accounts Payable on the list previously
provided by Televar as of September 28, 1998 (other than the payables to
Stoel Rives (which is approximately in the amount of $10,706), Expansion
Systems (which is approximately in the amount of $4,012) and Cisco (which
is approximately in the amount of $14,834))
2) Accrued line charges, not to exceed $145,000.
3) Accrued commissions payable, not to exceed $28,000.
4) Accrued vacation payable, not to exceed $10,500.
5) Accrued interest payable (excluding any amounts due to Orca) not to exceed
$25,000.
6) Note payable to GMAC.
7) Lease payable to Comdisco in the amount of $337,384.
8) Lease payable to Sanwa Leasing in the amount of $9,537.
9) Lease payable to Summit Leasing in the amount of $44,547.
10) Lease payable to Financial Pacific in the amount of $16,278.
11) Lease payable to Colonial Pacific Leasing, Cascade Leasing, in the amount
of $42,728.
12) Pro rata share of rent in Bothell place on a month-to-month basis from and
after the Closing Date.
13) Wenatchee office lease from and after the Closing Date.
14) Leases/rents @ P.O.P. sites from and after the Closing Date.
5
<PAGE>
EXHIBIT 10.7
ASSET PURCHASE AND DEVELOPMENT AGREEMENT
THIS ASSET PURCHASE AND DEVELOPMENT AGREEMENT, ("Agreement") is entered into as
of January 20, 1999 by and among Orca Technologies, Inc., a Utah Corporation
("Buyer" or "ORCA"), and, Millennium Software, Inc., a Washington corporation
("Seller") and Mr. Kent Marsh ("Marsh").
RECITALS
A. Buyer is engaged in the business of developing, marketing and providing
services relating to a system of proprietary products intended to assist
healthcare providers automate the process of defining, providing,
documenting and analyzing care provider operations, (the "business").
B. Seller is the developer, marketer, and service provider for two proprietary
software products commonly known as a "Dispatch" and "Sentry" (the
"Products"). Marsh is the President and Chief Executive officer of Seller,
and the inventor of the products.
C. Seller now desires to sell, and buyer desires to buy the Products. The
parties also agree that the Products will be further developed and
integrated into buyer's existing programs, on the terms and conditions set
forth in this Agreement.
AGREEMENT
---------
In consideration of the covenants in this Agreement, the parties agree as
follows:
SECTION 1
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 PURCHASE AND SALE. Upon the execution of this Agreement, Seller will sell,
transfer, assign, convey and deliver to Buyer, and Buyer will purchase from
seller all rights, title and interest in the computer software programs
known as "Dispatch" and "Sentry". These programs are more specifically
described in "Exhibit A" attached hereto and incorporated into this
Agreement, (the "Products").
1.2 OWNERSHIP. Full and exclusive rights and ownership of the Products and in
any and all related letters patent, trademarks, copyrights, trade secrets,
Confidential Information and any other proprietary rights which Seller
possesses or is entitled to including the source code, object code, and
technical documentation, shall vest in and is hereby assigned to Buyer as
of the date of execution of this Agreement. Except as provided in this
Agreement, Seller
<PAGE>
shall retain no right, ownership of title in the Products or in any related
letters patent, trademarks, copyrights, trade secrets, Confidential
Information or any other proprietary rights. The parties agree that the
Products, both as they exist at the time of this agreement is executed, and
as they exist after further development and all such rights thereto are
being sold in their entirety to Buyer for whatever use it desires, and
nothing contained herein shall be deemed to constitute a mere license or
franchise in Seller.
1.3 PERFECTION OF PROPRIETARY RIGHTS; COOPERATION BY SELLER. Should Buyer or
any of its agents or representatives seek to obtain letters patent,
trademarks, or copyrights in any country of the world on all or part of the
Products, Seller, and its agents and representatives agree to cooperate
fully without compensation in providing information completing forms,
performing actions and obtaining the necessary signatures or assignments
required to obtain such letters patent, trademarks or copyrights. In the
event Buyer shall be unable for any reason to obtain Seller's signature on
any document necessary for any purpose set forth in the foregoing sentence,
Seller hereby irrevocably designates and appoints each of Buyer and its
duly authorized officers and agents as Seller's agent and Seller's
attorney-in-fact to act for and in Seller's behalf and stead to execute and
file any such document and to do all other lawfully permitted acts to
further any such purpose with the same force and effect as if executed and
delivered by Seller.
1.4 EXCLUDED ASSETS. The Seller shall have the limited right and obligation
to continue with the maintenance and exploitation of the application of
"Dispatch" which has been, previous to this Agreement, contracted to the
University of Virginia, University of California in Los Angeles, and
Massachusetts Institute of Technologies. No other exploitation of the
acquired system shall be permitted without Buyer's prior written agreement.
SECTION 2
DEVELOPMENT AND INTEGRATION
---------------------------
2.1 DEVELOPMENT, ENHANCEMENT AND INTEGRATION. The Parties agree, that an
integral element of this contract is the participation of the Seller in
performing compensated work as directed by the Buyer, whether as
consultants, or contractors to, or employees of Buyer, in the further
development and enhancement of the Product in order that they become
integrated and efficiently operable with Buyer's CuraSys System and other
applications. Buyer agrees to employ Marsh for this purpose in accordance
with the employment terms provided in "Exhibit B" of this agreement and
contract with Seller the services of Russ Robinson for a period of at least
six months in accordance with the employment terms provided in "Exhibit E"
of this agreement.
<PAGE>
2.2 DELIVERABLES. Seller agrees that periodically upon request, or upon
completion or termination of this Agreement, for whatever cause and without
regard to whether the integration has been completed, copies of all
notebooks, data, information and other material acquired or compiled by
Seller as Developer in respect to the integration, including source code,
object code and technical documentation, shall be delivered to Buyer.
SECTION 3
CONSIDERATION
-------------
3.1 PURCHASE PRICE. The Purchase Price shall be One Hundred and Fifty Thousand
Dollars ($150, 000.) to be paid as follows:
3.1.1 Marsh began his full time employment with Buyer on November 15,
1998. (The terms of his employment are described in "Exhibit B" to
this Agreement.) Marsh received his first bi-monthly salary
installment on November 30, 1998. On the date of execution of this
agreement Buyer will pay Seller an installment toward the purchase
price of the above described software products, in the amount of
forty thousand ($40,000.) dollars. Additional purchase installments
of ten thousand ($10,000.) each will be paid to Seller with his bi-
monthly salary installments on February 1, 1999 and February 15,
1999. These, and following payments, are conditioned on Marsh's
continuation as a full-time employee of Buyer (except in the case
that Mr. Marsh is severely disabled or deceased), and on the
condition that he is performing the duties agreed upon, and, the
other terms and conditions of this "Asset Purchase and Development
Agreement are being met.
3.1.2 To complete the purchase of the assets described, Buyer will make a
final payment to the Seller on March 1, 1999 in the amount of ninety
thousand ($90,000.)
3.2 ORCA STOCK. As an additional condition of this purchase, Seller shall be
granted Thirty Five Thousand (35,000) shares of ORCA Common Stock (the
"Shares"). The shares will be issued to Seller immediately, but will be
held in an escrow account established with counsel to Buyers, Van
Valkenberg Furber Law Group, PLLC, under the condition that they will not
be delivered to Seller until April 1, 1999. Buyer agrees to fully cooperate
in the effort to integrate the Products into CuraSys in a timely manner
according to the directives of the Buyer. Failure of Buyer to cooperate
reasonably with the integration effort will result in the immediate
delivery of the shares above referenced, to Seller. The shares issued
according to this section of this agreement will be restricted from resale
pursuant to Securities Exchange Commission ("SEC") Regulation 144.
