U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of
1934
DIGITCOM INTERACTIVE VIDEO NETWORK
(Name of Small Business Issuer in its charter)
California
(State or other jurisdiction of
incorporation or organization)
95-4571575
(I.R.S. Employer Identification No.)
2190 'A' Colorado Avenue, Santa Monica, California 90404
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (310) 584-0750
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
<PAGE>
PART I
Item 1. Description of Business.
(a) History of the Company
Digitcom Interactive Video Network (hereinafter referred to
as "DIVN" or the "Company") was organized as a California
corporation on April 2, 1996. The Company is developing what it
believes to be the industry's first interactive video on-line
service for home and business users which may be accessed either
via the Internet or via local dial-in service over ordinary
telephone or high-bandwidth integrated services digital network
("ISDN") lines. This on-line service will be known as the
Digitcom Interactive Video Network, or the "DiV-N" for short.
The DiV-N will initially combine three video application
technologies along with traditional Internet access. The three
video technologies are video stream (scheduled video programming
delivered in real time), video on demand and video conferencing.
These technologies, along with information and programming
content provided by outside content providers, will be offered as
a seamless, integrated and interactive product using the
Company's proprietary graphical user interface and proprietary
application program interface ("API") which links the underlying
application programs together for the performance of integrated
tasks.
DIVN was founded as a subsidiary of Digitcom Interactive
Multimedia, Inc., a Nevada corporation ("DIM"). DIM was
organized in 1986 under the name Digitcom Communications
Corporation and has specialized in computer voice mail and voice
processing applications. In 1987, DIM established a national
dealer network for distribution of its voice mail products. In
1988, DIM developed Resound Linguist, a multilingual voice
processing application used in the hospitality industry. In
1990, DIM released ResoundCO, a value-added voice processing
service for independent telephone companies, which was named as
"Product of the Year" by Teleconnect magazine in 1992. DIM also
began marketing its products in Canada and Europe in 1990.
Between 1992 and 1994, DIM continued to develop integrated voice,
fax and data applications and achieved increasing sales of its
products. DIM introduced or completed several projects in 1994,
including (i) the Anise platform, which allows rapid development
of audiotext and Interactive Voice Response ("IVR") applications
for large enterprises and educational institutions, (ii) TDD +
Access(TM), a software based solution to ADA compliance for the
hearing impaired, and (iii) Deuce voice mail system for small
businesses. DIM sometimes does business under the trade name
Resound Communications Corporation.
At the beginning of 1995, DIM changed its corporate name to
its current name to reflect new product developments and business
alliances. Based upon research and development work it began in
1992, DIM announced in 1995 its plans to establish the DiV-N and
began development of the technology and strategic alliances which
would make the DiV-N possible, including the DigitVideo video
conferencing application, the DiV-N graphical user interface and
the ISDN hardware switch. (See "Architecture of the DiV-N")
Digitcom Interactive Video Network was formally incorporated in
April 1996 to continue the implementation of the DiV-N using
technology, applications and know-how assigned to it from DIM.
In May 1996, the Company merged with Ouzel Acquisition Corp., a
Delaware corporation. The Company was the surviving entity in
the merger. The Company currently employs ten full-time
individuals. In addition, the Company utilizes the services of
five employees of DIM on a part-time basis and reimburses DIM for
a portion of their salary and benefits.
(b) Business of Issuer
1. INTRODUCTION
The Company will offer an interactive, video on-line
service for home and business use as well as services and
software applications involving computer video services and
telecommunications. The DiV-N will operate as a dedicated
high-speed dial-in network controlled by the Company's
proprietary ISDN hardware switches and software API and will also
be partially accessible as a multimedia World Wide Web ("Web")
server on the Internet. The Company intends to model itself with
respect to the DiV-N as a service bureau similar to an Internet
Service Provider ("ISP") or a telephone company central office.
The Company's role will be to provide the marketing, know-how,
technology, leadership and support necessary to link together
diverse content providers and customers over a high-speed,
integrated network.
Access to the DiV-N Web site will be freely available
to anyone with an Internet connection, but the DiV-N content
available on the Internet will be limited to free offerings of
content providers. Premium offerings, such as pay-per-view
content, will be listed on the Web site but upon selection of
such an offering, the Web site will direct the user to dial in to
the dedicated network. People who access the DiV-N through the
dedicated network will be required to enter identifying
information and provide a credit card number for billing. The
Company anticipates charging a low set-up fee to businesses and
consumers upon initial sign-up to the dedicated network. No fee
will be charged thereafter for time or use of free content on the
DiV- N dedicated network, although fees will be charged for
pay-per-view and other premium content and for general Internet
access via the DiV-N dial-in. Depending upon market conditions
and the availability of capital, the Company may as an
intermediate step towards establishment of the dedicated network
install hardware "mirrors" of its central Internet server at
local dial-in ISP's throughout the country. These dial-in
locations would access the local server using Internet protocols,
but the reliability and speed of data retrieval would be
considerably improved over a long distance Internet connection to
the Company's central server in Santa Monica. This intermediate
step would provide most of the speed and quality advantages of
the dedicated network and could be implemented gradually as
capital for hardware purchases becomes available to the Company.
This intermediate step would not however provide the pay-per-view
or usage tracking features of the dedicated network.
The dedicated DiV-N network will be accessed by
subscribers either via standard modem lines or via ISDN lines
provided by their local telephone companies. All network
connections to content providers will be via ISDN lines which
will result in fast and efficient high-bandwidth network
communications and which will in turn permit good quality,
interactive real-time video and compact disk quality audio
applications.
2. VIDEO COMPRESSION/DECOMPRESSION
Video content delivered through the DiV-N will be
"streamed," or delivered in real time. Streaming contrasts with
the original method of computer video delivery whereby a video
file had to be downloaded in its entirety prior to viewing.
Streamed video delivery is heavily dependent upon video
compression as the uncompressed flow of data necessary to bring
full screen, full motion video (about 566,000 kilobytes per
second, or Kbs) greatly exceeds the data transfer capabilities of
current computers and connections. For example, today's fastest
commonly-available standard telephone modems send and receive
data at 28.8 Kbs. Basic Rate Interface ISDN operates at 112 to
128Kbs. (See "ISDN Service")
The video compression scheme most commonly used today
is based upon standards developed by the Moving Picture Expert
Group and is known as "MPEG." Several official MPEG standards
exist, varying in data transfer rates and accordingly varying in
potential resolution (which translates to window size), refresh
rate and signal accuracy. However, the MPEG standards are
non-proprietary and product vendors may deviate from the official
standards. The MPEG format most commonly used today is known as
MPEG-1, which was designed to deliver video to consumer devices,
including computers, at the data transfer rate of single speed
CD-ROM drives (150 Kbs). By reducing the resolution and refresh
rate of the video stream, companies have been able to use MPEG-1
standards to deliver viewable streamed video at ordinary modem or
ISDN speeds. The Company's current video stream and video on
demand software packages are based upon MPEG-1 standards. (See
"Primary Technologies")
MPEG-1 based compression standards cannot currently
deliver full screen, full motion (30 frames per second) video and
are unlikely to be capable of doing so in the future. The video
compression industry is therefore working towards establishing
industry standards based upon the MPEG-2 compression format,
which will allow full screen, full motion video. MPEG-2
compression standards are currently used in the direct satellite
broadcast industry for the DirecTV and Primestar home video
services. The data transfer rates required for full screen, full
motion video using MPEG-2 exceed the capabilities of most current
ISDN installations and will therefore require a higher speed
connection. The Company is currently engaged in research and
development relating to Asynchronous Digital Subscriber Line
("ADSL") and High Bit Rate Digital Subscriber Line ("HDSL")
technologies, which show promise as able to support data transfer
rates sufficient to transmit MPEG-2 full screen, full motion
video. This research and development is in connection with the
Company's proprietary VGA/NTSC MPEG-2 compression/decompression
hardware card ("MPEG-2 Card") which is also under development.
The Company anticipates that actual implementation of MPEG-2
video delivery over the DiV-N will not occur for two to five
years since the industry standards and infrastructure for the
required technologies, MPEG-2 and ASDL or HDSL, have yet to be
established.
3. ISDN SERVICE
Much of the innovation of the DiV-N focuses on ISDN
technology, which combines two important features: (i) it is
currently available to both homes and businesses in most areas of
the United States for a reasonable charge and (ii) it provides
sufficient bandwidth to allow two-way interactive near
full-motion video and high quality audio delivery to network end
users. ISDN was introduced in the early 1980s to deliver
expanded bandwidth over existing copper telephone lines and was
initially conceived as a means for high-volume data transfer
between businesses. ISDN allows voice and data to be carried
simultaneously over traditional four-wire copper phone lines,
thereby allowing multiple devices, such as phones, computer
modems, faxes and credit card authorization devices to operate
simultaneously without adding additional telephone lines.
According to the March 25, 1996 issue of Communication Week,
there were approximately 431,000 ISDN lines in the U.S. at the
end of 1995. Pacific Bell, a regional "baby-bell" operating in
California, reports that ISDN is its fastest growing service,
with current connections increasing at a rate of 186 percent per
year.
ISDN is both a type of access to a telecommunications
provider (such as the local phone company) and a set of signaling
arrangements that link subscribers to a carrier's end-to-end
digital network. There is generally a choice between types of
ISDN service, depending on the amount of bandwidth needed. A
standard ISDN Basic Rate Interface, available in most locations
in the U.S., provides between 112 to 128Kbs of bandwidth as
compared with today's standard analog modems which operate at
either 14.4Kbs or 28.8Kbs.
Access to the DiV-N dedicated network via ISDN will
involve installation and monthly service charges from the local
phone company for ISDN service as well as the addition of an ISDN
modem card on the user's computer. ISDN charges vary from
telephone company to telephone company, ranging from $20 to $100
per month. Some telephone companies have additional charges for
usage; other do not. Installation charges currently range from
$100 to $250. ISDN modem cards are available from several
vendors, including 3Com, Hayes, IBM, ISDN Systems, ISDN*tek,
Motorola, Zyxel and Promptus Communications. Prices for these
modems are currently in the $300 to $1,000 range. Prices for
high technology hardware and services generally decline over
time. There is however some indication that prices for ISDN
service could increase in the short to medium term as more
subscribers located a greater distance from local switching
facilities sign up for the service and thereby increase the
average cost of providing ISDN service. The Company cannot
control or predict with any assurance the future price trends of
ISDN service.
4. ARCHITECTURE OF THE DiV-N
The DiV-N will operate on the basis of proprietary
hardware and software which switch the incoming and outgoing
transmissions, integrate the various underlying application
programs, track the usage patterns of subscribers, manage the
various databases and process billing information. A key to the
functionality of the DiV-N will be the Company's proprietary ISDN
hardware switch (the "ISDN Switch"). The ISDN Switch is a small,
economical device which allows the DiV-N (via a telephone
switchboard center) to call-process subscriber usage to the
dedicated network, switch between DiV-N content and the Internet
and track the same for billing purposes, collect call detail
records and credit card data of users and capture automatic
number identification information. The ISDN Switch is currently
in beta trials and the Company expects the final product to be
completed in the last quarter of 1996.
The DiV-N environment is navigated through a
proprietary graphical user interface. The same interface will be
used on both the dedicated network and the Web platform. The
DiV- N was designed using open architecture so that new
applications and technologies can easily be integrated as such
applications and technologies become available. Management
believes that the open architecture of the DiV-N will allow the
Company to remain competitive notwithstanding the rapidly
changing technology which characterizes the computer networking
business.
The Company plans to establish a network of
Point-of-Presence ("POP") dial-in servers across North America to
provide local dial-in access for the network. Subject to the
availability of capital (See "Plan of Operation"), Management
plans ultimately to have POP servers in over 200 cities. The
Company anticipates that the POP servers for the dedicated
network will be linked via extremely fast Asynchronous Transfer
Mode ("ATM") switches over a fiber optic backbone network. The
technology to create such an ATM-fiber optic backbone network
exists today, although there is no currently operational network
which will meet the Company's needs. The Company intends to
arrange for the creation and use of an appropriate ATM-fiber
optic backbone network simultaneously with the development of the
POP network. The Company anticipates that this network will be
capitalized and developed by a major outside telecommunications
company in conjunction with the Company. While the Company knows
of no technological impediment to the creation of such a network,
there can be no assurance that such a network will be available
to the Company on financial or other terms acceptable to the
Company or within an optimum time frame for the Company's
business plan. The POP servers will also act as Internet Service
Providers offering local dial-in Internet access to DiV-N
subscribers at competitive rates.
As an interim step towards full implementation of the
nationwide DiV-N dedicated network, the Company may offer local
Internet access under the DiV-N name, including access to the
DiV-N Web site, throughout the United States by contracting with
an existing nationwide dial-in network. This would allow the
Company to establish a national presence with relatively little
capital expenditure. The Company can further improve the speed
and reliability of dial-in connections to its Web site by
providing a hardware "mirror" of its central Web server at some
or all of the local dial-in locations. Providing these hardware
mirrors will require additional capital, but they could be
installed gradually as operating revenues or other capital become
available. These same mirrors would serve as dedicated network
servers at such time as the Company establishes the dedicated
network. Even if the Company does contract with an existing
nationwide dial-in provider for an interim period, the Company
plans ultimately to establish the dedicated POP network by
offering DiV-N franchises to local operators who meet certain
technical, customer service and marketing qualifications. (See
"Marketing and Pricing" and "Customer Service")
Each user of the DiV-N is currently required to
download or otherwise obtain video decompression software. The
Company licenses corresponding video compression software from
third party providers. The DiV-N Web site currently offers two
third party video decompression software packages to users which
may be downloaded without charge. These packages allows full or
near full motion video at 28.8 Kbs or ISDN modem speeds at
resolutions sufficient to show on windows one-quarter to
one-third the size of a standard computer monitor. (See "Primary
Technologies") As described above, the Company is also
developing an MPEG-2 Card which will be designed to allow
subscribers true full motion, full screen video in the medium to
long term. Video conferencing will require users to obtain the
Company's DigitVideo application, which allows full duplex video
conferencing with application sharing, employing industry
standard H.320 protocols. This software will likely be provided
in various versions as a stand-alone application and also as part
of a "plug and play" kit including an interface card and video
camera.
Software upgrades and most technical service repairs
can take place over the DiV-N network from a central technical
support department. This should eliminate most of the cost
of on-site service calls.
5. PRIMARY TECHNOLOGIES
The following discussion is of the primary application
technologies which underlie the DiV-N. These technologies will
be part of an integrated product accessible to users through
a seamless graphical user interface. More specific potential
applications of the DiV-N are discussed below under "Uses of the
DiV-N."
A. Video Conferencing
The DiV-N's video conferencing feature is based on
the DigitVideo software package which was developed by DIM and
assigned to the Company. DigitVideo uses the H.320 compliant
video compression/decompression (codec) standard and is designed
for use on PC windows platforms. DigitVideo is one of the first
H.320 codec video conferencing packages which can operate on the
PC platform and therefore take advantage of the high market
penetration and relatively low price of PC's. Using DigitVideo
and ISDN transmission, color video is transmitted at up to 128Kbs
at a "High" color standard of 64K and refreshed at 15 frames per
second, which is one-half of the standard television refresh rate
of thirty frames per second. Previous competing desktop video
conferencing packages refreshed at slower rates and therefore
caused jerkiness in the picture. DigitVideo currently delivers
video in a window one-eighth the size of a standard video
monitor. The Company intends to upgrade DigitVideo from
time to time to offer larger windows and faster refresh rates as
the technology and connectivity required therefor become
available.
DigitVideo is designed to use industry-standard
video conference components at each end user's location. DiV-N
also intends to offer a "plug and play" kit which will include
all needed components for those users who do not already have the
needed hardware. For those DiV-N users that do not wish to
purchase video conference hardware components, the Company will
offer a "one-way" version of DigitVideo at little or no cost over
the DiV-N. The one-way version will allow the user to see and
hear a person on the other end but will require the user to
communicate with that person using typed commands or via an
ordinary telephone connection. Like the rest of the DiV-N,
DigitVideo is designed with open architecture which will
allow it to integrate with other software applications both at
the network site for interactive network content and on the
user's PC platform. Accordingly, Management believes that
DigitVideo will be able to grow with new technology and continue
to meet the needs of customers as computer and telecommunications
technology advances.
The DigitVideo video conferencing package requires
a 486 or higher PC. Two-way, full duplex video conferencing will
require ISDN service. The DigitVideo package is currently
available, but the Company will not begin its marketing campaign
for this product until the dedicated DiV-N is implemented, which
is expected to occur in the first quarter of 1997.
B. Video Stream
Video stream allows a DiV-N user to view scheduled
programming in much the same way that viewers currently view
television. The DiV-N Web site is currently configured to
rebroadcast commercial television and other video stream
offerings using Xing Technology Corporation's Streamworks codec
software. Once the dedicated network is operational, content
providers will have the option to bill video stream offerings to
the customer on a pay-per-view basis. Video stream technology
integrated into the DiV-N allows unique commercial abilities
previously unavailable through other means. A content provider
can "broadcast" a short commercial over the DiV-N using video
stream technology. At the end of the broadcast, subscribers who
viewed the commercial could elect to view more detailed
information about one or more aspects of the products or services
offered in the commercial using the video on demand component of
the DiV-N. If the subscriber has further questions or
wishes to place an order, he or she could talk directly to a
company representative using one-way or two-way video
conferencing. All of the these options would be integrated
through the DiV-N's graphical user interface.
The Streamworks decompression viewer software is
currently downloaded by the user through the DiV-N Web site
without charge. Streamworks can operate at modem speeds of 28.8
Kbs or at ISDN speeds. It will operate at modem speeds of 14.4
Kbs, but it delivers audio only this speed. At 28.8 Kbs, this
viewer delivers a "slide-show" of six frames per second in a
window one-third the size of a standard computer monitor. At
ISDN speeds, this software delivers up to 24 frames per second in
a one-third screen window. As indicated above, the DiV-N is
constructed using open architecture, and the Company will be able
to integrate other software and hardware decompression packages,
including the Company's MPEG-2 Card under development, at such
time as they become available.
C. Video on Demand
Video on demand service will allow subscribers to
view at their convenience videos which are posted to the network
by content providers. These videos may be promotional,
educational, business-related or entertainment offerings.
Flexible billing arrangements on the dedicated network will allow
either the content provider or the viewer to be billed for the
videos viewed depending on the preference of the content provider
and the billing agreement between the Company and the content
provider. (See "Marketing and Pricing")
Video on demand is currently offered on the DiV-N
Web site via VDOnet Corp.'s VDOLive codec software. Like
Streamworks, the decompression version of VDOLive is downloaded
by the user from the Company's Web site without charge. VDOLive
currently works only at data transmission speeds of 28.8 Kbs and
delivers twenty to 24 frames per second on a window approximately
one-quarter the size of a standard computer monitor. An upgraded
version of VDOLive or another viewer application will be required
for viewing video on demand at ISDN speeds once the ISDN network
is operational. As indicated above, the DiV-N is constructed
using open architecture, and the Company will be able to
integrate other software and hardware decompression packages,
including the Company's MPEG-2 Card under development,
at such time as they become available. The Company is currently
researching the development of upgrades to the video on demand
software, but it currently has no identified video on demand
software product and no arrangement for the licensing of third
party software which can operate at ISDN speeds, and there can be
no assurance that the Company will be able to develop or
obtain such software on terms acceptable to it.
D. Internet Access
The Company will offer subscribers full access to
the Internet at standard modem speeds or the higher speeds
allowed by ISDN. Initially, the Company may offer Internet
access by contracting with a national POP dial-in provider. Such
Internet access would be generally comparable to that offered by
existing Internet Service Providers, although it would be
marketed with a focus on providing access to the content on the
DiV-N. The Company may be able to offer improved connectivity to
its Web site through these local dial-in providers by co-
locating "mirrors" of its central server at some or all of the
local dial-in locations. (See "Architecture of the DiV-N")
E. User Identification and Data Capture
A content provider on the Internet generally knows
very little about who is accessing its offerings as only the
Internet address of the client is generally known to the
server. On the DiV-N dedicated network, each customer will be
identified by name and each will carry a profile which will be
accessible by content providers. Such providers can therefore
obtain
valuable customer information and direct marketing efforts to
network users who meet certain descriptions. The Company has
developed proprietary usage tracking software, which in
conjunction with its ISDN Switch, will allow the Company to track
the identities and usage patterns of all network users and to
provide this information where appropriate to content providers
and to others. The user identification and tracking feature will
not function on the DiV-N's Web platform.
6. USES OF THE DiV-N
The following is a list of the key information services
that the Company anticipates providing to business and home
subscribers over the DiV-N. Except as otherwise indicated, these
services are not yet implemented.
Filmed entertainment - video on demand. A few
video on demand offerings are currently available
on the Company's Web site.
On-line retail catalogs; virtual malls, including
the digitcom.com(mercial) virtual business
district, an on-line shopping area taking
advantage of the video and sound capabilities of
the DiV-N. The digitcom.com(mercial) virtual
business district is currently operating on the
Company's Web site with a small number of
advertisers.
On-line three dimensional interactive games.
On-line broadcast networks. The Company's Web
site currently rebroadcasts business news
programming from a Los Angeles business
television station.
Interactive VideoConference Yellow Pages, which
will contain full multimedia presentations of
advertisers' products and services. The
Interactive Video Conference Yellow Pages is
currently operating on the Company's Web site with
multimedia advertising from a small number of
companies.
Telecommuting by employees and consultants who can
share applications and documents on computer
screens anywhere in the world.
On-line training and demonstrations for business
or technical support applications.
Video e-mail and limited broadcasting to customers
and business associates.
At home tutorial services.
Face-to-face communications with clients and
preferred customers.
Video sales presentations.
On-line consulting services.
Design collaboration with white-board sharing.
CD-quality audio entertainment on demand.
On-line discussion groups with scheduled video
seminars.
On-line video "chat."
Utilization of DiV-N ISDN bandwidth for business
internal networks (intranets) as a secure,
inexpensive alternative to dedicated (T-1) lines
currently used by many businesses for their
intranets.
The DiV-N is expected to generate revenues from the
following sources:
* Bandwidth and/or revenue sharing charges to
content providers, including pay-per-view
commission revenues and sales commissions from
products and services sold over the DiV-N.
* Advertising revenue from the Interactive
VideoConference Yellow Pages, the
digitcom.com(mercial) virtual business district
and from space sold on pages of the DiV-N
graphical user interface.
* Sale of marketing data captured by the Company's
proprietary data management and administration
software on the DiV-N.
* ISDN and Internet usage charges analogous to those
charged by the local telephone company and other
Internet Service Providers.
7. ADDITIONAL PRODUCTS AND SERVICES OF THE COMPANY
The Company will offer these additional products and
services which are separate from the information services of the
DiV-N.
* Video conference installations, service and
support, including sales of DigitVideo video
conferencing software and "plug and play"
software/hardware kits.
* Multimedia design and production services,
especially to content providers wishing to
establish a presence on the DiV-N.
* Licensing of DiV-N technologies, such as the ISDN
Switch, if and when such licensing is appropriate
to the Company's business plan. (See "Marketing
and Pricing -- The ISDN Switch")
* Hardware sales of the MPEG-2 Card once the same is
completed.
8. ADDITIONAL REVENUE SOURCES
In order to provide a stream of working capital to the
Company during its development stage, (i) DIM assigned to DiV-N
certain contract receivables under two distributorship contracts
for DIM's voice-mail software product Resound and (ii) DIM
licensed to DiV-N the distribution rights within the country of
Israel for DIM's patent-pending international call back product.
The foregoing assignments and license were pursuant to an
Assignment and License dated effective April 2, 1996 between DIM
and DiV-N. These assignments and license were conveyed along
with DIM's video network technologies in exchange for 9,000,000
shares of Common Stock of the Company.
One Resound distribution contract is with Al-Anani
Marketing Group "Maztrad," a Saudi Arabian distributor, and calls
for certain payments as copies of Resound are ordered, with
a minimum order commitment of $1,380,000 for Resound software
payable between December 31, 1997 and June 30, 1999. The other
contract is with Pyravision Teleconnection Canada, Inc.,
a Montreal distributor, and also calls for payments as copies of
Resound are ordered, with a minimum order commitment of
$1,000,000 for Resound software payable before June 30, 1998.
Neither the Company nor DIM has any further performance
obligations with respect to the Resound software under these
contracts and DIM is responsible for collecting the contract
receivables on behalf of the Company, although it is not required
to incur collection charges therefor. The Company will use
proceeds received under these contracts as working capital.
International call back is designed to take advantage
of the substantial difference in international long distance
telephone rates between countries depending on from which county
the call originates. A number of companies offer international
call back service, and these companies generally rely upon a
system whereby a caller in a country where originating long-
distance rates are relatively high places a call to a service in
the United States or other country where originating
long-distance rates are relatively low but hangs up prior to
making a connection with the service. The service then phones
the caller back at a pre-determined number and provides a dial
tone which allows the caller to place an international call
originating in the low rate country where the service is located.
DIM has a U.S. patent pending for a new method of providing
international call back service which offers greater flexibility
than the currently utilized systems and DIM has licensed the
right to practice the patent within the country of Israel
to DiV-N. The Company intends to resell distribution rights for
the patent to an international call back provider in Israel and
believes that the price upon resale should be in excess of
$1,000,000 based upon the prior sale of such rights within Saudi
Arabia by DIM. The Company will use any proceeds from such
resale as working capital. DIM has not as of the date of this
Registration Statement applied for patent protection rights in
Israel for the international call back invention. If DIM is
unable to obtain patent rights or similar protection for its
international call back invention in Israel, its ability to
realize revenues upon resale thereof could be substantially
impaired.
9. COMPETITION
A number of competitors offer one or more of the
components of the DiV-N, such as video conferencing, video
stream, video on demand, ISDN bandwidth, Internet access and on-
line information. Such competitors include: America Online,
Apple Computers, AT&T, various "Baby Bell" phone companies,
Blockbuster/Viacom Interactive, British Telecom, CompuServe,
Connectix Corporation, C-Phone, Earthlink, Hollywood Studios,
MCI, Microsoft (and the Microsoft Network), Netscape, PictureTel,
PSI Net, Intel, Target Technology, Uunet, VDOnet and Xing
Technologies.
There are no competitors offering integrated multimedia
applications and video conferencing on a switched network at
present. There are also no competitors currently offering
"pay per view" video on demand or live video conferencing on an
interactive computer network. Much of the technology of the
Company which will allow it to integrate all of the features of
the DiV-N is proprietary. Nonetheless, there is intense interest
in video delivery over the Internet and other computer networks
and competitors are expected to develop or license their own
technologies and to begin to offer integrated services which will
compete more directly with the DiV-N. Many of these competitors
will have greater financial, technical, marketing, customer
service and other resources available than the Company.
Management anticipates that the principal competitive factors in
this emerging industry will be affordable and flexible
technology, attractive and intuitive user interfaces, a network
of technical service providers, a variety of popular content
providers and a substantial and sustainable core market of
subscribers.
Management hopes that the Company can aggressively market the
DiV-N and quickly achieve a significant market share which will
help it to withstand the entry of future competitors. (See
"Marketing Strategy") There can however be no assurance that the
Company will succeed in this endeavor or that it will be able to
achieve and maintain profitability in the highly-competitive
environment for video network services which is likely to
develop.
10. MARKETING AND PRICING
The following are Management's currently contemplated
initial distribution, general merchandising, marketing and
pricing policies for each general product category. Because the
Company is in the development stage with respect to each of these
products, these plans are subject to change in response to competitive
conditions at such time as these technologies are brought to market.
A. The DiV-N. The Company is positioned to
be amongst the first to provide a viable interactive video
network for business and consumer information and
entertainment. The Company's marketing efforts are designed to
develop a variety of popular content providers and an existing
and sustainable core of subscribers to the DiV-N.
The Company is in the process of elaborating the
look and feel of its graphical user interface and thereby its
business identity at the Company's Web site
(http://www.digitcom.com). This Web site was designed by the
Company's in-house design department and the graphical look of
the site is being applied to collateral promotional documents,
including the Company's press packet, business client brochure,
consumer client brochure and dealer information package. The
Company has an ongoing program of display advertising and
hyperlink connections to the Web sites of suppliers, associated
businesses and clients on a fair trade basis. These links direct
Web "surfers" to the Company's Web home page, which promotes the
DiV-N and serves as the "front door" to the network.
The Company's in-house marketing department is
developing initial advertising to introduce the DiV-N to the
telecommunications industry and corporate information systems
managers in various trade publications. The Company has retained
an advertising firm and a public relations firm to jointly
develop additional advertising and promotional plans. The
Company anticipates that these plans will involve a national
advertising campaign in general PC user publications at such time
as the content base of the DiV-N becomes established. The
Company is also in the process of negotiating agreements with
television and radio stations in Southern California which are
potential content providers to the DiV-N for on-air promotion of
the DiV-N. The Company will continue to seek in-kind
arrangements of this type with potential broadcast content
providers nationwide. Finally, the Company intends to begin in
the third quarter of 1996 a direct telemarketing and
fax-broadcast promotion to the management information system and
telecommunication managers of Fortune 1000 companies, and the
Company is currently in negotiations with certain telemarketing
companies who may be retained to execute this program. The
Company intends to offer to these Fortune 1000 companies
aggressively priced video-conference enabled voice processing
systems (in conjunction with DIM) and corporate internal network
services through the DiV-N ISDN network.
The Company is in the process of soliciting
multimedia-oriented companies to provide video stream,
pay-per-view and interactive content to the DiV-N. The Company
has had discussions with potential providers such as local TV
stations (for video stream rebroadcast), "infomercial" companies,
interactive game companies and private news and music services.
The Company has only a limited number of content providers under
agreement at this time. While a number of companies have
expressed interest in providing content to the DiV-N, there can
be no assurance that any of them will ultimately agree to provide
content to the DiV-N. The Company intends initially to target as
potential content providers companies which, by virtue of
certain video assets, might economically benefit from a
pay-per-view revenue stream on the DiV-N. In order to assist
this effort, DIVN sales personnel have been promoting the DiV-N
to the voice mail and voice processing customers of DIM.
The Company employs a general sales manager with
the responsibility of developing DIM dealers in DIM's national
dealer network as sales agents of the DiV-N. These DIM dealers
will be trained by Company personnel and supported with Company
promotional literature, including a specially designed dealer
package. The Company and DIM have established a joint marketing
program whereby DIM dealers will be able to offer a package to
business clients of deeply discounted DIM voice processing
products and Web space on the DiV-N's Interactive VideoConference
Yellow Pages server without charge for a limited time. It is
hoped that businesses which take advantage of these packages will
continue as DiV-N content providers and customers beyond the
trial period. The Company also intends to hire account
executive personnel to extend direct sales to prospective content
providers and to service accounts of existing content providers.
Agreements with content providers will indicate
that the content providers are responsible for direct marketing
their content on the DiV-N to their appropriate customer or
client audiences. Some content providers will be licensed by the
Company to sell Company products such as video conferencing
packages and ISDN network service. Such marketing efforts
will directly benefit the Company as well as the content
providers since the Company's DiV-N revenues will ultimately
depend upon the amount of consumer and business interest in the
content provided by content providers.
The content providers are therefore an integral
part of the Company's marketing efforts and the ability of the
Company to generate and increase revenues will be substantially
dependent on the Company's ability to attract content providers
which will successfully market their content on the DiV-N.