<PAGE>
3.3 BRIDGE FINANCING. In the interim period between the signing of a "Letter
of Intent" between the parties, May 29, 1998, and the time of the signing
of this definitive agreement, the Buyer has made several bridge loans to
Seller. These loans include (2) bridge loan installments in the amount of
twelve thousand eight hundred ($12,800.) made on November 3, 1998, and
another, in the amount of nine thousand nine hundred, ($9,900.) which was
made on November 15, 1998. Kent Marsh and Seller have provided programming
services to Buyer beginning May 29, 1998 through Nov 15, 1998 and therefore
have no obligation to repay Buyer for these "bridge loans". Mr. Marsh does
agree to repay personal loans he received from Mr. Norman Plummer of Orca
Technologies, made on May 15, 1998, ($2,500) and January 8, 1999, ($5,000),
with said repayment to be made on or before January 31, 1999.
3.4 EMPLOYMENT AGREEMENT. As part of the mutual consideration for the
performance of this contract, Buyer agrees to employ Marsh and Marsh agrees
to perform, as a full time employee of Buyer. Seller anticipates directing
Marsh to enhance and integrate the Product so they work efficiently with
Buyer's CuraSys System and other applications existing and planned for the
future. The "Employment Agreement", which fully defines the terms of
employment is attached hereto and incorporated into this Agreement as
"Exhibit B".
3.5 NO OTHER OBLIGATIONS. Except as set forth above, Buyer will not assume
and will not be liable for any liabilities of Seller, known or unknown
contingent or absolute, accrued or otherwise, including, but not limited
to, liabilities or obligations of Seller (a) for taxes of any kind, (b) to
any shareholder, employee, officer or director of Seller for any reason,
(c) relative to Seller's issuance of securities, or (d) under any
environmental law.
3.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among
the Assets as set forth on the Schedule, which is part of Exhibit C to this
agreement. The parties agree that the fair market value of the Assets which
constitute Class I, II, III, IV and V Assets (as defined in Treasury
Regulation Section 1.1060-II (d), as amended) will be as set forth on
Internal Revenue Service Form 8594 in the form, and attached to this
Agreement before Closing as a sub section of Exhibit C (the "Form 8594").
The allocation set forth in the Form 8594 will be binding on Buyer and
Seller for all federal, state and local tax purposes. Buyer and Seller
agree to attach the Form 8594 in such form to their respective federal
income tax returns filed under Section 1060 of the Internal Revenue Code,
as amended, and the failure to do so will constitute a material breach of
this Agreement.
<PAGE>
SECTION 4
CLOSING
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Subject to satisfaction of the closing conditions set forth herein, the
closing of the transactions contemplated in this Agreement (the "Closing") shall
take place at 5:00 P.M on January 20, 1999 at the headquarters of ORCA
Technologies, Inc., 24000 35th Avenue S.E., Suite 200, Bothell, Washington,
98021, or, at such other time and place that the parties may agree upon.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller that the following it true and
correct as of the date of this Agreement.
5.1 AUTHORIZATION. Buyer is a corporation duly organized and validly
existing under the laws of Utah. Buyer has taken all corporate action
necessary to authorize execution and delivery of the Transaction
Documents and performance of their respective obligations thereunder.
Buyer has full corporate power and authority to enter into the
Transaction Documents and to carry out the terms hereof. Buyer has
duly executed and delivered this Agreement, and this Agreement
constitutes, and the Transaction Documents to which Buyer is a party
upon its due enforceable in accordance with their terms, except (i)
that such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights, and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the
court before which any such proceedings therefore may be brought. No
authorization, consent or approval of, any public body or authority is
necessary to be obtained by Buyer for the consummation by it of the
transactions contemplated by this Agreement. No authorization, consent
or approval of any third party is necessary for the consummation by
Buyer of the transaction contemplated by this Agreement.
5.2 CAPITALIZATION. Buyer/ORCA. The authorized capital stock of ORCA
consists of 50,000,000 shares of Common Stock, par value $0.001 per
share, of which approximately 13,854,407 shares are issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of ORCA's Common Stock are, and the Shares of
Common Stock to be issued upon consummation of the transactions
contemplated by this Agreement shall be, duly and validly issued and
outstanding and fully paid and nonassessable. The Shares to be issued
pursuant to this Agreement, when issued, shall be free of
<PAGE>
any liens, except as otherwise stated in Section 5.2. As of the date of
this Agreement, ORCA has reserved 3,000,000 shares of Common Stock for
issuance under its 1996 Stock Incentive Plan, pursuant to which no options
for the purchase of shares of Common Stock are outstanding as of the date
of this Agreement. In addition, there are 65,000 shares of Common Stock
reserved for issuance upon exercise of certain stock purchase warrants
granted to a certain creditor of ORCA. Except as set for the above and
except as granted to Seller pursuant to the terms of this Agreement, as of
the date of this Agreement, there are no shares of capital stock or other
equity securities of ORCA outstanding and no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of ORCA or contracts,
commitments, understandings, or arrangements by which ORCA is or may be
bound to issue additional shares of its capital stock or options, warrants,
or rights to purchase or acquire any additional shares of its capital
stock. ORCA is presently negotiating with one or more entities toward
completion of transactions that may involve the issuance of shares of its
Common Stock or Preferred Stock or other instruments, including securities
which may be convertible to Common Stock. The issuance of such securities
would result in dilution of the equity interests of existing shareholders
of ORCA, including the Seller, and such dilution may be substantial,
depending upon the size and value of the transaction in which such
securities are issued.
5.3 NO VIOLATIONS; CONSENTS. The execution, delivery and performance of the
Transaction Documents and the transactions contemplated thereby by Buyer
will not conflict with, result in the breach of, or constitute a material
default under: (a) the respective articles of incorporation or bylaws of
Buyer, (b) any material contract, note, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which Buyer is a party
or by which Buyer is bound or to which its assets are subject; or (c) any
statue, order, injunction, judgement, decree, rule or regulation of any
court or regulatory authority or governmental body applicable to Buyer or
to which its assets are subject. No consent or approval by any third person
or public authority is required to authorize, or is required in connection
with, the execution, delivery or performance of this Agreement by Buyer.
5.4 THE SHARES. With the exception of the escrow conditions described in
Section 3.2, and SEC Rule 144 resale restrictions, Seller will acquire good
title to the Shares, free and clear of all pledges, security interests,
liens, charges, equities or claims, except as may be created by Seller. The
Seller (i) understand that the Shares have not been, and will not be,
registered under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state securities laws, and are being offered and sold
in reliance upon federal and state exemptions for transactions not
involving any public offering, (ii) are acquiring the Shares solely for its
own account for investment purposes, and not with a view to the
<PAGE>
distribution thereof (except to the shareholders of the Seller), (iii) are
sophisticated investors with knowledge and experience in business and
financial matters, (iv) has received certain information concerning the
Buyer and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding
the Shares, (v) is able to bear the economic risk and lack of liquidity
inherent in holding the Shares, and (vi) is an "Accredited Investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
5.5 BROKERS. Buyer has not entered into or authorized any arrangements with
any broker, finder, or investment banker that will result in payment of a
fee in connection with this transaction.
5.6 FILING STATUS OF BUYER. Buyer is a public company and its Common Stock is
registered as a class under the Exchange Act. Consequently, Buyer is
subject to certain reporting, disclosure and filing requirements under the
Exchange Act, including the filing of periodic reports with the SEC. Buyer
is current in its filing obligations under the Exchange Act and has filed
all reports required to be filed by Buyer thereunder for the past 12
months. To the best of its knowledge, no filing submitted by Buyer to any
federal or state agency under the Securities Act, the Exchange Act and
state securities laws during such period contains any false or misleading
statements with respect to any material fact, or omits to state any
material fact necessary in order to make the statements therein not false
or misleading, in each case at this time such filing was filed or became
effective.