Accordingly, the Company plans to establish joint marketing
programs with certain content providers and strategic technology
partners. The Company anticipates that content providers
participating in these joint programs will place direct
response advertising inviting consumers to initiate service on
the DiV-N dedicated network and/or obtain requisite hardware
components and peripherals from the DiV-N or the Company s
proposed group of authorized dealers.
The Company also intends to market the DiV-N
through its network of local POP dial in providers. In order to
obtain a POP franchise from the Company, POP operators will be
required to have sales programs and staff to develop local and
regional content. Promotional programs have yet to be
established for these POP operators. The Company plans
to establish these programs in consultation with the Company's
advertising agency and its principal initial POP franchisees.
Given the world-wide nature of the Internet, the
Company also recognizes a significant opportunity to extend the
DiV-N into Europe and Asia. In the short term, the Company plans
to offer mirrors of European-based Web sites from the Company's
Internet server located in North America. The Company is
currently exploring direct sales and co-venture prospects in
France, England, Korea and Japan, and will consider other markets
as the DiV-N develops.
In the long term, the Company hopes that it will
reach market penetration sufficient to solicit installed software
agreements with PC manufacturers and packaging agreements with
desktop video suppliers. Of course, there can be no assurance
that the Company will succeed in achieving the level of market
penetration necessary to facilitate these arrangements.
The Company will charge content providers on
either on a cost-plus basis or on a revenue sharing basis.
Cost-plus charges will be based upon the cost of ports on the
ISDN Switches which cost will in turn be based on the volume of
calls and bandwidth needs for the content provider,
administration and maintenance of the content provider s site on
the DiV-N, billing and collections costs, attendant charges and
a profit to the Company. The revenue sharing charges will be in
the form of a commission on pay-per-view or retail sales receipts
of the content provider which commission will vary depending upon
the content provider's consumer base, the quality and quantity of
the content, the strength of the brand name and promotional
efforts of the content provider and the term of the agreement.
Internet users may access the DiV-N Web site
without charge and view any free content made available by
content providers. Icons or markers for premium content will
also show on the Web site, but upon selection of such icons or
markers, the user will be directed to dial in to the dedicated
network through a local POP server. Subscribers to the dedicated
network will be charged a minimal set-up fee upon their initial
connection to the network, but will not thereafter be charged for
on-line time on the dedicated network. Subscribers will instead
be charged only for the premium content they request at the rates
specified by the content provider and for general Internet access
at rates competitive with other Internet Service Providers.
B. DigitVideo. DigitVideo video conferencing
software is currently available as a stand alone application but
has not yet been marketed. It may be configured and used for
direct point to point video conferencing using ISDN lines. The
Company expects the primary demand for DigitVideo will derive
from video conferencing through the dedicated DiV-N network,
which is expected to be established in the first quarter of 1997,
and the Company will commence its marketing campaign for
DigitVideo in connection with the establishment of the
dedicated network. DigitVideo video conferencing will be
marketed by the DIM/DiV-N independent dealer network in
conjunction with the marketing of the DiV-N. DigitVideo will
also be marketed directly by the Company to businesses in
conjunction with the Company's marketing to potential content
providers. Marketing efforts for DigitVideo will also be
directed toward medium to large businesses with multiple sites of
operation, which businesses should have an immediate need for the
two-way video conferencing on standard PC components provided by
DigitVideo. DigitVideo packages will likely be bundled with
other higher priced systems such as routers and network systems.
Management will focus its initial consumer efforts
for DigitVideo on one-way video conferencing, which can be
achieved at standard modem speeds without special equipment
installed on the consumer's computer. One-way video conferencing
will be useful for customer service providers and will also
facilitate video-enhanced "chat" entertainment offerings
which are popular on text-only computer networks. The Company
also plans to market the full two-way version of DigitVideo to
audio- and videophiles and upper income PC enthusiasts who
may have sufficient interest and disposable income to consider
two-way video conferencing. Management believes the broader
consumer market will be receptive to two-way video conferencing
as prices for video cameras, interface hardware and ISDN modems
fall, as local telephone companies more effectively market ISDN
connectivity to the home and as rates for ISDN interfaces,
installation and recurring service are reduced. The Company
should be well positioned to expand into this market if and when
these conditions develop.
The Company expects to price two-way full-duplex
DigitVideo software for the business market at a wholesale price
per user of about $500. A "plug and play" package consisting of
the software, camera and video codec card is expected to be in
the $1,500 to $2,000 range at wholesale depending on the volume.
The Company plans to offer a one-way consumer version of
DigitVideo for little or no charge to allow subscribers to the
DiV-N to take advantage of interactive video content on the
dedicated network. Retail markups and agent commissions
are expected to conform to standards in the industry.
C. The ISDN Switch. Management believes that
the Company's proprietary ISDN Switch will have utility outside
the Company s own internal needs. The Company is prepared to
license certain proprietary developments related to the ISDN
Switch so long as such licensing would not adversely affect the
growth of DiV-N. If the Company elects to market the ISDN Switch
technology, sales thereof will be aimed at information management
personnel in medium to large corporations and other service
bureaus and independent telephone companies. The Company expects
the small and inexpensive ISDN Switch to be of interest to
smaller independent telephone companies and interexchange long
distance carriers, on-line services and other Internet Service
Providers.
ISDN Switch technology will not likely be marketed
until the DiV-N has had a chance to establish a significant
customer base and the Company has not determined a price for such
technology as of yet. Licensing of the ISDN Switch to third
parties will require the consent of DIM. (See "Intellectual
Property")
D. Video compression software/hardware. Video
decompression client software and hardware will either be
downloadable as the current software is now or ordered and
fulfilled directly through the DiV-N and/or each content provider
s site. In the medium to long term, Management hopes that
peripherals and upgrade computer cards will be bundled through
PC and software manufacturers or sold through computer equipment
chains, superstores, mail order outlets, the DIM/DIVN dealer
network and other traditional computer outlets.
Video decompression software is generally made
available to users at no charge over the Internet or other
on-line services. The corresponding compression software is
then licensed for a fee to content providers. The Company will
likely follow this industry standard practice with respect to any
video codec software developed by it and used in conjunction with
the DiV-N. Video compression hardware, including the Company's
MPEG-2 Card, will be priced according to market conditions at the
time such hardware is marketed. The Company hopes to be able
establish a price point which will facilitate consumer acceptance
as well as an acceptable return on the Company's investment in
the hardware. The Company may consider out-sourcing the
manufacture and marketing of its video codec hardware components
in the future.
E. Consulting and Design. The Company currently
offers World Wide Web hosting and Web site design and consulting
services to clients. Prices for these services are competitive
with the industry. It is anticipated that these services will
also be offered to content providers on the DiV-N. If client
demand for design services grows, Management anticipates
out-sourcing much of this work on a contract basis.
11. CUSTOMER SERVICE
Management believes that popular acceptance of the
DiV-N will require prompt and professional installation, service
and support of all Company hardware and software products.
For this reason, technically qualified dealers and POP
franchisees in the various local markets will be the core means
of administering customer service, supervised and tracked by a
central technical support team. Recurrent problems will inform
training and customer relations material, as well as guide
service and development teams in refining the Company s products.
DIM s national network of dealers currently maintain trained
computer-telephony technicians and installers. As these and
other new dealers qualify as DiV-N representatives, they will be
required to send salespeople and technicians to the Company s Las
Vegas training facility for a technical seminar. Upon
satisfactory completion of the seminar, these salespeople and
technicians will be qualified to order, install and service
appropriate ISDN service, network hardware, video conference
cards and software and will be conversant with Internet and Local
Area Network (LAN) technology. Certified dealers will be
required to provide technical support to corporate clients and
content providers in their local region.
The Company will add additional technical support
personnel as needed and intends to staff a 24 hour technical
support department available to subscribers by telephone or
over the DiV-N once the dedicated network is established. The
Company anticipates that most software upgrades and system
conflicts will be resolvable over the network via modem
connection.
The Company also plans to enter into an agreement with
a national computer/network consulting and service company to
handle warranty service and installation for corporate clients at
such time as network subscribers are added across North America,
but no such company has yet been identified.
Content providers on the DiV-N will also receive
printed material and on-line database access to facilitate their
customer relations, and they will be expected to provide
accessible personnel for this purpose.
12. INTELLECTUAL PROPERTY
The Company was assigned the following proprietary
technologies of DIM:
1. The DiV-N graphical user interface.
2. The DiV-N application program interface and
protocols integrating video stream and video
on demand multimedia content with video
conferencing within the proprietary graphical
user interface.
3. The ISDN Switch.
4. The software gateway between dedicated ISDN
network and the Internet.
5. DigitVideo video conferencing software.
6. The MPEG-2 Card.
7. Any and all other technologies and know-how
of DIM designed or developed by DIM to
facilitate the video network and video
conferencing businesses.
DIM represented to the Company that it owned all
intellectual property rights to these technologies and that no
infringement claims had been asserted against DIM or by DIM in
connection with these technologies. The assignment from DIM of
these technologies was exclusive and perpetual, subject to the
condition that they may not be further assigned in whole or in
part without the consent of DIM except to an affiliated company
of DIVN.
The Company claims trade secret and/or federal
copyright rights in all of the foregoing technologies. DIVN
intends to apply for federal copyright registration for the DiV-
N graphical user interface and application program interface and
the DigitVideo video conferencing software at such times as the
Company and its counsel deem copyright registration to be
available for these technologies. The Company also plans to
apply for patents of its protocols integrating video stream and
video on demand multimedia content with video conferencing, the
ISDN Switch, the software gateway between the dedicated network
and the Internet and the MPEG-2 Card at such times as the Company
and its counsel deem appropriate. There can, however, be no
assurance that federal copyright registration or patents will be
granted for any of these technologies. The Company will also
consider foreign intellectual property protections for the
foregoing technologies at such time as the DiV-N is marketed in
foreign companies. The Company intends to apply for federal
trademark protection for the name "DigitVideo" once that name is
used in commerce. Despite the precautions of DIM and the
Company, it may be possible for a third party to copy or
otherwise obtain and use the Company's hardware, software,
technology or trade names without authorization or to develop
similar technologies independently. In addition, effective
copyright, patent and trade secret protection may be unavailable
or limited in certain foreign countries.
Because the Company's business is characterized by
rapid technological change, the Company believes that factors
such as the technological and creative skills of its personnel,
new computer hardware, software and telecommunications
developments, frequent hardware and software enhancements, name
recognition and reliable customer service and support are more
important to establishing and maintaining a leadership position
in the video networking industry than the various legal
protections of its technology.
The Company believes that its hardware, software,
trade names and other proprietary rights do not infringe the
proprietary rights of third parties. There can be no
assurance however that third parties will not assert such
infringement by the Company with respect to current or future
software, hardware, trade names or services. Any such claim,
with or without merit, could be time consuming, result in costly
litigation and cause product release delays and might require the
Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company.
Other components of the DiV-N, such as the current
video stream and video on demand codec applications, are licensed
from third parties and the Company claims no proprietary rights
in such components. None of the Company's current licensing
arrangements with third parties require the payment of royalties
or renewal fees; however, upgraded licenses for additional users
of certain software programs may be required as the Company
grows.
In addition, the Company has licensed exclusive
distribution rights within the country of Israel for DIM's
patent-pending international call back product. These rights are
perpetual, irrevocable and assignable. (See "Additional Revenue
Sources") Neither DIM nor DiV-N has applied for patent rights
for this product in Israel, and such rights may not be
available. Any inability of the Company or DIM to obtain
protection from infringing international call back products in
Israel could materially adversely affect the Company's ability
to resell its license rights as intended by Management.
(c) Regulatory and Environmental Matters
Except as indicated below, there are no material regulatory
or environmental regulations to which the Company is subject
other than regulations of general applicability to all businesses
operating in the jurisdictions in which the Company will operate.
DIM will be required to apply to the Federal Communications
Commission for a tariff in connection with its international call
back product, the Israel distribution rights for which are
licensed to the Company. Application for a tariff is a routine
process and the Company does not anticipate any material
difficulties in obtaining the required tariff.
The United States Congress recently enacted the
Telecommunications Act of 1996 which substantially revised the
Federal Communications Act of 1934. A provision of this statute
known as the Communications Decency Act ("CDA") makes it a
criminal offense to transmit to minors "indecent" material
on-line or over the Internet. The statute provides that a
provider of adult content on-line will not be subject to
prosecution under the statute if the provider has taken good
faith reasonable efforts to prevent or restrict access to minors.
Promptly following enactment of the Telecommunications Act of
1996, the constitutionality of the CDA was challenged by
unrelated third parties and a U.S. District Court found the
provision to be an unconstitutional interference with the First
Amendment right to free speech. This ruling is expected to be
appealed by the Justice Department and if such appeal is
successful, the Company would be subject to the CDA. The Company
is not able at this time to determine what effect the CDA
would have on its operations if it is ever enforced.
The International Telecommunications Union, a division of
the United Nations which coordinates the establishment and
operation of international telecommunication networks and
services, has recently declared that member countries have the
right to outlaw international call back services. The
declaration was made in response to a protest joined by 25 member
countries. Israel was not one of the 25 protesting countries and
the Company knows of no initiative within Israel to ban
international call back service. A ban on international call
back service in Israel prior to a sale of the Company's rights to
DIM's international call back product would likely render the
Company's rights in such product worthless.
Item 2. Plan of Operation.
The Company's multimedia Web site is currently operating
from the Company's server located in Santa Monica, California and
is accessible on the Internet at the address
http://www.digitcom.com. This site now generates only nominal
revenues from advertising space in the digitcom.com(mercial)
virtual business district. In the next 12 months the Company
plans to fully implement and market the DiV-N as a nationwide
network.
The Company borrowed a total of $105,027 from related
parties to fund its initial operating expenses. The Company is
also indebted to DIM for $55,690 in payment for fixtures
and equipment purchased by the Company from DIM. (See "Certain
Relationships and Related Transactions") Each of the foregoing
obligations is payable on demand.
The Company commenced a private placement of 490,000 shares
of Common Stock at $2.00 per share on April 24, 1996 (the
"Private Placement"). As of the date of this Registration
Statement, the Company has raised $385,000 (192,500 shares) in
the Private Placement. Of this amount, $28,000 has been paid as
broker commissions and fees. An additional $100,000 of the
Private Placement proceeds was paid to Leibman & Oesch, L.L.P.
("L&O"), which may be deemed a promoter. (See "Certain
Relationships and Related Transactions"). The Company has
also agreed to issue 10,000 shares at a deemed value of $2.00 per
share in lieu of broker commissions and fees to a sales agent in
connection with the Private Placement. The Company
has reserved the remaining $257,000 received thus far to fund its
working capital needs in connection with the marketing and
establishment of the DiV-N.
Any additional net proceeds (net of any broker commissions
and fees) received in the Private Placement will be allocated as
follows and in the following order: $143,000 to the Company for
working capital; $100,000 to L&O; $60,000 to L&O (which fee is
contingent upon the Company selling 350,000 shares in the Private
Placement); and any remaining proceeds to the Company for working
capital. In the event sufficient shares are not sold in the
Private Placement to pay the $100,000 fee still due or the bonus
which may be due L&O, L&O will be issued Common Stock for any
deficiency valued for such purpose at $2.00 per share. Management
believes that it requires aggregate proceeds of $400,000 from the
Private Placement (after broker commissions and fees and payments
to L&O) to commence aggressive marketing of the DiV-N to
businesses and content providers, to establish local POP dial-in
Internet access throughout the United States (via a third party
provider) and to establish dial-in access to the dedicated
network within the state of California. The Company has to date
realized $257,000 in working capital proceeds from the Private
Placement after expenses. There can however be no assurance that
the Company will raise any further capital in the Private
Placement.
The Company estimates that establishment of the planned
national POP network for the dedicated DiV-N network will require
as much as $15 million of cash in the next 12 months in addition
to the capital expected to be raised in the Private Placement.
Such capital will be used for provision of hardware "mirrors" of
the DiV-N server and ISDN Switches at POP servers in each of
approximately 200 cities. The Company expects a certain portion
of this cash requirement to be satisfied through operating
revenues, principally advertising and pay-per-view revenues,
collections under the Resound distributorship contracts and
resale of the Israel distribution rights for DIM's international
call back product. Although the Company cannot determine at this
time how much cash will be raised in the next 12 months from
these activities, the Company will almost certainly need to raise
additional cash in the next 12 months from financing activities.
For this purpose, the Company anticipates additional public or
private offerings of equity securities. The Company has no
current commitments from underwriters or investors for any such
offerings and no assurance can be given that such offerings will
be able to raise needed capital. Because of SEC integration
rules applicable to the Private Placement, the Company's ability
to raise additional equity capital is restricted until at least
six months after the last sale under the Private Placement.
Accordingly, the Company will not likely be able to begin the
establishment and marketing of the DiV-N dedicated network as a
nationwide product until at least such time. Failure of the
Company to raise needed cash after such six month period
would likely have a material adverse effect on the Company as the
rapid establishment of a significant market share in the
Company's emerging industry will be critical to the ability of
the Company to compete in the long term.
The major product development programs and commitments of
the Company at the present time are:
1. The MPEG-2 Card described under "Video
Compression/Decompression" above, including research and
development relating to ASDL and HDSL data transfer technologies
for high bandwidth data delivery.
2. The ISDN switching system described above under
"Network Architecture."
3. Upgrades and improvements to software and hardware
applications for video on demand delivery.
The Company expects to add additional management,
customer service and marketing employees over the next twelve
months.
Item 3. Description of Property.
The Company's principal offices are located at 2190 "A"
Colorado Avenue, Santa Monica, California 90404. This office
houses the executive, sales, promotion, software engineering and
technical support departments and is subleased from DIM on a
month-to-month basis. DIM also operates a dealer training
facility in Las Vegas, Nevada and a sales training facility in
Honolulu, Hawaii. DIVN intends to use these facilities of DIM on
an as needed basis and intends to use them to train network
technicians and installation and sales representatives of Company
dealers. The Company will reimburse DIM for its fair share of
the expenses of these facilities.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The following table shows beneficial ownership of shares of
the Company's outstanding Common Stock as of July 29, 1996, (i)
by all persons, insofar as is known to the Company, owning more
than 5% of such stock and (ii) by each Director, each of the
executive officers of the Company and all Directors and executive
officers as a group. As of July 29, 1996, there were 9,702,500
shares of Common Stock issued and outstanding.
Title Name and Position Amount and Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership Class
Common Digitcom Interactive 9,000,000 92.8%
Stock Multimedia, Inc.
Shareholder
2190 'B' Colorado Avenue
Santa Monica, CA 90404
Common Wan Ying Chin 9,000,000(1) 92.8%
Stock Chairman of the Board,
Secretary
50 N. 21st
Las Vegas, NV 89101
Common Jimmy Chin 9,000,000 (2) 92.8%
Stock CEO, President and
Director
1438 25th Street
Santa Monica, CA 90404
Common Dan Woods - -
Stock Vice President, MIS
and Director
2190 'B' Colorado Ave.
Santa Monica, CA 90404
Common All directors and 9,000,000 (3) 92.8%
Stock officers as a group
(1) Ms. Chin is a director, officer and shareholder of
Digitcom Interactive Multimedia, Inc. and she beneficially holds
fifty percent of the voting shares of DIM. Accordingly, she
may be deemed to have beneficial ownership of the shares of DIVN
held by DIM. She does not directly hold any shares of DIVN.
(2) Mr. Chin is a director, officer and shareholder of
Digitcom Interactive Multimedia, Inc. and he beneficially holds
fifty percent of the voting shares of DIM. Accordingly, he
may be deemed to have beneficial ownership of the shares of DIVN
held by DIM. He does not directly hold any shares of DIVN.
(3) Consists solely of shares held of record by DIM which
may be deemed to be beneficially held by Ms. Chin and Mr. Chin.
Item 5. Directors, Executive Officers, Promoters and Control
Persons.
Certain information regarding the Directors and
executive officers of the Company follows:
Name Age Positions Held Officer of
with the Company the Company
Since
Wan Ying Chin 59 Chairman of the April 1996
Board, Secretary
Jimmy Chin 40 CEO, President April 1996
and Director
Dan Woods 28 Vice President, April 1996
MIS
Additional information concerning each director and
executive officer of the Company
follows:
Ms. Wan Ying Chin is an independent investor with
numerous investments in the technology area as well as other
investments in areas such as real estate. She has been a
Director and Secretary and Treasurer of DIM for eight years. She
has also been a real estate property manager for eight years.
Mr. Jimmy Chin has been President and CEO of the Company
since its formation. He has also been a Director and President
of DIM since its formation in 1986. He is a graduate of
UCLA with a degree in Economics.
Mr. Dan Woods, Software Engineer, has designed and
programmed computer-based Interactive Voice Response in
telephonic applications since 1981. He has experience in all
current PC-based programming languages and Wide Area Network and
LAN architectures. He has served as Systems Consultant to many
companies including SimSci Corporation, Resort Services, County
Wide Title Corporation, Snow Summit and Digitalk. For the past
three years he has devoted full time to designing applications
for DIM's Anise system.
The Directors of the Company are elected at the annual
general meeting of stockholders to serve until the next annual
meeting. The executive officers of the Company serve at the
pleasure of the Board of Directors and do not have fixed terms.
Executive officers generally are appointed at the annual
Directors meeting immediately following the annual stockholder
meeting. Any officer or agent appointed by the Board of
Directors may be removed by the Board whenever in its judgment
the best interests of the Company will be served thereby without
prejudice, however, to contractual rights, if any, of the person
so removed.
Wan Ying Chin is Jimmy Chin's mother. Except for such
relationship, there are no family relationships among the
executive officers. In addition, there are no arrangements or
understandings between any officer and any other person pursuant
to which that officer was selected.
Item 6. Executive Compensation.
Cash Compensation and Options
Because the Company was not in existence until April
1996, no cash compensation was paid and no stock options were
granted to any of the executive officers in the last three fiscal
years.
Option Exercises and Values
None of the executive officers of the Company hold any
stock options in the Company.
Long-Term Incentive Plans
The Company has no long-term incentive plans.
Compensation of Directors
There are no standard compensation arrangements for
Directors for their services as such, including service on
committees or special assignments or as consultants or experts,
except for reimbursement of expenses for attendance at Director's
meetings.
Employment Contracts and Termination of Employment Arrangements
There are no written employment contracts between the
Company and any of the executive officers. The executive
officers are currently paid the following annual salaries: Jimmy
Chin - $36,000 and Dan Woods - $65,000. There are no other
compensatory plans or arrangements, including payments to be
received from the Company, with respect to the resignation,
retirement or other termination of the employment of any
executive officer or related to a change in control of the
Company.
Item 7. Certain Relationships and Related Transactions.
The Company has several arrangements with Digitcom
Interactive Multimedia, Inc., which holds 9,000,000 shares (92.8%
as of July 29, 1996) of the Common Stock of the Company.
Jimmy Chin and Wan Ying Chin are officers, directors and
shareholders of DIM and are officers and Directors of the
Company.
1. Pursuant to an Assignment and License dated as of
April 2, 1996, the Company was assigned most of the technology
underlying the DiV-N from DIM. (See "Intellectual Property")
Pursuant to the same agreement, the Company was assigned certain
accounts receivable under two distributorship agreements for
DIM's voice mail product Resound and was licensed the
distribution rights within the country of Israel for DIM's
patent-pending international call back product. (See "Additional
Revenue Sources") DIM is responsible for collecting the
assigned receivables on DiV-N's behalf. The Assignment and
License was granted to the Company in exchange for the 9,000,000
shares of Common Stock issued to DIM.
2. DIM provided to the Company cash in the amount of
$2,514 and fixtures and equipment valued at $55,690 upon
organization of the Company in April 1996. These amounts
are repayable to DIM on demand and carry an imputed interest rate
of ten percent per annum.
3. The Company subleases its principal place of
business from DIM and has rights to use DIM's training facilities
in Las Vegas, Nevada and Honolulu, Hawaii. (See "Description
of Property")
4. Several administrative employees of DIM also work
for DIVN. Pursuant to an oral arrangement, the Company is
expected to pay its pro rata share of the salary and benefits
of these personnel.
5. The Company and DIM have designed a joint marketing
effort whereby DIM will encourage dealers in its national dealer
network to become dealers of DIVN products. DIM will also make
available certain of its voice-mail applications at a deep
discount to customers who agree to take advantage of an
introductory offer for advertising on the DiV-N. (See "Marketing
and Pricing -- The DiV-N")
The Company also borrowed $50,000 from Gene Chin,
$50,000 from Penny Chin and $2,513 from Wan Ying Chin, all in
April 1996. The foregoing loans are payable on demand and
carry an imputed interest rate of ten percent per annum. The
funds from these loans were used by the Company for working
capital. Gene Chin is a brother of Jimmy Chin and son of Wan
Ying Chin. Penny Chin is a sister of Jimmy Chin and daughter of
Wan Ying Chin. Wan Ying Chin is a director and officer of the
Company. None of these individuals has indicated a present
intent to demand payment on these loans and the Company does not
expect any demand for payment on these loans until it has raised
additional equity capital beyond the Private Placement.
There can, however, be no assurance that one or more of these
individuals will not demand payment on these loans. Such a
demand could have an adverse effect on the Company's
development plans.
While these arrangements were not arms' length, the
Company believes that the terms of these transactions were and
are equivalent or superior to what the Company could achieve in
the open market with respect to these transactions.
Transactions with Promoters
The Company entered into a letter agreement dated May 1,
1996 with Leibman & Oesch, L.L.P., a Houston, Texas law firm
which, in addition to practicing law, engages in the business
of helping new companies raise capital and establish trading
markets for their securities. Pursuant to the terms of the
letter agreement, L&O agreed to coordinate and pay certain
expenses related to (i) the Company's merger with a company
having 300 or more shareholders and nominal assets and
liabilities (ultimately leading to the Company's merger with
Ouzel Acquisition Corp. ("Ouzel")), (ii) the Private Placement,
(iii) this Registration Statement and (iv) application
to the NASD for listing on the Nasdaq SmallCap System.
The expenses to be paid by L&O include costs associated
with identifying and obtaining majority control of a suitable
merger target, the Company's legal costs incurred in such merger,
legal costs associated with the Private Placement, printing costs
for the Private Placement Memorandum, blue sky filing fees for
the merger and the Private Placement and legal costs of
preparing this Registration Statement and applying to the NASD
for listing on the Nasdaq SmallCap System. L&O also agreed to
pay the costs of preparing certain agreements in connection with
the formation of the Company. The expenses to be paid by L&O do
not include the Company's general formation expenses except as
specified in the letter agreement, accounting fees (including
fees and expenses charged by James M. Hutchings, CPA), expenses
related to establishing market makers for the Company's Common
Stock, transfer agent fees, fees of Standard & Poor's for listing
in the Corporation Manual, costs of obtaining a CUSIP number or
printing costs for stock certificates.
In consideration of its services and its advancement of
certain expenses, L&O is to receive a flat fee of $200,000. Such
fee is to be paid out of the net proceeds (after subtracting
broker commissions and fees) of the Private Placement as follows:
the first $100,000 of net proceeds is payable to L&O; the next
$400,000 in net proceeds is payable to the Company; the next
$100,000 in net proceeds is payable to L&O; all remaining net
proceeds are payable to the Company, subject to a bonus of
$60,000 payable to L&O upon sale of 350,000 shares of
Common Stock (gross proceeds of $700,000) in the Private
Placement. As of the date of this Registration Statement,
$100,000 has been paid to L&O. Pursuant to the terms of the
letter agreement, if sufficient proceeds are not raised in the
Private Placement to pay in full the second $100,000 installment,
any shortfall is payable in Common Stock valued for such purpose
at the Private Placement price of $2.00 per share. All or a
portion of the $60,000 bonus is also payable in Common Stock on
the same terms if Private Placement proceeds are insufficient to
pay such amount in cash.
The Company has been advised by L&O that Neil M.
Leibman, a partner of L&O, is the beneficial owner of 397,222
shares of Common Stock of the Company (4.1% as of July 29,
1996). Mr. Leibman's beneficial ownership interest in such
shares derived from his beneficial ownership of 77.8% of the
issued and outstanding stock of Ouzel before the merger of Ouzel
with and into the Company.
As a result of the foregoing arrangement, L&O may be
deemed a "promoter" of the Company as that term is defined in
Rule 12b-2 promulgated under the Securities Exchange Act
of 1934. The Company however expresses no opinion as to whether
L&O is in fact a promoter as such term is so defined.
Item 8. Description of Securities.
The Company has authorized 20,000,000 shares of $.001
par value common stock ("Common Stock"), of which 9,707,500
shares were issued and outstanding as of July 29, 1996.
Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors from funds
legally available therefor, and, upon liquidation, are entitled
to share pro rata in any distribution to stockholders. The
holders of shares of Common Stock have one vote per share and
have no preemptive rights. The Common Stock is not redeemable,
does not have conversion rights and is not liable to assessment
or further calls by the Company.
The Articles of Incorporation of the Company do not
grant cumulative voting rights to the stockholders in the
election of Directors. However, under California law, any
stockholder who expresses at a meeting his or her intention to
cumulate votes for the election of Directors may do so at the
next meeting of stockholders. If any stockholder has given such
notice, all stockholders may cumulate their votes for the
election of Directors at the next such meeting. There is no
provision in the Company's Articles of Incorporation or Bylaws
that would delay, defer or prevent a change in control of the
Company.
The transfer agent for the Company is United Stock
Transfer, Inc., 13275 East Fremont Plaza, Suite 302, Englewood,
CO 80112.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
There is currently no established public trading market
for the Company's Common Stock.
To date, no cash dividends have been paid by the Company
and it is not anticipated that cash dividends will be paid in the
foreseeable future due to the substantial capital requirements
for establishing the proposed interactive video network.
As of July 29, 1996, there were 373 holders of record of
the Common Stock.
As of July 29, 1996, there were no options or warrants
outstanding for the purchase of any securities of the Company.
As of July 29, 1996, the Company believes that 702,500
shares of the outstanding Common Stock may be resold without
registration under the Securities Act of 1933 pursuant to
Regulation D, Rule 504(b)(1). Up to 297,500 shares which are
currently being offered in the Private Placement are expected to
be freely resellable pursuant to Rule 504(b)(1) if such shares
are sold in the Private Placement. All of the foregoing shares
may however be subject to various state blue sky registration
requirements as a condition to resale. No other shares may be
sold pursuant to Rule 144 at this time and the Company has not
agreed to register any further shares for sale by security
holders.
Item 2. Legal Proceedings.
Neither the Company nor any of the properties of the
Company are subject to any pending legal proceedings nor are any
such proceedings known by Management to be contemplated.
Item 3. Changes and Disagreements with Accountants.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
Since its formation in April 1996, the Company has
offered and sold securities in the transactions described below
without registration under the Securities Act of 1933 (the
"Act"). Except as otherwise indicated, no underwriter or sales
or placement agent was involved in the transactions.
In April 1996, the Company issued 9,000,000 shares to
Digitcom Interactive Multimedia, Inc. in exchange for (i) the
assignment to DiV-N of all of DIM's technology relating to the
DiV-N; (ii) the assignment of certain contract receivables under
two distributorship contracts for DIM's voice mail product
Resound; and (iii) a license for the distribution rights within
the country of Israel for DIM's patent-pending international call
back product. This transaction was exempt from registration
pursuant to Section 4(2) of the Act in that DIM was able to fend
for itself and had access to all information which would have
been required in a registration statement with respect to the
securities acquired.