5.7 ACTIONS, SUITS, ETC. Except as described in the ORCA quarterly report on
Form 10-QSB for the quarter ended September 30, 1998, a copy of which is
attached to this Agreement as "Exhibit D", there are no actions, suits,
proceedings or investigations pending or, to the best knowledge of Buyer,
threatened against or affecting Buyer at law or in equity or before any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign
(each being hereinafter referred to as an "Agency") the objective of which
is to restrain or prohibit or obtain damages in respect to the consummation
of the purchase and sale of the Assets or the transactions contemplated
hereby or which could have a material adverse effect upon the financial
condition or business operations of Buyer or upon the ability of Buyer to
fulfill its respective obligations under this Agreement and the other
Transaction Documents to be executed by Buyer contemplated hereby.
Moreover, Buyer, to its best knowledge of ORCA or Buyer, is not in default
with respect to any order, writ, injunction or decree of any court or
Agency with respect to the consummation of the purchase and sale of the
Acquired Products or the transactions contemplated hereby.
5.8 FINANCIAL STATEMENTS. Buyer has delivered to Seller prior to the
execution of this Agreement copies of the following financial statements of
<PAGE>
ORCA included in reports filed with the SEC (collectively referred to
herein as the "ORCA Financial Statements"): Balance sheet as of June 30,
1998, and the related statements of income, stockholder's equity and cash
flows (audited) for the years ended June 30, 1998 and 1997 (including
related notes and schedules, if any), as reported upon by its independent
certified public accountants; balance sheet (unaudited) as of September 30,
1998, and the related statements of income, stockholders' equity and cash
flows (unaudited) for the same periods. The ORCA Financial Statements (as
of the dates thereof and for the periods covered thereby): (i) are in
accordance with the books and records of ORCA, which are complete and
accurate in all material respects and which have been maintained in
accordance with good business practices, and (ii) present fairly the
financial position and results of operations of ORCA as of the dates and
for the periods indicated, in accordance with GAAP, applied on a basis
consistent with prior periods (subject in the case of interim financial
statements to normal recurring year-end audit adjustments and provided,
further, that in accordance with applicable SEC regulations governing such
interim statements exclude certain footnote and other disclosure required
by GAAP).
5.9 ABSENCE OF UNDISCLOSED LIABILITIES. Buyer has no obligation or liability
(contingent or otherwise) that is material to Buyer, or that when combined
with similar obligations or liabilities would be material to Buyer, (a)
except as disclosed in the ORCA Financial Statements or by Buyer in this
Agreement and (b) except commitments made in the ordinary course of Buyer's
business consistent with past practices. Since September 30, 1998, Buyer
has not incurred or paid any obligation or liability which would be
material to Buyer, except for obligations paid in connection with
transactions by it in the ordinary course of its business consistent with
past practices or as disclosed in the ORCA Financial Statements or in
reports filed with the SEC pursuant to its reporting obligations.
5.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1998, Buyer has
not incurred any material liability, except in the ordinary course of its
business consistent with its past practices and except as permitted
pursuant to this Agreement; suffered any material or adverse change in its
business, operations, assets or condition (financial or otherwise) which
has not been disclosed in the ORCA Financial Statements or in publicly
filed reports; or failed to operate its business consistent with its past
practices.
5.11 COMPLIANCE WITH LAW. To the best of Buyer's knowledge, it is in
compliance and has conducted its business so as to comply in all material
respects with all laws, rules and regulations, judgments, decrees or orders
of any governmental entity applicable to its business or with respect to
which compliance is a condition or engaging in its business, the breach or
violation of which would have a material adverse effect on the financial
condition of ORCA. To the best knowledge of Buyer, it has not received any
notification
<PAGE>
or communication from any agency or department of federal, state, or
local government (a) asserting that it is not in compliance with any
of the statutes, regulations or ordinances which such governmental
authority enforces, which as a result of such non-compliance, would
result in a material adverse impact on the financial condition of
ORCA, or (b) threatening to revoke any license, franchise, permit or
governmental authorization which is material to the financial
condition of ORCA.
5.12 RELIANCE. Buyer recognizes and agrees that Seller is relying upon the
representations and warranties made by Buyer in this Agreement,
notwithstanding any investigation by Seller.
5.13 DISCLOSURE. No representation or warranty by Buyer made in this
Agreement, and no statement or certificate furnished or to be
furnished by Buyer to Seller, in connection with the transactions
contemplated hereby or by the other Transaction Documents, contains
any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer that the following are true and
correct as of the date of this Agreement.
6.1 AUTHORIZATION. Seller, Millennium, is a corporation, duly organized
and validly existing under the laws of the State of Washington. Seller
has taken all corporate action necessary to authorize, and subject to
dissenting shareholders' rights, Seller's shareholders have approved
Seller's execution and delivery of the Transaction Documents and the
performance of its obligations hereunder. Seller has full corporate
power and authority to enter into the Transaction Documents and to
carry out the terms thereof. Seller has duly executed and delivered
this Agreement, and this Agreement constitutes and other agreements
contemplated hereby to which Seller, is a party upon due execution and
delivery by Seller will constitute legal, valid, binding and
enforceable according to its respective terms, except (i) that such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors'
rights, and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
such proceedings therefore may be brought. To the best knowledge of
the Seller, no authorization, consent or approval of, or filing with,
any public body or authority is necessary to be obtained for the
consummation of the transactions
<PAGE>
contemplated by this Agreement; subject, however, to applicable notice
requirements and the rights of dissenting shareholders, if any. No
authorization, consent or approval of any third party is necessary for the
consummation by Seller of the transactions contemplated by this Agreement.
6.2 NO VIOLATIONS. The execution, delivery and performance of this Agreement
by Seller will not conflict with, result in the breach of, or constitute a
default under (a) Seller's articles of incorporation or bylaws; (b) any
note, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which Seller is a party or by which Seller is bound, or (c)
any statute, order, injunction, judgment, decree, rule or regulation of any
court or regulatory authority or governmental body applicable to Seller.
6.3 FINANCIAL STATEMENTS. Seller has furnished to Buyer, complete and accurate
copies of (a) Seller's interim financial statements dated January 31, 1998,
and (b) Seller's financial statements for the fiscal years ended October
31, 1996 and 1997 (collectively, the "Seller's Financial Statements"). The
Seller's Financial Statements (i) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods specified, and
(ii) fairly present the financial condition of Seller as of the dates
specified and the results of its operations for the periods specified,
subject, in the case of the interim statements, to normal year-end
adjustments of a nonrecurring nature.
6.4 MATERIAL ADVERSE CHANGES. There has been no material adverse change to
Seller, the Assets or Business since the date of the most recent of the
Seller's Financial Statements.
6.5 TAXES. Seller have timely paid all Taxes that have become due and payable.
Seller has timely filed all required returns and reports with respect to
such Taxes. Seller has not waived any statute of limitations relating to
Taxes. The charges, accruals and reserves shown in the Seller's Financial
Statements are adequate to cover all Taxes currently due and payable,
except to the extent disclosed in notes to the balance sheet. Seller is not
subject to any dispute regarding Taxes. No federal, state or local audits
or administrative court proceedings are presently pending or threatened
with regard to any Taxes.
6.6 ABSENCE OF INDEBTEDNESS AND OTHER OBLIGATIONS. Except as set forth in
Seller's Financial Statements, (a) Seller has no Indebtedness (as defined
below) of a material nature, and (b) Seller has, to the best of its
knowledge, no other obligations of a material nature, whether accrued,
absolute, contingent or otherwise (including without limitation liabilities
as a surety or guarantor) and whether due or to become due, including
without limitation any liabilities for Taxes. "Indebtedness", means (i) all
indebtedness of Seller for borrowed money or for the deferred purchase
price of property or services,
<PAGE>
including without limitation any indebtedness of Seller with respect to any
shareholder of Seller, and (ii) any other indebtedness of Seller which is
evidenced by a note, bond, debenture or similar instrument.