In May 1996, the Company issued a total of 510,000
shares to a class consisting of all of the shareholders of Ouzel
Acquisition Corp., a Delaware corporation, in exchange for all of
the outstanding shares of Ouzel. The issuance of shares to such
shareholders was exempt from registration under the Act pursuant
to Regulation D, Section 504 promulgated thereunder.
As of July 29, 1996, the Company had sold a total of
192,500 shares for $2.00 per share in a self-underwritten private
placement transaction, pursuant to which 490,000 shares were
offered. The subscribers to the Private Placement as of such
date were Helen E. Black Living Trust, Thomas G. Ispas, Mark
McCulloch, Jessica Wang, William B. Mendenhall, Leslie Garson
Public Relations, Inc., Joel Wallach, Barbara Hodson, Shahin
Malecit, William Dean Katzelio, Bruce Byrwa, Siegfried Sonnenburg
and Resources Trust Company FBO Siegfried Sonnenburg. The
Company has incurred $48,000 in broker commissions and fees in
connection with the Private Placement and has paid Leibman &
Oesch, L.L.P. $100,000 of a $200,000 fee due it in connection
with the Private Placement and other matters. (See "Certain
Relationships and Related Transactions") The Private Placement
offers and sales are exempt from registration under the Act
pursuant to Regulation D, Section 504.
Item 5. Indemnification of Directors and Officers.
The Company's Bylaws provide that the Company will
indemnify its Directors, officers, employees and other agents of
the Company to the fullest extent permitted by the California
General Corporation Law.
The Board of Directors may cause the Company to purchase
and maintain directors and officers liability insurance for the
benefit of any person who is or was serving as a Director,
officer, employee or agent of the Company or as a Director,
officer, employee or agent of any corporation of which the
Company is or was a shareholder. The Company has not as of the
date of this Registration Statement purchased such insurance, but
it may do so in the future if such insurance can be obtained on
an economic basis.
Part F/S
DIGITCOM INTERACTIVE VIDEO NETWORK
Index to Financial Statements.
F-1 Report of James M. Hutchings, CPA, dated August 2, 1996
F-2 Audited Balance Sheet as of May 31, 1996
F-3 Audited Statement of Operations for the period April 2, 1996
inception) through May 31, 1996
F-4 Audited Statement of Stockholders' Equity for the period
April 2, 1996 (inception) through May 31, 1996
F-5 Audited Statement of Cash Flow for the period April 2, 1996
inception) through May 31, 1996
F-6 Notes to Financial Statements
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the Registrant caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, this 9th day of August, 1996.
DIGITCOM INTERACTIVE VIDEO
NETWORK
Date: August 9, 1996 By: /s/ Jimmy Chin
Jimmy Chin, President
Part III
DIGITCOM INTERACTIVE VIDEO NETWORK
Index to Exhibits.
Exhibit
Number
(3) Charter and By-laws
3.1 Articles of Incorporation of Digitcom Interactive Video
Network
3.2 Certificate of Amendment to the Articles of Incorporation of
Digitcom Interactive Video Network dated April 16, 1996
3.3 Bylaws of Digitcom Interactive Video Network
(10) Material Contracts * - confidential treatment of certain
portions of these contracts requested
10.1 Agreement and Plan of Merger between DIVN and Ouzel
Acquisition Corp. dated effective April 29, 1996
10.2 Agreement of Merger between DIVN and Ouzel Acquisition Corp.
10.3 Assignment and License Agreement between Digitcom
Interactive Multimedia, Inc. and Digitcom Interactive Video
Network dated April 2, 1996
10.4 Digitcom Volume Purchase and Exclusive Distribution
Agreement between Digitcom Interactive Multimedia, Inc.
(doing business as Resound Communications Corporation)
and Al-Anani Group "Maztrad" dated May 20, 1996 * -
confidential treatment of certain portions of this contract
requested
10.5 Amendment to Digitcom Volume Purchase and Exclusive
Distribution Agreement between Digitcom Interactive
Multimedia, Inc. (doing business as Resound
Communications Corporation) and Al-Anani Group "Maztrad"
dated May 20, 1996
10.6 Digitcom Volume Purchase Agreement between Digitcom
Interactive Multimedia, Inc. (doing business as Resound
Communications Corporation) and Pyravision Teleconnection
Canada, Inc. dated as of May 2, 1996 * - confidential
treatment of certain portion of this contract requested
10.7 Amendment to Digitcom Volume Purchase Agreement between
Digitcom Interactive Multimedia, Inc. (doing business as
Resound Communications Corporation) and Pyravision
Teleconnection Canada, Inc. dated as of May 2, 1996
10.8 Lease Agreement between Digitcom Interactive Multimedia,
Inc. (doing business as Resound Communications Corporation)
and DIVN dated November 1, 1995
10.9 Letter Agreement between DIVN and Leibman & Oesch, L.L.P.
dated May 1, 1996
ARTICLES OF INCORPORATION
OF
DIGITCOM INTERACTIVE VIDEO NETWORK
I
The name of this corporation is Digitcom Interactive Video
Network.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a
profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this
corporation's initial agent for service of process is Jimmy Chin,
2190 Colorado Avenue, Suite "A", Santa Monica, California 90404.
IV
This corporation is authorized to issue only one class of
shares of stock designated as common stock, and the total number of
shares of common stock which this corporation is authorized to
issue is 10,000,000.
/s/ David J. Cartano
David J. Cartano, Incorporator
DIGITCOM INTERACTIVE VIDEO NETWORK
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
David J. Cartano certifies that:
1. I am the sole incorporator of Digitcom Interactive Video
Network, a California corporation.
2. I hereby adopt the following amendment to the Articles of
Incorporation of this corporation:
Article IV is amended to read as
follows:
The corporation is authorized to
issue only one class of shares of
stock, designated as common stock,
and the total number of shares which
this corporation is authorized to
issue is 20,000,000.
3. No directors were named in the original Articles of
Incorporation and none have been elected.
4. No shares have been issued.
I further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: April 16, 1996 /s/ David J. Cartano
David J. Cartano, Incorporator
BYLAWS
Bylaws for the regulation,
except as otherwise provided
by statute or its Articles of
Incorporation, of
DIGITCOM INTERACTIVE VIDEO NETWORK
(a California corporation)
ARTICLE I. OFFICES
Section 1. Principal Executive Office
The principal executive office of the corporation is hereby
fixed and located at 2190 Colorado Avenue, Suite A, Santa
Monica, California 90404. The Board of Directors (herein called
the "Board") is hereby granted full power and authority to
change said principal executive office from one location to
another. Any such change shall be noted on the Bylaws
opposite this Section, or this Section may be amended to state
the new location.
Section 2. Other Offices
Branch or subordinate offices may at any time be established
at any place or places.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings
Meetings of shareholders shall be held either at the
principal executive office of the corporation or at such other
place within or without the State of California as may be
designated either by the Board or by the written consent of all
persons entitled to vote and not present in person or by proxy
at the meeting, given either before or after the meeting and
filed with the Secretary.
Section 2. Annual Meetings
The annual meetings of shareholders shall be held on the
first day of February of each year, at 3:00 p.m., local time then
in effect, or such other date or such other time as may be
fixed by the Board; provided, however, that should said day fall
upon a Saturday, Sunday, or legal holiday observed by the
corporation at its principal executive office, then any such
annual meeting of the shareholders shall be held at the same
time and place on the next day thereafter ensuing which is a full
business day. At such meetings directors shall be elected and
any other proper business may be transacted.
Section 3. Special Meetings
Special meetings of the shareholders may be called at any
time by the Board, the Chairman of the Board, the President,
or by the holders of shares entitled to cast not less than 10
percent of the votes at such meeting. Upon request in writing to
the Chairman of the Board, the President, any Vice President or
the Secretary by any person (other than the Board) entitled to
call a special meeting of shareholders, the officer forthwith
shall cause notice to be given to the shareholders entitled to
vote that a meeting will be held at a time requested by the
person or persons calling the meeting, not less than 35 nor more
than 60 days after the receipt of the request. If the notice is
not given within 20 days after receipt of the request, the
persons entitled to call the meeting may give the notice.
Nothing contained in this Section 3 shall be construed as
limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board may be held.
Section 4. Notice of Annual or Special Meeting
(a) Written notice of each annual or special meeting of
shareholders shall be given not less than 10 (or, if sent by
third-class mail, 30) nor more than 60 days before the date of
the meeting to each shareholder entitled to vote thereat. Such
notice shall state the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be
transacted, or (ii) in the case of the annual meeting, those
matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but,
subject to the provisions of applicable law, any proper matter
may be presented at the meeting for such action. The notice of
any meeting at which directors are to be elected shall include
the names of nominees intended at the time of the notice to be
presented by the Board for election.
(b) Notice of a shareholders' meeting shall be given
either personally or by first-class mail, or, if the corporation
has outstanding shares held of record by 500 or more persons
(determined as provided under the California General Corporation
Law) on the record date for the shareholders' meeting, notice may
be sent by third-class mail, or by other means of written
communication, addressed to the shareholder at the address of
such shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of
notice or, if no such address appears or is given, at the place
where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general
circulation in the county in which the principal executive
office is located. Notice by mail shall be deemed to have been
given at the time a written notice is deposited in the United
States mails, postage prepaid. Any other written notice shall be
deemed to have been given at the time it is personally delivered
to the recipient, or is delivered to a common carrier for
transmission, or is actually transmitted by the person giving the
notice by electronic means to the recipient.
Section 5. Quorum
Unless otherwise provided in the Articles, a majority of the
shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of the shareholders. The
affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a
majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by
classes is required by law or by the Articles and except as
provided in the following sentence. The shareholders present at
a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved
by at least a majority of the shares required to
constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof
(a) Any shareholders' meeting, whether or not a quorum is
present, may be adjourned from time to time by the vote of a
majority of the shares, the holders of which are either present
in person or represented by proxy thereat, but in the absence of
a quorum (except as provided in Section 5 of this Article) no
other business may be transacted at such meeting.
(b) It shall not be necessary to give any notice of the
time and place of the adjourned meeting or of the business to be
transacted thereat, other than by announcement at the
meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more
than 45 days or, if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting
shall be given as in the case of an original meeting.
Section 7. Voting
The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only those persons in whose
names shares stand on the share records of the corporation on the
record date determined in accordance with Section 8 of this
Article. Voting shall in all cases be subject to the
provisions of the California General Corporation Law and to the
following provisions:
(a) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by
such holder either in person or by proxy, without a transfer
of such shares into the holder's name; and shares standing in the
name of a trustee may be voted by the trustee, either in person
or by proxy, but no trustee shall be entitled to vote shares held
by such trustee without a transfer of such shares into the
trustee's name.
(b) Shares standing in the name of a receiver may be voted
by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer
thereof into the receiver's name if authority to do so is
contained in the order of the court by which such receiver was
appointed.
(c) Subject to the provisions of the California General
Corporation Law, and except where otherwise agreed in writing
between the parties, a shareholder whose shares are pledged shall
be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and
the corporation may treat all rights incident thereto as
exercisable by the minor, in person or by proxy, whether or not
the corporation has notice, actual or constrictive, of the
nonage, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the
corporation.
(e) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or
proxyholder as the bylaws of such other corporation may prescribe
or, in the absence of such provision, as the board of directors
of such other corporation may determine or, in the absence of
such determination, by the chairman of the board, president or
any vice president of such other corporation, or by any other
person authorized to do so by the chairman of the board,
president or any vice president of such other corporation.
Shares which are purported to be voted or any proxy purported
to be executed in the name of a corporation (whether or not any
title of the person signing is indicated) shall be presumed to be
voted or the proxy executed in accordance with the provisions
of the subdivision, unless the contrary is shown.
(f) Shares of the corporation owned by any subsidiary shall
not be entitled to vote on any matter.
(g) Shares held by the corporation in a fiduciary capacity,
and shares of the corporation held in a fiduciary capacity by any
subsidiary of the corporation shall not be entitled to vote on
any matter, except to the extent that the settlor or beneficial
owner possesses and exercises a right to vote or to give the
corporation binding instructions as to how to vote such shares.
(h) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, husband and wife as community
property, tenants by the entirety, voting trustees, persons
entitled to vote under a shareholder voting agreement or
otherwise, or if two or more persons (including proxyholders)
have the same fiduciary relationship respecting the same shares,
unless the secretary of the corporation is given written notice
to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the
following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so
voting binds all;
(iii) If more than one vote, but the vote is evenly
split on any particular matter, each faction may vote the
securities in question proportionately.
If the instrument so filed or the registration of the shares
shows that any such tenancy is held in unequal interests, a
majority or even split for the purpose of this Section shall be a
majority or even split in interest.
(i) Subject to the following sentence and to the provisions
of the California General Corporation Law, every shareholder
entitled to vote at any election of directors may cumulate such
shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by
the number of votes to which the shareholder's shares are
normally entitled, or may distribute the shareholder's votes on
the same principle among as many candidates as the
shareholder thinks fit. No shareholder shall be entitled to
cumulate votes for any candidate or candidates pursuant to the
preceding sentence unless such candidate or candidates' names
have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such
notice, all shareholders may cumulate their votes for candidates
in nomination.
(j) Elections need not be by ballot; provided, however,
that all elections for directors must be by ballot upon demand
made by a shareholder at the meeting and before the voting
begins.
(k) In any election of directors, the candidates receiving
the highest number of affirmative votes of the shares entitled to
be voted for them up to the number of directors to be elected by
such shares are elected; votes against a director and votes
withheld shall have no legal effect.
Section 8. Record Date
(a) The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any
meeting or to vote, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any other lawful
action. The record date so fixed shall be not less than 10 nor
more than 60 days prior to the date of the meeting nor more than
60 days prior to any other action. When a record date is so
fixed, only shareholders of record at the close of business on
the record date are entitled to notice of the meeting and to
vote, or to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of shares on the books of the
corporation after the record date, except as otherwise provided
in the Articles, by agreement, or by law. A determination of
shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the
adjourned meeting. The Board shall fix a new record date if the
meeting is adjourned for more than 45 days from the date set for
the original meeting.
(b) If no record date is fixed by the Board, the record
date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which
the meeting is held. The record date for determining
shareholders for any purpose other than as set forth in
this Section 8 or in Section 10 of this Article shall be at the
close of business on the day on which the Board adopts the
resolution relating thereto, or the sixtieth (60th) day prior to
the date of such other action, whichever is later.
Section 9. Waivers, Consents and Approvals; Effect of
Attendance at Meetings; Require Notice of Shareholder Business
(a) The transactions of any meeting of shareholders,
however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and noticed,
and wherever held, notice, if a quorum is present either in
person or by proxy, and if, either before or after the meeting,
each of the persons entitled to vote, not present in person or
by proxy, signs a written waiver of notice, or a consent to
the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents, or approvals shall be filed with the
corporate records or made a part of the minutes of the
meeting.
(b) Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the
person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of
matters required by the California General Corporation Law to be
included in the notice but not so included, if such objection is
expressly made at the meeting.
(c) Neither the business to be transacted at nor the
purpose of any regular or special meeting of shareholders
need be specified in any written waiver of notice, consent to
the holding of the meeting or approval of the minutes thereof,
unless otherwise provided in the Articles; provided, however,
that any shareholder approval at a meeting, other than unanimous
approval by those entitled to vote, with respect to either (i) a
contract or transaction in which a director has a direct or
indirect financial interest pursuant to Section 310 of the
Corporations Code of California, (ii) an amendment of the
Articles of Incorporation pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation pursuant to
Section 1201 of that Code, (iv) a voluntary dissolution of the
corporation pursuant to Section 1900 of that Code, or (v) a
distribution in dissolution other than in accordance with the
rights of outstanding preferred shares pursuant to Section
2007 of that Code, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting or
in any written waiver of notice. (See California
Corporations Code 601(f).)