6.7 INTELLECTUAL PROPERTY RIGHTS. Seller owns, or has the right to use and
transfer ownership of the Products (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions,
and reexaminations thereof, (b) all trademarks, service marks, trade dress,
logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all
goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all
copyrights, and all applications, registrations, and renewals in connection
therewith, (d) all mask works and all applications, registrations, and
renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium) (the "Acquired
Intellectual Property"), to Buyer, free and clear of any liabilities,
claims, liens, licenses, or other encumbrances of any kind. To the best
knowledge of Seller, Seller's use of the Acquired Intellectual Property has
not conflicted with or infringed, and no one has asserted that such use
conflicts with or infringes, upon any proprietary rights owned, possessed
or used by any third party. Seller has not received notice of any claims,
disputes, actions, proceedings, suits or appeals pending with respect to
any of the Acquired Intellectual Property, to be purchased by Buyer, and
none has been threatened. Each item of Acquired Intellectual Property owned
or used by any of the Seller immediately prior to the Closing hereunder
will be owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder.
6.8 SOLE OWNER. Seller is the sole owner of the Products and the Acquired
Intellectual Property, and they are aware of no claim by any other party,
parties or entity to an interest in said Products and the Acquired
Intellectual Property.
6.9 LITIGATION. Seller is aware of no material action dispute or claim
proceeding, suit, appeal or investigation pending or threatened against
Seller that involves the Products to be purchased, the Acquired
Intellectual Property or that questions the validity of this Agreement. To
Seller's knowledge, there are no facts that could reasonable be expected to
result in a judgment or other determination that would have a material
adverse effect on Seller, the Products or the Acquired Intellectual
Property or that would cause this Agreement to be
<PAGE>
prohibited or enjoined. For purposes of this Section 6, "material claim"
means any claim exceeding $5,000, or any group of similar claims exceeding
$10,000, exclusive of interest and attorney fees. Seller is not currently a
party to any lawsuit with respect to any other party or entity.
6.10 BROKERS. Seller has not entered into or authorized any arrangements with
any broker, finder, or investment banker that will result in payment of a
fee in connection with this transaction.
6.11 RELIANCE. Seller recognizes and agrees that Buyer relying upon the
representations and warranties made by Seller, in this Agreement,
notwithstanding any investigation by Buyer.
6.12 DISCLOSURE. To the best of Seller's knowledge, no representation or
warranty by Seller made in this Agreement, and no statement or certificate
furnished or to be furnished by Seller to Buyer in connection with the
transactions contemplated hereby, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
6.13 NO RESTRICTIVE COVENANTS. Seller is not a party to any agreement,
contract or covenant limiting the freedom of Seller to compete in any line
of business or with any person or other entity in any geographic area,
while utilizing the Products to be purchased as a result of this Agreement.
SECTION 7
COVENANTS AND CONDITIONS TO OBLIGATION TO CLOSE
-----------------------------------------------
7.1 PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
7.1.1 General. Each of the Parties will use its reasonable best efforts
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to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing
conditions set forth in Sections 7.2 and 7.3 below.
7.1.2 Notices and Consents. Seller will give any notices to third
--------------------
parties, and Seller will use its reasonable best efforts to obtain
any third party consents, that Buyer reasonably may request in
connection with the matters referred to in Section 6 above. Each of
the Parties will give any notices to, make any filings with, and use
its reasonable best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection
with the matters referred to in Section 5.1 and Section 6.1 above.
<PAGE>
7.1.3 Preservation of Business. Seller will keep its Products, Acquired
------------------------
Intellectual Property, Products-related business and properties
substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
7.1.4 Exclusivity. Seller will not (i) solicit, initiate, or encourage
-----------
the submission of any proposal or offer from any person or entity
relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of Seller
(including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any
effort or attempt by any person or entity to do or seek any of the
foregoing.
7.2 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to consummate
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:
7.2.1 The representations and warranties set forth in Section 6 above
shall be true and correct in all material respects at and as of the
Closing Date.
Seller and Marsh shall have performed and complied with all of their
respective covenants hereunder in all material respects through the
Closing.
No action, suit, or proceeding shall be pending before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of Buyer to own the Acquired
Assets.
Buyer shall have entered into an employment agreement with Marsh; Buyer may
waive any condition specified in this Section 6(a) if it executes writing
so stating at or prior to the Closing.
7.3 CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to consummate
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:
7.3.1 the representations and warranties set forth in Section 5 above shall
be true and correct in all material respects at and as of the Closing
Date;
<PAGE>
7.3.2 no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
Seller may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
SECTION 8
FURTHER AGREEMENTS
------------------
8.1 SECURITIES ISSUES. The Shares will not be registered under the Securities
Act or pursuant to the blue-sky laws of any state, and will be issued by
ORCA in reliance upon exemptions under the Securities Act. Because the
offer and sale of the shares will not be registered under the Securities
Act, the Shares cannot be resold unless they are registered under the
Securities Act or unless the holder first receives an opinion of securities
counsel, reasonably acceptable to the Company, that an exemption from
registration is available for such transaction. With regard to the
restrictions on resale of the Shares, Seller is aware (i) of the
limitations and potential applicability of the SEC Rule 144; (ii) that ORCA
will issue stop transfer orders to its stock transfer agent in the event of
attempts to improperly transfer any such securities; and (iii) that a
restrictive legend will be placed on any certificate representing the
shares, which legend will read substantially as follows:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (The
"Act"), and are "restricted securities" as that term is defined
in Rule 144 under the Act. The shares may not be offered for
sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of the Company."
8.2 NEWS RELEASE. Buyer may make news releases and announcements concerning
this transaction and the actions contemplated by this Agreement.
8.3 CONFIDENTIALITY. No information concerning one party that has been
furnished to or obtained by the other party in connection with this
Agreement may
<PAGE>
be disclosed to any person other than in confidence to employees, legal
counsel, financial advisers or independent public accountants who
reasonably need to now such information in connection with the transactions
contemplated by this Agreement and who agree to be bound by this Section.
Notwithstanding the foregoing, this obligation shall not apply to
information that (a) is, or becomes, publicly available from a source other
than the other party; or its employees, legal counsel, financial advisors,
independent public accountants or other agents; (b) was known and can be
shown to have been known by the other party at the time of its receipt; (c)
is received by the other party from a third party without breach of this
Agreement; (d) is required by law or court order to be disclosed; provided
that the party from whom disclosure is sought, gives the other party prompt
written notice of such law or court order before making such disclosure; or
(e) is disclosed in accordance with the written consent of the other party.
8.4 COVENANTS NOT TO COMPETE OR SOLICIT.
8.4.1 Non-Competition Covenant. Seller's will not, without the prior
-------------------------
written consent of Buyer, for a period of three years following the
date hereof, directly or indirectly engage in, or have any interest
in any corporation, partnership or other enterprise that engages in,
any Competitive Activity in North America. "Competitive Activity"
means the ownership, operation or management of a business engaged
in services or the development, marketing and sale of products that
directly compete with those marketed by the Buyer's Business or
those otherwise provided by Buyer or any of its affiliates.
Competitive Activity does not include the ownership by Seller of
equity securities in any publicly traded corporation that does not
exceed 5% of the outstanding capital stock of such corporation.
8.4.2 Non-Solicitation Covenant. Seller covenants and agrees that for a
--------------------------
period of three years following the date hereof, they shall not,
directly or indirectly, for their benefit or for the benefit or any
other person, with respect to the Business as conducted by Buyer (a)
solicit any such business from any customer or supplier of Buyer,
(b) induce or cause any customer to cease purchasing any service or
product from Buyer or to terminate or change such customer's
business relationship with Buyer in any manner, (c) induce or cause
any supplier to cease providing or selling any service or product to
Buyer or to terminate or change such supplier's business
relationship with Buyer in any manner, or (d) induce or solicit any
person who is then employed by Buyer to leave such employment or
other position with Buyer or to accept any other employment
position.
8.4.3 Reasonableness. Seller acknowledges that the covenants set forth in
---------------
this agreement (a) do not impose unreasonable restrictions or work a
hardship on them, (b) are necessary and fundamental to the
protection
<PAGE>
of the Business to be conducted by Buyer, (c) are reasonable as to
scope, duration, and territory, (d) are given as a condition to
Buyer entering into this Agreement, (e) are necessary to preserve
the value of the products purchased, and (f) are for the purpose of
restricting the activities of Seller only to the extent necessary
for the protection of the legitimate business interests of Buyer.
Seller agrees that such covenants are reasonable and do not and will
not impose an undue hardship on them.
8.4.4 Equitable Relief. Seller acknowledges and agrees (a) that any
-----------------
damages sustained by the Buyer as a result of a breach of this
agreement cannot be adequately remedied by damages, and (b) that
Buyer, notwithstanding any other provision of this Agreement, and in
addition to any other remedy it may have under this Agreement or at
law, shall be entitled to injunctive and other equitable relief to
prevent or curtail any breach of any provision of this agreement.
8.5 AUDITS. Seller shall permit the audit and other examination by Buyer or
its independent public accounting firm of Seller's financial statements for
the three most recent fiscal years, and interim periods or such shorter
periods as may be permitted under applicable SEC rules and regulations
relating to material acquisitions by reporting companies. ORCA will pay the
fees of its auditors in connection with such audit and examination.
SECTION 9
CLOSING COSTS
-------------
9.1 CLOSING COSTS. Buyer and Seller agree to pay their own respective
closing costs incurred through the finalization of this transaction.
9.2 OTHER COSTS, EXPENSES AND PROFESSIONAL FEES. Except as provided
otherwise in this Agreement, the parties each agree to bear their own costs
and expenses, including without limitation all fees of attorneys,
accountants, brokers and other service providers incurred in connection
with the negotiation and preparation of this Agreement, and with any due
diligence conducted, and documents required to be executed, in connection
with this Agreement.
SECTION 10
SURVIVAL; INDEMNIFICATION
-------------------------
<PAGE>
10.1 SURVIVAL. The representations, warranties, covenants and agreements of the
parties contained in this Agreement or any other Transaction Document delivered
in accordance with this Agreement shall survive the execution and delivery of
this Agreement, any investigation by or on behalf of any party, and the
consummation of the transactions contemplated hereby.
10.2 INDEMNIFICATIONS BY SELLER
10.2.1 Indemnification. Seller shall indemnify Buyers and hold them
harmless from and against all losses, costs, expenses, damages or
liabilities, including reasonable attorney fees (collectively, "Damages")
incurred by Buyer as the result of or in connection with: (a) any breach or
inaccuracy of any representation or warranty or Seller made in the
Transaction Documents; (b) any failure by Seller to fulfill any of their
respective covenants or other agreements contained in the Transaction
Documents; (c) any liability or obligation of Seller to any third party not
expressly assumed by Buyer in accordance with the terms of this Agreement.
10.3 INDEMNIFICATION BY BUYER. Buyer will indemnify Seller, and hold them
harmless from and against all Damages incurred by Seller by reason of or arising
out of or in connection with (a) any breach or inaccuracy of any representation
or warranty of Buyer or ORCA made in the Transaction Documents, and (b) any
failure by Buyer to fulfill any of Buyer's covenants or other agreement
contained in the Transaction Documents.
10.4 INDEMNIFICATION PERIOD. Except as otherwise specified in this Agreement,
no claim for indemnity will be effective if not made within 12 months after the
date hereof (the "Indemnification Period"). Claims based upon the assertion that
a party had actual knowledge that a representation or warranty made by such
party was materially false when made or was made with the intent to deceive,
claims arising under the employment agreement and claims based on Sections 6,
may be made at any time up to expiration of the applicable statute of
limitations.
10.5 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything to the contrary
contained in this Agreement, the obligations of Buyer and Seller ("Indemnifying
Parties"), as defined below in Section 10.6.1, to provide indemnification under
this Agreement shall be subject to the following limitations:
10.5.1 Indemnifying Parties shall not have any liability, nor be subject
to any claim under this Agreement, with respect to any Damages
unless the amount of Damages exceeds $50,000. (The "Basket Amount")
in the aggregate, whereupon the claiming Indemnified Party shall be
entitled to receive indemnity payments for the amount of damages
that exceeds the Basket Amount.
10.5.2 The aggregate amount which may be recovered from Indemnifying
Parties in respect of any claim and all claims made pursuant to
this
<PAGE>
Agreement, whether by setoff, counterclaim or otherwise, shall
not exceed such Indemnifying Party's respective pro rata interest
in the Fair Market Value of the Shares or cash received in payment
of the Purchase Price, with said shares being valued as of the date
of this Agreement. For purposes of this Agreement, Fair Market
Value shall mean the average of the closing bid prices of the
Company's Common Stock for the five trading days immediately
proceeding the date of this Agreement.
10.5.3 Indemnifying Parties shall not have any liability, or be subject to
any claim under this Agreement, with respect to any inaccuracy in
or incompleteness of or any breach of any representation, warranty,
covenant or agreement contained in this Agreement if they shall
have delivered written notice detailing such inaccuracy,
incompleteness or breach to Buyer prior to the date hereof, Buyer
shall actually have received such notices and Buyer shall have
elected to proceed with the execution of the transactions
contemplated hereunder notwithstanding such inaccuracy,
incompleteness or breach.
10.5.4 At Seller's option, they may pay any amounts due Buyer (including
indemnities to third parties) under this Agreement by delivering
Shares to Buyer. In such event, the value of each Share so
delivered shall be deemed to be equal to the Fair Market Value of
such Share on the date hereof computed as provided in Section
10.3.2, above.
10.6 MATTERS INVOLVING THIRD PARTIES:
10.6.1 If any third party shall notify any party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this Section 10, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is
prejudiced.
10.6.2 The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as
(A) the Indemnifying Party notifies the Indemnified Party in
writing within fifteen (15) days after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety
of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable
to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (C) the Third
Party Claim involves only
<PAGE>
money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or
practice materially adverse to the continuing business interests of
the Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
10.6.3 So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.6.2 above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
10.6.4 In the event any of the conditions in Section 9.6.3 above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), (B) the Indemnifying Party will reimburse
the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys' fees
and expenses), and (C) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent
provided in this Section 9
10.7 Other Indemnification Provisions. The foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory, equitable, or
common law remedy any Party may have for breach of representation,
warranty, or covenant
SECTION 11
OTHER PROVISIONS
----------------
10.1 ASSIGNMENT, BENEFIT. No party may voluntarily or involuntarily assign its
interest under this Agreement without the prior written consent of the
other party, which shall not be unreasonably withheld. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns.
10.2 AMENDMENT, WAIVER. The provisions of this Agreement, or of any agreement
or document executed in connection with this Agreement, may be
<PAGE>
amended or waived only in writing by the party against which enforcement
of such amendment or waiver is sought.
10.3 SEVERABILITY. If any portion of this Agreement is held to be invalid
by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
10.4 GOVERNING LAW. The construction and performance of this Agreement will be
governed by the laws of the State of Washington (except for the choice of
law provisions thereof).
10.5 INDEPENDENT COUNSEL. Seller, Millennium and Marsh acknowledge that they
have been represented by independent legal counsel with regard to this
Agreement, and have had an adequate opportunity to seek independent legal
counsel with regard to all documents executed in connection with this
Agreement.
10.6 NOTICES. The parties shall deliver any notices required under this
Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified U.S. mail, return receipt
requested, postage prepaid, to the addresses set forth below, or to such
other address as specified by a party in writing. Notices shall be deemed
effective as of the date of personal or courier delivery confirmed
facsimile transmission, or the date of receipt.