Section 10. Shareholder Action By Written Consent Without a
Meeting.
(a) Unless otherwise provided in the Articles, any action
that may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without
prior notice if a consent in writing setting forth the action so
taken is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Unless a record date for voting purposes has been fixed as
provided in Section 8 of this Article, the record date for
determining shareholders entitled to give consent pursuant to
this Section 10, when no prior action has been taken by the
Board, shall be at the close of business on the day on which the
first written consent is given. All such consents shall be filed
with the secretary of the corporation and shall be maintained
with the corporate records. Any shareholder giving a written
consent, or such shareholder's proxyholders or a transferee of
the shares or a personal representative of the shareholder or
their respective proxyholders, may revoke the consent by a
writing received by the secretary of the corporation prior to the
time that written consents of the number of shares required to
authorize the proposed action have been filed with the
secretary of the corporation, but may not do so thereafter.
(b) In the case of the election of directors, such a
written consent shall be effective only if signed by the holders
of all outstanding shares entitled to vote for the election of
directors; provided, however, that the shareholders may elect a
director at any time to fill a vacancy on the board of directors
that has not been filled by the directors, other than a vacancy
created by removal, by the written consent of the holders of a
majority of the outstanding shares entitled to vote for the
election of directors. The election of a director by written
consent to fill a vacancy created by removal requires the
unanimous written consent of all shares entitled to vote
for the election of directors.
(c) If the consents of all shareholders entitled to vote
have not been solicited in writing, and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of any corporate action
approved by shareholders without a meeting to those shareholders
entitled to vote who have not consented in writing to such
action. This notice shall be given in the manner specified in
Section 4(b) of this Article II. In the case of approval of
either (i) a contract or transaction in which a director has a
direct or indirect financial interest pursuant to Section
310 of the Corporations Code of California, (ii) indemnification
of agents of the corporation pursuant to Section 317 of that
Code, (iii) a reorganization of the corporation pursuant to
Section 1201 of that Code, or (iv) a distribution in
dissolution other than in accordance with the rights of
outstanding preferred shares pursuant to Section 2007 of that
Code, then the notice shall be given at least ten (10) days
before the consummation of any action authorized by that
approval.
Section 11. Proxies
Every person entitled to vote shares has the right to do so
either in person or by one or more agents authorized by a
written proxy signed by such person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission, or
otherwise) by the shareholder or by the shareholder's
attorney-in-fact. A validly executed proxy that does not
state that it is irrevocable shall continue in full force and
effect until: (i) revoked by the person executing it prior to the
vote pursuant to that proxy by a writing delivered to the
corporation stating that the proxy is revoked, or by a
subsequent proxy executed by the person who executed the
prior proxy and presented to the meeting, or as to any meeting by
attendance at such meeting and voting in person by the person
executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted;
provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of the California General
Corporation Law. (See California Corporations Code 705.)
Section 12. Inspectors of Election
(a) In advance of any meeting of shareholders, the
Board may appoint any persons other than nominees for office as
inspectors of election to act at such meeting and any
adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the
request of any shareholder or shareholder's proxy shall, make
such appointment at the meeting. The number of inspectors shall
be either one or three. If appointed at a meeting on the request
of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or
three inspectors are to be appointed.
(b) The duties of such inspectors shall be as prescribed by
the California General Corporation Law and shall include
the following: determining the number of shares outstanding and
the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity, and
effect of proxies; receiving votes, ballots, or consents; hearing
and determining all challenges and questions in any way ensuing
in connection with the right to vote; counting and tabulating
all votes or consents; determining when the polls shall close;
determining the result; and doing such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
If there are three inspectors of election, the decision, act, or
certificate of a majority is effective in all respects as the
decision, act, or certificate of all.
Section 13. Conduct of Meetings of Shareholders
Subject to the following and to applicable law, meetings of
shareholders generally shall follow accepted rules of
parliamentary procedure.
(a) The chairman of the meeting shall have absolute
authority over matters of procedure and there shall be no
appeal from the ruling of the chairman. If the chairman, in
his absolute discretion, deems it advisable to dispense with the
rules of parliamentary procedure as to any one meeting of
shareholders or part thereof, the chairman shall so state and
shall clearly state the rules under which the meeting or
appropriate part thereof shall be conducted.
(b) If disorder should arise that prevents continuation of
the legitimate business of the meeting, the chairman may announce
the adjournment of the meeting and quit the chair; and upon
his so doing, the meeting shall be immediately adjourned.
(c) The chairman may ask or require that anyone not a bona
fide shareholder or proxy leave the meeting.
(d) A resolution or motion shall be considered for vote
only if proposed by a shareholder or duly authorized proxy and
seconded by an individual who is a shareholder or a duly
authorized proxy, other than the individual who proposed the
resolution or motion.
ARTICLE III. DIRECTORS
Section 1. Powers
Subject to limitations of the Articles, of these Bylaws, and
of the California General Corporation Law relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under
the direction of the Board. The Board may delegate the
management of the day-to-day operation of the business of the
corporation to a management company or other person provided that
the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate
direction of the Board. Without prejudice to such general
powers, but subject to the same limitations, it is hereby
expressly declared that the Board shall have the following powers
in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the officers, agents, and
employees of the corporation (other than the directors),
prescribe such powers and duties for them as may not be
inconsistent with law, or with the Articles or these Bylaws, fix
their compensation, and require from them security for faithful
service.
(b) To conduct, manage, and control the affairs and
business of the corporation and to make such rules and
regulations therefor not inconsistent with law, or with the
Articles or these Bylaws, as they may deem best.
(c) To adopt, make, and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the
form of such seal and of such certificates from time to time as
in their judgment they may deem best.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such
consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes
of the corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations,
or other evidences of debt and securities therefor.
Section 2. Number of Directors
The authorized number of directors shall be two (2) until
changed by amendment of the Articles or by a Bylaw duly adopted
by the shareholders amending this Section 2; provided,
however, that if the Articles of the corporation set forth the
authorized number of directors of the corporation, the authorized
number of directors may be changed only by an amendment of the
Articles; and provided, further, that after the issuance of
shares, a Bylaw or an amendment of the Articles reducing the
authorized number of directors to a number less than five cannot
be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.
Section 3. Election and Term of Office
The directors shall be elected at each annual meeting of
shareholders, but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose.
Each director shall hold office until the next annual meeting and
until a successor has been elected and qualified.
Section 4. Vacancies
(a) Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the
Secretary, or the Board, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected by the
Board or by the shareholders to take office when the resignation
becomes effective.
(b) Vacancies on the Board, except those existing as a
result of a removal of a director, may be filled by a majority of
the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold
office until the next annual meeting and until such director's
successor has been elected and qualified.
(c) A vacancy or vacancies on the Board shall be deemed to
exist in case of the death, resignation, or removal of any
director, or if the authorized number of directors be increased,
or if the shareholders fail at any annual or special meeting of
shareholders at which any director or directors are elected, to
elect the full authorized number of directors to be voted for at
that meeting.
(d) The Board may declare vacant the office of a director
who has been declared of unsound mind by an order of court or
convicted of a felony.
(e) The shareholders may elect a director or directors at
any time to fill any vacancy or vacancies not filled by the
directors. Any such election by written consent, other than
to fill a vacancy created by removal, requires the consent of a
majority of the outstanding shares entitled to vote. Any such
election by written consent to fill a vacancy created by removal
requires the unanimous written consent of all shares entitled to
vote for the election of directors.
(f) No reduction of the authorized number of directors
shall have the effect of removing any director prior to the
expiration of the director's term of office.
Section 5. Place of Meetings
Regular or special meetings of the Board shall be held at
any place within or without the State of California which has
been designated from time to time by the Board. In the
absence of such designation, regular meetings shall be held at
the principal executive office of the corporation.
Section 6. Regular Meetings
(a) Immediately following each annual meeting of
shareholders, the Board shall hold a regular meeting for the
purpose of organization, election of officers and the transaction
of other business.
(b) Other regular meetings of the Board shall be held
without call on such dates as determined from time to time by the
Board; provided, however, should said day fall on a Saturday,
Sunday, or legal holiday observed by the corporation at its
principal executive office, then said meeting shall be held at
the same time on the next day thereafter ensuing which is a full
business day. Call and notice of all regular meetings of the
Board are hereby dispensed with.
Section 7. Special Meetings
(a) Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board,
the President, any Vice President, the Secretary or any two
directors.
(b) Special meetings of the Board shall be held upon four
days' notice by mail or upon 48 hours' notice delivered
personally or by telephone or telegraph. Neither the Articles
nor these Bylaws may dispense with notice of a special meeting.
Such notice need not specify the purpose of any special meeting
of the Board. Any such notice shall be addressed or delivered to
each director at such director's address as it is shown upon the
records of the corporation or as may have been given to the
corporation by the director for purposes of notice or, if such
address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the
directors are regularly held.
(c) Notice by mail shall be deemed to have been given at
the time a written notice is deposited in the United States
mails, postage prepaid. Notice by mail shall be sent by first-
class mail. Any other written notice shall be deemed to have
been given at the time it is personally delivered to the
director, or is delivered to a common carrier for transmission,
or is actually transmitted by the person giving the notice by
electronic means to the director. Oral notice shall be deemed to
have been given at the time it is communicated, in person or by
telephone or wireless, to the director or to a person at the
address of the director as shown on the records of the
corporation or at the director's office who the person giving the
notice has reason to believe will promptly communicate it to the
director.
Section 8. Quorum
A majority of the authorized number of directors constitutes
a quorum of the Board for the transaction of business, except to
adjourn as provided in Section 11 of this Article. Every act or
decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded
as the act of the Board, unless a greater number be required by
law or by the Articles. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at
least a majority of the required quorum for such meeting.
Section 9. Participation in Meetings by Conference Telephone
Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment,
so long as all members participating in such meeting can hear one
another. Participation in a meeting pursuant to this Section
constitutes presence in person at such meeting.
Section 10. Waiver of Notice
Notice of a meeting need not be given to any director who,
either before or after the meeting, signs a written waiver of
notice, or a consent to holding such meeting, or an approval of
the minutes thereof, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, or
approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 11. Adjournment
A majority of the directors present, whether or not a quorum
is present, may adjourn any directors' meeting to another time
and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and
place be fixed at the meeting adjourned; provided, however, that
if a meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the
time of the adjourned meeting to the directors who were not
present at the time of the adjournment.
Section 12. Fees and Compensation
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board.
Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving
compensation therefor.
Section 13. Action Without Meeting
Any action required or permitted to be taken by the Board
may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action.
Such written consent or consents shall have the same force and
effect as a unanimous vote of the Board and shall be filed with
the minutes of the proceedings of the Board.
Section 14. Rights of Inspection
Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records, and
documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic
or foreign. Such inspection by a director may be made in person
or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 15. Committees
The Board may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees,
each consisting of two or more directors, to serve at the
pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent member at any meeting of such committee. The
appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of
directors. Any such committee, to the extent provided in the
resolution of the Board, shall have all the authority of the
Board, except with respect to:
(a) The approval of any action for which the California
General Corporation Law also requires shareholders' approval or
approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any
committee;
(c) The fixing of compensation of the directors for serving
on the Board or on any committee;
(d) The amendment or repeal of Bylaws or the adoption of
new Bylaws;
(e) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation
except at a rate or in a periodical amount or within a price
range determined by the Board; and
(g) The appointment of other committees of the Board or the
members thereof.
Any such committee may be designated as an Executive
Committee or as the Board shall specify. The Board shall have
the power to prescribe the manner in which proceedings of any
such committee shall be conducted. In the absence of any such
prescription, such committee shall have the power to prescribe
the manner in which its proceedings shall be conducted. Unless
the Board or such committee shall otherwise provide, the regular
and special meetings and other actions of any such committee
shall be governed by the provisions of this Article applicable to
meetings and actions of the Board. Minutes shall be kept of the
proceedings of each committee.
Section 16. Manifestation of Dissent
A director of this corporation who is present at a meeting
of the Board or of any committee of the Board at which action on
any corporate matter is taken shall be presumed to have assented
to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the secretary of the
corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in
favor of such action.
ARTICLE IV. OFFICERS
Section 1. Officers
The officers of the corporation shall be a president, a
secretary, and a treasurer or chief financial officer. The
corporation may also have, at the discretion of the Board, a
chairman of the board, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and such
other officers as may be elected or appointed in accordance with
the provisions of Section 3 of this Article. One person may hold
any two or more offices.
Section 2. Election
The officers of the corporation, except such officers as may
be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually
by, and shall serve at the pleasure of, the Board, and shall hold
their respective offices until their resignation, removal, or
other disqualification from service, or until their respective
successors shall be elected.
Section 3. Subordinate Officers
The Board may elect, and may empower the President to
appoint, such other officers as the business of the corporation
may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these
Bylaws or as the Board may from time to time determine.
Section 4. Removal and Resignation.
(a) Any officer may be removed, either with or without
cause, by the Board at any time, or, except in the case of an
officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any such removal shall
be without prejudice to the rights, if any, of the officer under
any contract of employment of the officer.
(b) Any officer may resign at any time by giving written
notice to the corporation, but without prejudice to the rights,
if any, of the corporation under any contract to which the
officer is a party. Any such resignation shall take effect at
the date of the receipt of such notice or at any later time
specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies
A vacancy in any office because of death, resignation,
removal, disqualification, or any other cause shall be filled in
the manner prescribed in these Bylaws for regular election or
appointment to such office.
Section 6. Chairman of the Board
The Chairman of the Board, if there shall be such an
officer, shall, if present, preside at all meetings of the Board
and exercise and perform such other powers and duties as may be
from time to time assigned by the Board.
Section 7. President
Subject to such powers, if any, as may be given by the Board
to the Chairman of the Board, if there be such an officer, the
President shall be the general manager and chief executive
officer of the corporation and shall have, subject to the control
of the Board, general supervision, direction, and control of the
business and officers of the corporation. The President shall
preside at all meetings of the shareholders and, in the absence
of the Chairman of the Board, or if there be none, at all
meetings of the Board. The President has the general powers and
duties of management usually vested in the office of president
and general manager of a corporation and such other powers and
duties as may be prescribed by the Board.
Section 8. Vice Presidents
In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Board or, if
not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall
have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board.
Section 9. Secretary
(a) The Secretary shall keep or cause to be kept, at the
principal executive office and such other place as the Board may
order, a book of minutes of all meetings of shareholders, the
Board, and its committees, with the time and place of holding,
whether regular or special, and, if special, how authorized, the
notice thereof given, the names of those present at Board and
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings thereof.
(b) The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's
transfer agent or registrar, if one be appointed, a share
register, or a duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
(c) The Secretary shall keep, or cause to be kept, a copy
of the Bylaws of the corporation at the principal executive
office or business office in accordance with the California
General Corporation Law.
(d) The Secretary shall give, or cause to be given, notice
of all the meetings of the shareholders and of the Board and of
any committees thereof required by these Bylaws or by law
to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
Section 10. Treasurer
(a) The Treasurer is the chief financial officer of the
corporation and, where appropriate, may be designated by the
alternate title "Chief Financial Officer." The Treasurer shall
keep and maintain, or cause to be kept and maintained, adequate
and correct accounts of the properties and business transactions
of the corporation, and shall send or cause to be sent to the
shareholders of the corporation such financial statements and
reports as are by law or these Bylaws required to be sent to
them. The books of account shall at all times be open to
inspection by any director.