<TABLE>
<CAPTION>
If to Buyer: With a copy to:
<S> <C>
ORCA TECHNOLOGIES, INC. Van Valkenberg Furber Group
24000 35th Avenue, SE, Suite 200 1325 Fourth Avenue, Suite 1200
Bothell, Washington 98201 Seattle, Washington 98101-2509
Facsimile: (425) 354-1625 Facsimile: (206) 464-2857
Attention: President Attention: Bradley Furber, Esq.
If to Seller: With a copy to:
Millennium Software, Inc. Joshua Rosenstein, Esq.
C/o Mr. Kent Marsh
22618 N.E. 15th Place Bellevue, Washington
Redmond, Washington 98052
Facsimile: (425) 820-2892 Facsimile: (425) 454-0087
</TABLE>
10.7 ATTORNEY FEES. The prevailing party in any arbitration or litigation
concerning this Agreement is entitled to reimbursement of its reasonable
<PAGE>
attorney fees and expenses from the non-prevailing party, including costs
and expenses incurred on appeal or in bankruptcy proceedings.
10.8 ENTIRE AGREEMENT. This Agreement, its attached schedules and exhibits,
and the Transaction Documents contain the entire agreement of the parties,
and supersede any and all prior agreements, written or oral, relating to
their subject matter.
10.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original but all of which together will
constitute the same instrument.
EXECUTED AS OF THE FIRST DATE WRITTEN ABOVE:
BUYER: ORCA TECHNOLOGIES, INC.
BY: /s/ Roger P. Vallo
--------------------
Roger P. Vallo
ITS: President and Chairman
SELLER: MILLENNIUM SOFTWARE, INC.
BY: /s/ Kent Marsh
--------------------
Kent Marsh
ITS: President and Chairman
MARSH: KENT MARSH
BY: /s/ Kent Marsh
--------------------
Individually
<PAGE>
EXHIBIT A
---------
Summary Description of Millennium Software Products
---------------------------------------------------
DISPATCH
The DISPATCH product provides a solution for PowerBuilder applications that want
to enable distributed processing of PowerBuilder reports in particular, and
other types of processes as well. Through DISPATCH, these processes can be
scheduled to run on a particular server and at specified times. The output
location and or printing of reports and other processes can be managed through
DISPATCH as well. DISPATCH is designed to provide users an environment where
they can manage, execute and view reports and other supported tasks (e.g.,
executables, database stored procedures and packages). A Package is a special
type of task that contains one or more other tasks. Packages enable users to
schedule multiple tasks to run in a particular sequence and/or order of
dependence. Packages can also include other Packages, thus providing a method of
nesting multiple levels of tasks. DISPATCH uses a database repository for
storing information required to run the tasks and enforce permissions. The
DISPATCH system is made up of several modules that perform specific functions.
1. Dispatcher
2. Task Manager
3. Administrator
4. DeskTop
Dispatcher
The Dispatcher is a Server Application that monitors what tasks may be scheduled
to be run. Once a task is found to be ready to be run, the Dispatcher assigns
the task to a specific Task Manger for processing.
Task Manager
Task Managers are Server Applications that can run on any number of systems and
one or more instances on each server. The Task Manager is the server that
actually processes a task such as running a report. The more task managers there
are running, the more simultaneous processes the system can handle.
Administrator
The Administrator is a front-end application that manages data in the DISPATCH
repository. Using the Administrator, users can manage groups, users, tasks,
servers and many other aspects of the DISPATCH system.
<PAGE>
DeskTop
The DeskTop is a front-end application intended for use by end-users of the
DISPATCH system. The DeskTop limits the tasks available to the user based on the
permissions granted to the user. From the DeskTop a user can manage their own
tasks, select tasks for execution and view output.
SENTRY
The Sentry system is an Application Security System for PowerBuilder
applications. The product uses a data driven repository of application security
constraints that can be used by multiple PowerBuilder applications and multiple
sets of users. The repository of security information is stored in the Sentry
database. The Sentry product provides an administrative application that manages
information stored in the Sentry database. By using the Sentry Administrator,
authorized users can manage security for Applications, Users, Groups, Functions
and Data Base Connections. Sentry also provides a PowerBuilder library that is
intended to be included with existing PowerBuilder applications that want to add
Sentry's security functionality. This library provides a security object that
can manage secured logins to applications based on information in the Sentry
Database. Once a connection has been made, the security object will then
retrieve all of the security rules for the application's user and store them in
the Security object during the user's session. The security object provides
methods for developers to query the security object regarding specific
permissions on various application functions. In this way, developers can
programmatically determine how the application should function based on Sentry's
repository of security functions.
<PAGE>
EXHIBIT E
SOFTWARE DEVELOPMENT
CONTRACT AGREEMENT
BETWEEN
Millennium Software, Inc.
and
Orca Technologies, Inc.
AGREEMENT
---------
This Agreement is between Millennium Software, Inc. and Orca Technologies,
Inc. ("the parties") for the software development services of Russell Robinson
(herein referred to as the "DISPATCH Developer").
1 SOFTWARE DEVELOPER PROVIDED BY Millennium Software, Inc.: Millennium
Software, Inc. will provide the software development services of the DISPATCH
Developer who is knowledgeable in the design and implementation of the
DISPATCH software product.
2 ENGAGEMENT OF PROGRAMMING SERVICES RENDERED: The programming services of the
DISPATCH Developer will be for a period of no less than six months beginning
January 15, 1999 and ending July 15, 1999. The hours worked by the DISPATCH
Developer will average no less than a normal 40-hour work week during normal
work hours and on normal business work days unless otherwise arranged between
the parties. The work performed by the DISPATCH Developer will be at the
direction of Orca Technologies, Inc.. The DISPATCH Developer will not work
more than 40 hours per week or on non-business days unless authorized by Orca
Technologies, Inc.
3 SOFTWARE DEVELOPER PROVIDED BY Millennium Software, Inc. Millennium Software,
Inc. will provide the software development services of Russ Robinson who is
knowledgeable in the design and implementation of the DISPATCH software
product.
4 WORK PRODUCTS: The DISPATCH Developer will make available to Orca
Technologies, Inc. any documents, notebooks, source code and any other work
product produced while performing work for Orca Technologies, Inc.. Orca
Technologies, Inc. is the sole owner of any work products produced by the
DISPATCH Developer while performing work for Orca Technologies, Inc.
5 TERMS OF SERVICES RENDERED: The DISPATCH Developer will work at an hourly
rate of $75 per hour. Millennium Software, Inc. will bill Orca Technologies,
<PAGE>
Inc. semi-monthly on the 1st and 15th for the period just prior to the bill
date. Payment terms will be Net 15. A report of the DISPATCH Developer's
hours will be included with the invoice for review by Orca Technologies,
Inc..
6 END OF CONTRACT TERMS: Prior to the end of this six month contract, Orca
Technologies, Inc. has the opportunity to 1) extend the contract period, 2)
discontinue the services of the developer, or 3) make an employment offer to
the DISPATCH developer. Orca Technologies, Inc. should provide at least 30
days notice prior to the end of this agreement (June 15, 1999) as to their
intentions for one of these three options. After June 15, 1999, if no
employment offer has been made by Orca Technologies, Inc. for the services of
the DISPATCH developer, Millennium Software, Inc. may assign the developer to
other work or the developer may seek employment elsewhere.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and between
ORCA Technologies, Inc., a Utah Corporation ("Employer") and Kent Marsh, an
individual ("Employee"). Employer and Employee are hereinafter referred to at
times individually as the "Party" and collectively as the "Parties".
RECITALS
I. Employer is engaged in the business of developing, and providing services,
software and technologies to healthcare providers, (the "Business").
Employer is presently in the process of enhancing its "CuraSys" suite of
software products for delivery to the alternative site health care
provider market. As part of its development strategy, Employer intends to
source out for acquisition other compatible software programs for
integration into its products and the developers of such programs for
employment into its development team.
II. Employer has entered into an "Asset Purchase and Development Agreement"
with Employee and Millennium, Inc., the company founded and owned by him.
Employee, through Millennium has developed two software programs named
"Dispatch" and "Sentry", which Employer has purchased under the terms of
the above referenced agreement. As an integral part of the agreement,
Employee has agreed to employment with Employer as one of its Senior
Software Engineers for the purpose of utilizing his unique skills and work
experience with the acquired products to accomplish the enhancement of and
integration of those products into the existing products of Employer.
III. Employee believes that the Business has the potential for significant
growth and profitability and that it is in his and Millennium's best
interest to accept the position of Senior Software Engineer in accordance
with the terms and conditions as provided in the this Agreement and the
Asset Purchase and Development Agreement which is incorporated by
reference.
NOW, THEREFORE, in consideration of the foregoing Recitals, Covenants, and
Conditions herein contained, it is agreed as follows:
AGREEMENT
1
<PAGE>
1. AGREEMENT TO EMPLOY. Employer hereby agrees to employ Employee and Employee
-------------------
hereby agrees to work for Employer for the term and upon all of the
conditions set forth herein.
2. EMPLOYEE'S POSITION AND DUTIES. Employee shall use his best efforts as
------------------------------
Senior Software Engineer to provide the following services to Employer (the
"Services"):
2.1. Employee shall be responsible for providing analysis, design,
engineering, documentation and production as it relates to the
integration of the "Dispatch" and "Sentry" programs into the Company's
existing suite of software products, its firmware, networking,
messaging systems and utilized hardware devices.
2.2. Development and implementation of all processes, procedures,
methodologies, and practices required in order to ensure consistent,
quality-focused operations of the software engineering division at all
times;
2.3. Assist the Director of Software Engineering in supervising all systems
development and programming services required by Company ;
2.4. Partnering with the ORCA's research and development, clinical and
consulting services and, sales and marketing departments regarding the
refinement of content and development of current and future products
and services;
2.5. Participation in the planning, establishment, and attainment of
performance goals and objectives for ORCA Technologies, Inc;
2.6. Provide regular and accurate communications and expert advice
pertaining to the operational, financial, and administrative status of
the software engineering division to the Director of Software
Development;
2.7. Work toward the development of teamwork and personnel performance
within the organization.
2.8. Participating, as needed, in the definition, analysis, design,
development, and testing of products and services offered by ORCA
Technologies, Inc.
2.9. Employee shall be subject to Employer's control and direction and
shall perform such other duties as may be reasonably requested from
2
<PAGE>
time to time by Employer. This description of job duties is subject to
change from time to time as the needs of the Employer change.
3. DEVOTION OF TIME AND EFFORT. Employee shall devote that portion of his
---------------------------
productive time, ability and attention to the Business as required to carry
out the terms of this Agreement. Employee shall, however, be deemed to be a
full-time employee working for the exclusive benefit of Employer as it
relates to the Business. Employee's obligations hereunder shall not preclude
Employee from engaging in other activities, not otherwise precluded by this
Agreement, which do not interfere with the performance of his duties, as
outlined in the Agreement, including, but not limited to, his duty to
provide the Services.
4. PROFESSIONAL CONDUCT. Employee will provide the Services in a professional
--------------------
manner that will reflect favorably on Employer and others associated with
Employer, and shall use his best efforts to faithfully perform and discharge
those duties which may be assigned to him from time to time by Employer in
connection with the conduct of Employer's Business.
5. TERM. This Agreement shall be effective as of November 15, 1998, and shall
----
continue for a period of thirty one and one-half (31.5) months, or, until
June 30, 2001, unless terminated at an earlier date in accordance with the
express terms and conditions of this Agreement. The contract may be renewed
upon the mutual consent of the parties for additional periods.
5.1. This Agreement shall terminate immediately upon the occurrence of any
of the following events:
5.1.1. Mutual agreement between Employer and Employee;
5.1.2. Death of Employee;
5.1.3. Total disability of Employee; and
5.1.4. "For cause" which shall consist only of fraud, willful
misconduct, conviction of a felony or a crime involving moral
turpitude, habitual and disabling abuse of drugs or alcohol,
or repeated absences from work without cause.
"Total Disability" shall mean the inability of the Employee to
perform those duties of this employment hereunder for which he is
suited by reason of education or experience due to physical or
emotional incapacity or illness for a period of one hundred
eighty (180) consecutive days. If the Company maintains
disability insurance on Employee, the determination of Total
Disability shall
3
<PAGE>
be made by the insurance carrier writing the disability insurance
policy relating to the Employee. If the Company does not maintain
such insurance, the determination of Total Disability shall be
made by the Board of Directors of the Company and shall be
supported by advice of physicians competent in the area to which
such disability relates. Total Disability shall be deemed to have
occurred on the first day following the one hundred eighty (180)
day period.
6. COMPENSATION. Employer shall compensate Employee for the Services as
------------
follows (the "Compensation"):
6.1. Salary Structure: For the first year of employment, (November 15, 1998
-----------------
through November 15, 1999), Employee shall receive an annual salary
(The Salary) of $97,500.
Salary for the second year (November 16, 1999 through November 15,
2000), Employee shall receive a salary of $105,000.
Salary through the term of this agreement, (November 16, 2000
through June 30, 2001), shall be $115,000.
All compensation shall be paid semi-monthly in equal installments on
the 15th and 31st day of each month and shall be pro-rated in the
event that this Agreement begins or ends on a date other than upon the
beginning or ending of a full pay period.
6.2. Stock Options. Employee shall be qualified to earn incentive stock
-------------
options pursuant to the terms of the Company's "Stock Option Plan"
then in existence.
7. EXPENSES. Employee shall be entitled to be reimbursed in accordance with
--------
the policies of Employer as adopted and amended from time to time, for all
reasonable and necessary expenses incurred by him in connection with the
performance of his duties of employment hereunder; provided that Employee
shall submit verification of the nature and amount of such expenses in
accordance with the reimbursement policies from time to time adopted by
Employer and in sufficient detail to comply with Internal Revenue Service
Regulations. In no event shall reimbursement be less frequently than once
each month and all said expenses that are reasonable and commensurate with
the position of Employee with Employer shall be subject to reimbursement.
8. BENEFITS. Employee shall become eligible to participate in the company's
--------
standard medical, dental and life benefits generally provided by Employer to
4
<PAGE>
its employees and Employer shall make available a 401(k) plan that Employee
may participate in.
9. VACATION AND SICK LEAVE. Employee shall be entitled to vacation at 1.25
-----------------------
working days per month, (2 weeks per year). Employee shall be entitled to
sick leave of .471 working days per month in addition to the vacation days
provided herein. Employer shall pay Employee's compensation in full during
Employee's vacation and during any allowed sick leave. Employee shall
arrange his vacation to avoid seriously interfering with the Business of
Employer. The Employer shall not unreasonably object to the vacation period
requested by Employee.
10. AGREEMENT NOT TO COMPETE. The Employee agrees that during his employment
------------------------
by the Company that he will abide by the non-competition provisions of the
Asset Purchase and Development Agreement to which this agreement is
attached.
11. AGREEMENT NOT TO SOLICIT REFERRAL SOURCES. The Employee agrees that during
-----------------------------------------
his employment by the Company and through the Expiration Date, he will not,
without the prior written consent of the Company, within the area where
Employer does business on the date employment terminates, either directly or
indirectly, on his own behalf or in the service or on behalf of others
solicit, divert or appropriate, or attempt to solicit, divert or appropriate
any medical providers or other entities that have referred business to or
conducted business with, the Company within the previous twelve (12) months.