(b) The Treasurer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with
such depositaries as may be designated by the Board. The
Treasurer shall disburse the funds of the corporation as may be
ordered by the Board, shall render to the President and
directors, whenever they request it, an account of all
transactions as Treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE V. OTHER PROVISIONS
Section 1. Inspection of Corporate Records
(a) A shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of the
corporation, or who hold at least one percent of such voting
shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of
directors of the corporation, shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of shareholders' names
and addresses and shareholdings during usual business hours upon
five business days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent for the
corporation, if any, upon five business days' prior written
demand and upon the tender of its usual charges for such a list
(the amount of which charges shall be stated to the shareholder
by the transfer agent upon request), a list of the shareholders'
names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record
date for which it has been compiled, or as of a date specified
by the shareholder subsequent to the date of demand.
(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting
trust certificate at any time during usual business hours upon
written demand on the corporation, for a purpose reasonably
related to such holders interest as a shareholder or holder of a
voting trust certificate.
(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of
the Board shall be open to inspection upon written demand on the
corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours,
for a purpose reasonably related to such holders interests as a
shareholder or as a holder of such voting trust certificate.
(d) Any inspection and copying under this Article may be
made in person or by agent or attorney.
Section 2. Inspection of Bylaws
The corporation shall keep at its principal executive office
in the State of California, or, if its principal executive office
is not in such State, at its principal business office in the
State of California, the original or a copy of these Bylaws as
amended to date, which shall be open to inspection by
shareholders at all reasonable times during office hours. If the
principal executive office of the corporation is outside
the State of California and the corporation has no principal
business office in such State, the corporation shall upon the
written request of any shareholder furnish to such shareholder a
copy of these Bylaws as amended to date.
Section 3. Endorsement of Documents; Contracts
Subject to the provisions of applicable law, any check,
draft or other order for payment, note, mortgage, evidence of
indebtedness, contract, share certificate, conveyance, or
other instrument in writing, and any assignment or endorsements
thereof, executed or entered into between this corporation and
any other person, when signed by (i) any one of the following:
the Chairman of the Board, the President or any Vice President,
and by (ii) any one of the following: the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer,
shall be valid and binding on this corporation in the absence of
actual knowledge on the part of the other person that the signing
officers had no authority to execute the same. Any such
instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board
and, unless so authorized by the Board, no officer, agent, or
employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit
or to render it liable for any purpose or amount.
Section 4. Certificates for Shares
(a) Every holder of shares in the corporation shall be
entitled to have a certificate signed in the name of the
corporation by (i) any one of the following: the Chairman of the
Board, the President or any Vice President, and by (ii) any one
of the following: the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer, certifying the number of
shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if such person
were an officer, transfer agent or registrar at the date of
issue.
(b) Any such certificate shall also contain such legend or
other statement as may be required by the California General
Corporation Law, the California Corporate Securities Law of 1968,
the federal securities laws, and any agreement between the
corporation and the issuee thereof.
(c) Certificates for shares may be issued prior to full
payment under such restrictions and for such purposes as the
Board of Directors or the Bylaws may provide; provided, however,
that any such certificate so issued prior to full payment shall
state on the face thereof the total amount of the consideration
to be paid therefor, the amount paid thereon, and the amount
remaining unpaid and the terms of payment thereof.
(d) No new certificate for shares shall be issued in lieu
of an old certificate unless the latter is surrendered and
cancelled at the same time; provided, however, that the Board may
authorize the issuance of a new certificate without the surrender
and cancellation of the old certificate if: (1) the old
certificate is alleged to have been lost, destroyed or stolen;
(2) the request for issuance of a new certificate is made prior
to the receipt of notice by the corporation that the old
certificate has been acquired by a bona fide purchaser; and (3)
the owner or the owner's legal representative satisfies any other
reasonable requirements imposed by the Board, including giving
the corporation a bond (or other adequate security) sufficient to
indemnify the corporation against any claim that may be made
against the corporation (including any expense or liability) on
account of the alleged loss, destruction or theft of any such
certificate or on account of the issuance of any such new
certificate. In the event of the issuance of a new certificate,
the rights and liabilities of the corporation, and the holders of
the old and new certificates, shall be governed by the provisions
of the California Uniform Commercial Code.
Section 5. Transfer Agents and Registrars
The Board may appoint one or more transfer agents or
transfer clerks, and one or more registrars, which shall be an
incorporated bank or trust company, either domestic or foreign,
and which shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board may
designate.
Section 6. Representation of Shares of Other Corporations
The President or any other officer or officers authorized by
the Board or the President are each authorized to vote,
represent, and exercise on behalf of the corporation all rights
incident to any and all shares of any other corporation or
corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such
officer in person or by any other person authorized so to do by
proxy or power of attorney duly executed by said officer.
Section 7. Stock Purchase Plans
(a) The corporation may adopt and carry out a stock
purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be
fixed of its unissued shares, or of issued shares acquired or to
be acquired, to one or more of the employees or directors of the
corporation or of a subsidiary or to a trustee on their behalf
and for the payment for such shares in installments or at one
time, and may provide for aiding any such persons in paying for
such shares by compensation for services rendered, promissory
notes, or otherwise.
(b) Any such stock purchase plan or agreement or stock
option plan or agreement may include, among other features, the
fixing of eligibility for participation therein, the class and
price of shares to be issued or sold under the plan or agreement,
the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option
or obligation on the part of the corporation to repurchase the
shares upon termination of employment, restrictions upon transfer
of the shares, the time limits of and termination of the plan,
and any other matters, not in violation of applicable law, as may
be included in the plan as approved or authorized by the Board or
any committee of the Board.
Section 8. Annual Report to Shareholders
For as long as the corporation continues to have fewer than
100 shareholders, the annual report to shareholders referred to
in the California General Corporation Law is hereby expressly
waived; provided, however, that nothing herein shall be
interpreted as prohibiting the Board from issuing annual or other
periodic reports to shareholders.
Section 9. Construction and Definitions
Unless the context otherwise requires,
(a) The general provisions, rules of construction, and
definitions contained in the General Provisions and Definitions
of the California Corporations Code and in the California General
Corporation Law shall govern the construction of these Bylaws,
and references to the foregoing statutes or to any other statute
shall refer to such statutes as the same may be amended and in
effect from time to time.
(b) "Articles" shall mean the Articles of Incorporation of
the corporation as the same may be amended and in effect from
time to time.
ARTICLE VI. INDEMNIFICATION
It is the policy of the corporation to indemnify its agents,
as hereinafter defined, to the fullest extent permitted by the
California General Corporation Law and such other laws or
regulations as may be applicable. The provisions of this Article
VI of these Bylaws shall be liberally construed to carry out this
policy.
Section 1. Definitions
For the purposes of this Article, "agent" means any person
who is or was a director, officer, employee, or other agent of
the corporation, or who is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, or who was a director, officer,
employee, or agent of a foreign or domestic corporation which was
a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation
"proceeding" includes any threatened, pending, or completed
action or proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes attorneys' fees and any
expenses of establishing a right to indemnification under Section
4 or Section 5(c).
Section 2. Indemnification in Actions by Third Parties
The corporation shall have power to indemnify, to the
fullest extent allowed by any applicable law, any person who was
or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the
fact that such person is or was an agent of the corporation,
against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with such
proceeding, if such person acted in good faith and in a manner
such person reasonably believed to be in the best interests
of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe the conduct of such person was
unlawful. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of the
corporation or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. Indemnification in Actions by or in the Right of the
Corporation.
The corporation shall have power to indemnity, to the
fullest extent allowed by any applicable law, any person who was
or is a party or is threatened to be made a party to any
threatened, pending, or completed action by or in the right of
the corporation to procure a judgment in its favor by reason of
the fact that such person is or was an agent of the corporation,
against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action, if
such person acted in good faith, in a manner such person believed
to be in the best interests of the corporation, and with such
care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
No indemnification shall be made under this Section 3:
(a) In respect of any claim, issue, or matter as to which
such person shall have been adjudged to be liable to the
corporation in the performance of such person's duty to the
corporation, unless and only to the extent that the court in
which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
the expenses which such court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without
court approval.
Section 4. Indemnification Against Expenses
To the extent that an agent of the corporation has been
successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 or in defense of any claim, issue or matter
therein, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith.
Section 5. Required Determinations
Except as provided in Section 4, any indemnification under
this Article shall be made by the corporation only if authorized
in the specific case, upon a determination that indemnification
of the agent is proper in the circumstances because the agent has
met the applicable standard of conduct set forth in Sections 2 or
3, by:
(a) A majority vote of a quorum consisting of directors who
are not parties to such proceeding;
(b) Approval of the shareholders, with the shares owned by
the person to be indemnified not being entitled to vote thereon;
or
(c) The court in which such proceeding is or was pending
upon application made by the corporation or the agent or the
attorney or other person rendering services in connection with
the defense, whether or not such application by the agent,
attorney, or other person is opposed by the corporation.
Section 6. Advance of Expenses
Expenses incurred in defending any proceeding may be
advanced by the corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of
the agent to repay such amount unless it shall be determined
ultimately that the agent is entitled to be indemnified as
authorized in this Article.
Section 7. Other Indemnification
No provision made by the corporation to indemnity its or its
subsidiary's directors or officers for the defense of any
proceeding, whether contained in the Articles, Bylaws, a
resolution of shareholders or directors, an agreement, or
otherwise, shall be valid unless consistent with this Article.
Nothing contained in this Article shall affect any right to
indemnification to which persons other than such directors and
officers may be entitled by contract or otherwise.
Section 8. Forms of Indemnification Not Permitted
No indemnification or advance shall be made under this
Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles, Bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged
cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 9. Insurance
The corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such
capacity or arising out of the agent's status as such whether or
not the corporation would have the power to indemnify the agent
against such liability under the provisions of this Article.
Section 10. Nonapplicability to Fiduciaries of Employee Benefit
Plans.
This Article does not apply to any proceeding against any
trustee, investment manager, or other fiduciary of any employee
benefit plan in such persons capacity as such, even though such
person may also be an agent of the corporation as defined in
Section 1. The corporation shall have power to indemnity and to
purchase and maintain insurance on behalf of any such trustee,
investment manager, or other fiduciary to the fullest extent
permitted by the California General Corporation Law.
ARTICLE VII. EMERGENCY PROVISIONS
Section 1. General
The provisions of this Article shall be operative only
during a national emergency declared by the President of the
United States or by the person performing the President's
functions, or in the event of a nuclear, atomic, biological
chemical or other attack on the United States or a disaster, any
of which makes it impossible or impracticable for the corporation
to conduct its business without recourse to the provisions of
this Article. Said provisions in such event shall override all
other Bylaws of this corporation in conflict with any provisions
of this Article, and shall remain operative so long as it remains
impossible or impracticable to continue the business of the
corporation otherwise, but thereafter shall be inoperative;
provided that all actions taken in good faith pursuant to such
provisions shall thereafter remain in full force and effect
unless and until revoked by action taken pursuant to the
provisions of the Bylaws other than those contained in this
Article.
Section 2. Unavailable Directors
All directors of the corporation who are not available to
perform their duties as directors by reason of physical or mental
incapacity or for any other reason or who are unwilling to
perform their duties or whose whereabouts are unknown shall
automatically cease to be directors, with like effect as if such
persons had resigned as directors, so long as such unavailability
continues.
Section 3. Authorized Number of Directors
The authorized number of directors shall be the number of
directors remaining after eliminating those who have ceased to be
directors pursuant to Section 2, or the minimum number required
by law, whichever number is greater.
Section 4. Quorum
The number of directors necessary to constitute a quorum
shall be one-third of the authorized number of directors as
specified in the foregoing Section, or such other minimum number
as, pursuant to the law or lawful decree then in force, it is
possible for the Bylaws of a corporation to specify.
Section 5. Creation of Emergency Committee
In the event the number of directors remaining after
eliminating those who have ceased to be directors pursuant to
Section 2 is less than the minimum number of authorized directors
required by law, then until the appointment of additional
directors to make up such required minimum, all the powers and
authorities which the Board could delegate to a committee, shall
be automatically vested in an emergency committee, and the
emergency committee shall thereafter manage the affairs of the
corporation pursuant to such powers and authorities and shall
have all such other powers and authorities as may by law or
lawful decree be conferred on any person or body of persons
during a period of emergency.
Section 6. Constitution of Emergency Committee
The emergency committee shall consist of all the directors
remaining after eliminating those who have ceased to be directors
pursuant to Section 2, provided that such remaining directors are
not less than three in number. In the event such remaining
directors are less than three in number, the emergency committee
shall consist of three persons, who shall be the remaining
director or directors and either one or two officers or employees
of the corporation, as the remaining director or directors may in
writing designate. If there is no remaining director, the
emergency committee shall consist of the three most senior
officers of the corporation who are available to serve, and if
and to the extent that officers are not available, the most
senior employees of the corporation. Seniority shall be
determined in accordance with any designation of seniority in the
minutes of the proceedings of the Board, and in the absence of
such designation, shall be determined by rate of remuneration.
In the event that there are no remaining directors and no
officers or employees of the corporation available, the emergency
committee shall consist of three persons designated in writing by
the shareholder owning the largest number of shares of record as
of the date of the last record date.
Section 7. Powers of Emergency Committee
The emergency committee, once appointed, shall govern its
own procedures and shall have the power to increase the number of
members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining
member or members of the emergency committee shall have the power
to fill such vacancy or vacancies. In the event at any time
after its appointment, all members of the emergency committee
shall die or resign or become unavailable to act for any reason
whatsoever, a new emergency committee shall be appointed in
accordance with the foregoing provisions of this Article.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the
"Merger Agreement") is made effective as of April 29, 1996, by
and between Digitcom Interactive Video Network, a California
corporation ("DIVN"), and Ouzel Acquisition Corp., a Delaware
corporation ("Ouzel"). DIVN and Ouzel are sometimes referred to
as the "Constituent Corporations," with reference to the
following facts:
A. The authorized capital stock of DIVN consists of
20,000,000 shares of common stock, $.001 par value. The
authorized capital stock of Ouzel consists of 20,000,000 shares
of common stock, $.001 par value.
B. There are 9,000,000 shares of common stock of DIVN
issued and outstanding. In addition, DIVN has reserved 490,000
shares for issuance in a pending private offering of its common
stock under Regulation D, Rule 504 of the Securities Act of 1933,
as amended.
C. Ouzel has no subsidiaries, and has a total of 4,090,448
shares of common stock issued and outstanding, and there are no
options or other rights to acquire any newly issued shares
available to any person.
D. The directors of the Constituent Corporations deem it
advisable and to the advantage of such corporations that Ouzel
merge into DIVN upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of
merger encompassed by this Merger Agreement and do hereby agree
that Ouzel shall merge with and into DIVN on the following terms,
conditions, and other provisions:
1. TERMS AND CONDITIONS
1.1 Merger. Ouzel shall be merged with and into DIVN (the
"Merger"), and DIVN shall be the surviving corporation (the
"Surviving Corporation") effective upon the date when this Merger
Agreement or a Certificate of Merger is filed with the Secretary
of State of the State of Delaware and the Secretary of State of
the State of California (the "Effective Date").
1.2 Succession. On the Effective Date, DIVN shall continue
its corporate existence under the laws of the State of
California, and the separate existence and corporate organization
of Ouzel, except insofar as it may be continued by operation of
law, shall be terminated and cease.