12. AGREEMENT NOT TO SOLICIT EMPLOYEES. The Employee agrees that during his
----------------------------------
employment by the Company through the Expiration Date, he will not, without
the prior written consent of the Company, within the Area, either directly
or indirectly, on his own behalf or in the service or on behalf of others,
solicit, or hire, or attempt to solicit or hire or make offers of employment
to any person employed by the Company or that was employed by the Company
within six (6) months of the initial communication with such Employee.
13. OWNERSHIP AND NON-DISCLOSURE AND NON-USE OF TRADE SECRETS.
---------------------------------------------------------
13.1. The Employee acknowledges and agrees that all Trade Secrets, and all
physical or electronic embodiments thereof, are confidential to and
shall be and remain the sole and exclusive property of the Company.
Upon request by the Company, and in any event upon termination of his
employment with the Company for any reason, the Employee shall
5
<PAGE>
promptly deliver to the Company all property belonging to the Company
including, without limitation, all Trade Secrets (and all embodiments
thereof) then in his custody, control or possession.
13.2. The Employee agrees that all Trade Secrets and other proprietary
information of the Company received or developed by Employee as a
result of Employee's employment with the Company will be held in
trust and strictest confidence, that Employee will protect such Trade
Secrets from disclosure and, without the prior written consent of the
Company, will make no use of such Trade Secrets except as required to
perform his duties for the Company. The obligations of
confidentiality contained in this Agreement will apply during
Employee's employment by the Company and at any and all times after
termination of such employment, so long as the information in
question remains Trade Secret.
14. CONFIDENTIALITY. Except as required in the ordinary course of Employer's
---------------
Business, Employee shall hold in confidence and not disclose to any person
or entity without the express prior written authorization of Employer,
either during the term of this Agreement or any time thereafter, the names
or addresses of any of Employer's customers; Employer's past or prospective
dealings with its customers; the parties, dates, or terms of any of
Employer's contracts; any information, trade secrets, systems, processes or
business methods, or any other secret or confidential matter relating to
the customers or the business affairs of Employer or any companies
affiliated with Employer.
15. RIGHT TO EMPLOYER MATERIALS. Employee agrees that all documents and
---------------------------
intangible media relating to Employer's Business, including, but not
limited to the following; advertising literature, drawings, blueprints,
notes, memorandums, specifications, devices, mechanical parts, formulas,
lists, materials, books, files, reports, correspondence, records and other
documents ("Employer Materials") relating to the Business of Employer,
shall remain the property of Employer. Employer Materials constitute trade
secrets of Employer and shall not be disclosed to any other party except as
expressly authorized by Employer. Upon termination of employment, for any
reason, all Employer Materials shall be returned immediately to Employer,
and Employee shall not make or retain any copies thereof. Employee
acknowledges and agrees that any knowledge, information and materials in
Employee's possession relating to the Business, which Employee possessed
prior to the transfer of the Business to Employer, shall also be deemed to
constitute part of Employer Materials for purposes of this Section.
16. INVENTIONS AND PATENTS. Employee agrees that he will promptly and from
----------------------
time to time fully inform and disclose to Employer all inventions,
6
<PAGE>
designs, improvements, and discoveries which he now has or may hereafter
have during the term of this Agreement which pertain to or relate to the
Business of Employer or to any experimental work carried on by Employer,
whether conceived by the Employee alone or with others and whether or not
conceived during regular working hours. All such inventions, designs,
improvements and discoveries, with the exception of the Inventions which
shall not be the exclusive property of Employer, shall be the exclusive
property of Employer. Employee shall assist Employer to obtain patents on
all such inventions, designs, improvements, and discoveries deemed
patentable by Employer and shall execute all documents and do all things
necessary to obtain letters patent, vest Employer with full and exclusive
title thereto, and protect the same against infringement by others. This
provision shall apply with equal force and effect to any items that may be
subject to copyright or trademark protection. This provision does not apply
to the Inventions or to an invention for which no equipment, supplies,
facility or trade secret information of the Employer was used and which was
developed entirely on the Employee's own time, and (a) which does not
relate, at the time the invention is conceived or reduced to practice, to
(1) the Business of Employer, or (2) actual or demonstrably related
anticipated research or development of Employer, or (b) which does not
result from any work performed by the Employee for the Employer. The
provisions set forth in the preceding sentence shall not, however, in any
way authorize Employee to engage in any such activities set forth therein
in contravention of the provisions of his duties and obligations hereunder.
16.1. All software developed by Employee, his staff, or independent
contractors shall be considered the products of "Works for Hire",
and shall be the exclusive property of ORCA Technologies, Inc.
17. INDEMNIFICATION. Employer shall defend and indemnify Employee and hold
---------------
Employee harmless from and against any and all costs and expenses incurred
by Employee resulting from any acts and decisions made by Employee in good
faith while performing the Services for Employer within the scope of this
Agreement.
18. GENERAL PROVISIONS.
------------------
18.1. Attorney's Fees. In the event that any legal, declaratory, self help
---------------
or equitable action or arbitration or any other action not
considered to be a legal or equitable action is commenced between
the Parties hereto or their personal representatives concerning any
provision of this Agreement or the rights and duties of any person
in relation thereto, the prevailing Party shall be entitled, in
addition to such other relief that may be granted, to a reasonable
sum for their attorney's fees and any other costs and expenses
relating thereto.
7
<PAGE>
18.2. Construction. This Agreement shall be construed without regard and
------------
any presumption or other rule requiring construction against the
Party drafting the Agreement. It shall be construed neither for nor
against any Party, but each provision shall be given reasonable
interpretation in accordance with the plain meaning of its terms and
the express intent of the Parties.
18.3. Notices. All notices pertaining to this Agreement shall be in
-------
writing and shall be transmitted either by facsimile, overnight
mail, personal hand delivery or through the facilities of the United
States Post Office, certified or registered mail, return receipt
requested. The addresses set forth below for the respective Parties
shall be the places where notices shall be sent, unless written
notice of a change of address is given.
EMPLOYER EMPLOYEE
-------- --------
ORCA Technologies, Inc. Kent Marsh
24000 35th Ave, S.E. 22618 N.E. 15th Place
Suite 200 Redmond, WA. 98052
Bothell, WA. 98021
Attn.: Norman Plummer,
VP and General Counsel
18.4 Any such notice shall be deemed to be given as of the date so
delivered.
18.5 Parties in Interest. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any
persons other than the Parties and their respective successors and
assigns nor shall anything in this Agreement relieve or discharge
the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right
of subrogation or action or against any party to this Agreement.
18.6 Amendments, Modifications and Waivers. No amendment or modification
-------------------------------------
of this Agreement or any Exhibit or Schedule hereto shall be valid
unless made in writing and signed by the party to be charged
therewith. No waiver of any provision of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision,
whether or not similar. No waiver shall be binding unless executed
in writing by the party making the waiver.
8
<PAGE>
18.7 Severability. Every provision of this Agreement is intended to be
------------
severable. If any terms or provisions hereof are illegal or invalid
for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of the Agreement.
18.8 Assignment. This Agreement is personal to Employee and the Services
----------
to be provided by Employee are personal and unique to Employee.
Consequently, neither this Agreement nor any duties or obligations
hereunder shall be assignable by Employee without the prior written
consent of Employer, which may be withheld in the sole discretion of
Employer.
18.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be controlled by and construed
under the laws of the State of Washington. In the event of any
litigation arising out of any dispute in connection with this
Agreement, the Parties hereby consent to the jurisdiction of the
Washington courts.
IN WITNESS WHEREOF, the Parties hereby adopt this Agreement effective as of
the 15th day of November, 1998, at Bothell, Washington:
EMPLOYEE EMPLOYER
- -------- --------
ORCA Technologies, Inc.
/s/ Kent Marsh /s/ Anthony D. Begando
- ------------------------ -------------------------
Kent Marsh Anthony D. Begando
Senior Software Engineer President, Products Group
9
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