1.3 Transfer of Assets and Liabilities. On the Effective
Date, the rights, privileges, powers and franchises, both of a
public as well as of a private nature, of each of the Constituent
Corporations shall be vested in and possessed by the Surviving
Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations;
and all singular rights, privileges, powers and franchises of
each of the Constituent Corporations, and all property, real,
personal and mixed, of each of the Constituent Corporations, and
all debts due to each of the Constituent Corporations on whatever
account, and all things in action or belonging to each of the
Constituent Corporations shall be transferred to and vested in
the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest, shall be
thereafter the property of the Surviving Corporation as they were
of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise in either of the Constituent
Corporations shall not revert or be in any way impaired by reason
of the Merger; provided, however, that the liabilities of the
Constituent Corporations and of their stockholders, directors and
officers shall not be affected and all rights of creditors and
all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of
the Constituent Corporations may be prosecuted to judgments as if
the Merger had not taken place except as they may be modified
with the consent of such creditors and all debts, liabilities and
duties of or upon each of the Constituent Corporations shall
attach to the Surviving Corporation, and may be enforced against
it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
1.4 Manner of Accomplishing Merger. The Merger shall be
accomplished by way of the exchange of 100% of the issued and
outstanding shares of Ouzel for common stock of DIVN, at the
ratio of one share of DIVN for approximately each eight shares of
Ouzel outstanding on the effective date of the Merger (1 for 8),
with a maximum of 510,000 shares of DIVN issued in the exchange.
The transfer agent will automatically be instructed to issue new
certificates of DIVN, based on the above ratio, to each of the
shareholders of Ouzel, at the address listed in the register of
Ouzel shareholders. No fractional shares will be issued, but
each fractional share will be rounded up to the next share and a
certificate for DIVN will be issued to each record holder of
Ouzel accordingly. The exchange will be accomplished pursuant to
an exemption from registration provided by Regulation D, Section
504 in each state where said exemption or a registration of the
issuance can be accomplished. In each state where an exemption
from registration is not available pursuant to Rule 504 of
Regulation D or some other available exemption from registration
which can be reasonably complied with, DIVN shall issue cash in
lieu of the exchanged securities of Ouzel at $.01 per share
exchanged.
1.5 Rights of Appraisal. This Merger shall be subject to
the approval and rights of appraisal granted to the shareholders
of Ouzel in accordance with the General Corporation Law of the
State of Delaware. Should more than ten percent (10%) of the
shareholders of Ouzel, regardless of the number of shares owned,
seek to enforce their rights of appraisal, the Merger shall be
deemed cancelled and all parties relieved of any obligation
pursuant to this Agreement. Approval of the Merger by the
shareholders of DIVN is not required under California law and
such shareholders are also not entitled to appraisal rights.
1.6 Obligations of Ouzel to Issue its Securities. As of
the date of this Merger Agreement and until the date of closing,
Ouzel shall not issue any additional shares of its common stock
to any person or entity whatsoever, including as a result of
having previously issued any warrants to acquire common stock,
any options to acquire its securities as a result of any employee
stock option plan or otherwise, or pursuant to any employee
benefit plan. Ouzel further represents that the capitalization,
as set forth in paragraph C of the preamble to this Agreement, is
true and accurate in all respects.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation and Bylaws. The
Certificate of Incorporation of DIVN in effect on the Effective
Date shall continue to be the Certificate of Incorporation of the
Surviving Corporation. The Bylaws of DIVN shall be the Bylaws of
the Surviving Corporation, as they may be amended from time to
time.
2.2 Directors. The directors of DIVN immediately preceding
the Effective Date shall become the directors of the Surviving
Corporation on and after the Effective Date to serve until the
expiration of their terms and until their successors are elected
and qualified.
2.3 Officers. The officers of DIVN immediately preceding
the Effective Date shall become the officers of the Surviving
Corporation on and after the Effective Date to serve at the
pleasure of its Board of Directors.
3. MISCELLANEOUS
3.1 Further Assurances. From time to time, and when
required by the Surviving Corporation or by its successors and
assigns, there shall be executed and delivered on behalf of Ouzel
such deeds and other instruments, and there shall be taken or
caused to be taken by it such further and other action as shall
be appropriate or necessary in order to vest or perfect in or to
conform of record or otherwise, in the Surviving Corporation the
title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority
of Ouzel and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of
Ouzel or otherwise to take any and all such action and to execute
and deliver any and all such deeds and other instruments.
3.2 Amendment. At any time before or after approval by the
stockholders of Ouzel, this Merger Agreement may be amended in
any manner (except that, after the approval of the Merger
Agreement by the stockholders of Ouzel, the principal terms may
not be amended without the further approval of the stockholders
of Ouzel) as may be determined in the judgment of the respective
Board of Directors of DIVN and Ouzel to be necessary, desirable,
or expedient in order to clarify the intention of the parties
hereto or to effect or facilitate the purpose and intent of this
Merger Agreement.
3.3 Conditions to Merger. The obligation of the
Constituent Corporations to effect the transactions contemplated
hereby is subject to satisfaction of the following conditions
(any or all of which may be waived by either of the Constituent
Corporations in its sole discretion to the extent permitted by
law):
(a) the Merger shall have been approved by the
stockholders of Ouzel in accordance with applicable provisions of
the General Corporation Law of the State of Delaware; and
(b) any and all consents, permits, authorizations,
approvals, and orders deemed in the sole discretion of Ouzel to
be material to consummation of the Merger shall have been
obtained; and
(c) the securities issued by DIVN shall be issued
pursuant to an exemption from registration pursuant to the
Securities Act of 1933 (as amended), Regulation D, Section 504,
and the shareholders who reside in certain states which comport
with said Regulation D, Section 504, or other tandem exemptions
from registration, may receive unrestricted securities in
exchange for the securities of Ouzel; and
(d) an audit of the books and records of Ouzel,
conducted in accordance with generally accepted accounting
practices, shall have been delivered to and approved by DIVN; and
(e) any other requirements under applicable Delaware
or California laws shall have been satisfied in connection with
the Merger.
3.4 Abandonment or Deferral. At any time before the
Effective Date, this Merger Agreement may be terminated and the
Merger may be abandoned by the Board of Directors of either Ouzel
or DIVN or both, notwithstanding the approval of the Merger by
the stockholders of Ouzel or DIVN, or the consummation of the
Merger may be deferred for a reasonable period of time if, in the
opinion of the Boards of Directors of Ouzel and DIVN, such action
would be in the best interest of such corporations. In the event
of termination of this Merger Agreement, this Merger Agreement
shall become void and of no effect and there shall be no
liability on the part of either Constituent Corporation or its
Board of Directors or stockholders with respect thereto.
3.5 Counterparts. In order to facilitate the filing and
recording of this Merger Agreement, the same may be executed in
any number of counterparts, each of which shall be deemed to be
an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been
duly approved by the Board of Directors of Ouzel and DIVN, is
hereby executed on behalf of each such corporation and attested
by their respective officers thereunto duly authorized.
DIGITCOM INTERACTIVE VIDEO NETWORK,
a California corporation
By: /s/ Jimmy Chin
Jimmy Chin, President
ATTEST:
/s/ Wan Ying
Wan Ying, Secretary
OUZEL ACQUISITION CORP.,
a Delaware corporation
By: /s/ Brad Oesch
Brad Oesch, President
AGREEMENT OF MERGER
This Agreement of Merger is entered into between Digitcom
Interactive Video Network, a California corporation (herein
"Surviving Corporation"), and Ouzel Acquisition Corp., a Delaware
corporation (herein "Merging Corporation").
1. Merging Corporation shall be merged into Surviving
Corporation.
2. Each outstanding share of Merging Corporation shall be
converted to 1/8 share of Surviving Corporation.
3. The outstanding shares of Surviving Corporation shall remain
outstanding and are not affected by the merger.
4. Merging Corporation shall from time to time, as and when
requested by Surviving Corporation, execute and deliver all
such documents and instruments and take all such action
necessary or desirable to evidence or carry out this merger.
5. The effect of the merger and the effective date of the
merger are as prescribed by law.
IN WITNESS WHEREOF, the parties have executed this Agreement.
DIGITCOM INTERACTIVE VIDEO
NETWORK, a California corporation
By: /s/ Jimmy Chin
Jimmy Chin, President
By: /s/ Wan Ying Chin
Wan Ying Chin, Secretary
OUZEL ACQUISITION CORP.,
a Delaware corporation
By: /s/ Bradford N. Oesch
Bradford N. Oesch, President
ASSIGNMENT AND LICENSE
THIS ASSIGNMENT AND LICENSE is made effective April 2,
1996 by and between Digitcom Interactive Video Network, a
California corporation ("DIVN") and Digitcom Interactive
Multimedia, Inc., a Nevada corporation ("DIM").
WHEREAS, DIM desires to sell and DIVN desires to
purchase certain video network technologies relating to a
proposed interactive video computer network, which technologies
are more fully described on Exhibit A attached hereto (the
"Technology"); and
WHEREAS, DIM desires to sell and DIVN desires to
purchase certain accounts receivable relating to two
distributorship agreements for DIM's voice mail product, RESOUND,
such agreements being more fully described on Exhibit B attached
hereto (the "Distributorship Agreements"); and
WHEREAS, DIM is the assignee of a certain new and
useful invention (the "Invention") for a long distance telephone
callback system invented by Jimmy Chin and Daniel Woods (the
"Inventors") for which the Inventors are about to make
application for Letters Patent of the United States, such
application being identified as Docket No. 9610 in the law
offices of Daniel R. Kimbell, Reg. 34,849, P.O. Box 0401,
Montrose, California 91021; and
WHEREAS, DIM desires to sell and DIVN desires to
purchase a license to practice the Invention with the exclusive
rights to distribute international callback services of the
Invention for the Country of Israel using the computer software
and technology owned by DIM;
NOW, THEREFORE, for and in consideration of the mutual
covenants, representations, warranties and conditions hereinafter
set forth, the parties hereto agree as follows:
1. Purchase Price. Upon the terms and subject to the
conditions and covenants of this Assignment and License, DIVN
shall issue to DIM 9,000,000 shares of common stock, $.001 par
value, of DIVN (the "Stock"), which Stock shall be fully paid and
nonassessable.
2. Assignment and License. For good and valuable
consideration recited herein, the receipt and sufficiency of
which is hereby acknowledged by DIM,
(a) DIM hereby grants, sells, assigns, transfers
and sets over unto DIVN, its successors and assigns, all right,
title and interest in and to the Technology, any and all renewals
and extensions thereof, any and all causes of action heretofore
accrued in DIM's favor for infringement thereof, and any and all
proceeds thereof, together with the goodwill of the interactive
video network business of DIM symbolized by trademarks included
in the Technology. The assignment contained in this subparagraph
is subject to the sole restriction that it may not be assigned by
DIVN without the express written consent of DIM, except to a
person or entity controlling, controlled by or under common
control with DIVN.
(b) DIM hereby grants, sells, assigns, transfers
and sets over unto DIVN, its successors and assigns, all right,
title and interest in and to those accounts receivable and other
forms of rights to payment and proceeds thereof, whether now or
hereafter existing in connection with such receivables, arising
from purchases under the Distributorship Agreements of the
RESOUND software product by the Buyers under such agreements (the
"Accounts"). The Accounts are exclusive of any accounts
receivable deriving from purchases under the Distributorship
Agreements of any hardware products or software products other
than the RESOUND software product by the Buyers under such
agreements.
(c) Subject to the terms and conditions set forth
below, DIM hereby grants to DIVN the exclusive, royalty paid and
perpetual license to sell and use the Invention in the Country of
Israel and the exclusive right to sublicense others to sell and
use the Invention and otherwise distribute the Invention in the
Country of Israel. This grant in the Country of Israel is to the
exclusion of all others including DIM.
3. Technology Representations. DIM represents and
warrants to DIVN that:
(a) DIM owns (i) all patents, trademarks, trade
names, service marks and copyrights; (ii) all applications for
any of the foregoing; and (iii) all other technology, know-how
and tangible or intangible proprietary information or material
that are in any material respect necessary for the manufacture,
sale or use of any product or process relating to the Technology,
or any service so offered relating to the Technology, except as
set forth on Exhibit A attached hereto. Exhibit A sets forth the
Technology including, without limitation, (i) all patents, patent
applications, reissues, divisions and continuations-in-part; (ii)
each patent number, country, filing and expiration date and
title; (iii) all registered trademarks and pending registrations
of trademarks including, for each such trademark, the
registration number, country, filing and expiration date, mark
and class; (iv) all registered copyrights and applications for
registration of copyrights including, with respect to each such
copyright, the registration number, country and filing and
expiration date; (v) all licenses and other contracts or
commitments to which DIM is a party (either as licensor or
licensee) or by such terms of which DIM is otherwise bound
relating to the patents, trademarks, trade names, copyrights or
proprietary know-how or technical assistance; and (vi) all
inventions relating to the Technology made by employees of DIM
that are not covered in patents or patent applications including,
for each such invention, the title, name of inventor and date of
invention.
(b) No claims have been asserted, and nothing has
come to the attention of DIM that can reasonably suggest the
existence of any threat to assert any claim, by any person or
other entity (i) to the effect that manufacture, sale or use of
any product or process relating to the Technology, or any service
so offered relating to the Technology, infringes upon any patent,
trademark, trade name, service mark or copyright; (ii) against
the use by DIM of any trademark, trade name, technology, know-how
or process necessary for the use of the Technology; or (iii)
challenging or questioning the title, validity or effectiveness
of any item included in the Technology.
(c) DIM has not asserted any claim of
infringement, misappropriation or misuse in connection with any
patent, trademark, trade name, service mark, copyright,
technology or know-how relating to the Technology.
(d) The transactions contemplated by this
Assignment and License shall not in any way adversely affect any
title or other rights with respect to the Technology or any part
thereof which were acquired from any third party.
4. Accounts Representations. DIM represents and
warrants to DIVN that complete copies of the Distributorship
Agreements as executed, including any and all amendments thereto,
have been made available to DIVN. DIM represents and warrants to
DIVN that the Distributorship Agreements are valid and binding
and in full force and effect and there has not occurred under
either of the Distributorship Agreements any material default by
DIM, nor has anything come to the attention of DIM that could
reasonably suggest such default would occur with the giving of
notice or the passage of time; and nothing has come to the
attention of DIM that could reasonably suggest any such current
or future default by others. DIM represents and warrants to DIVN
that DIM's obligations with respect to delivery of RESOUND
software pursuant to the Distributorship Agreements which give
rise to the Accounts have been fully performed by DIM. DIM
represents and warrants to DIVN that the Accounts can be assigned
to DIVN without the consent or approval of any party to the
Distributorship Agreements. DIM represents and warrants that
the Accounts are for a minimum of $2,380,000 U.S. payable in
accordance with the minimum commitments set forth in the
Distributorship Agreements, as amended, and all
payments to DIM under the Accounts have been fully earned, have
not been prepaid and are not subject to any defenses or set-off.
5. Invention Representations. DIM represents and
warrants to DIVN that DIM is the owner of all right, title and
interest in the Invention and that it is not aware of any rights
of any third party (including patent rights) that would be
infringed by DIVN's sale or use of any apparatus, process or
service licensed as part of the Invention hereunder.
6. Covenants.
(a) DIM covenants and agrees to and with DIVN and
its successors and assigns to warrant and defend the assignment
of the Technology and Accounts and license of the Invention
hereunder against all and every person or persons whomever at
DIM's sole cost and expense.
(b) DIM shall indemnify and hold DIVN harmless
against, from and in respect to (and shall on demand reimburse
DIVN for) any and all damages, losses, obligations, liabilities,
claims, encumbrances, liens, deficiencies, costs and expenses
(including, without limitation, reasonable attorneys' fees and
other costs and expenses incident to any suit, action,
investigation, claim or proceeding) suffered, sustained, incurred
or required to be paid from any and all losses, liabilities or
damages suffered or incurred by DIVN by reason of any breach of
the representations by DIM contained herein. DIM shall, at its
expense, defend DIVN against any claim made against DIVN in which
claim it is alleged that the Technology or Invention as furnished
to DIVN pursuant to this Assignment and License and as used
within the scope of the grants hereunder, infringe a U.S. patent,
copyright, trademark or trade secret belonging to any third
party, and DIM will pay all costs, damages and attorneys' fees
that a court finally awards against DIVN as a result of such
claim, provided that (i) DIVN promptly notifies DIM in writing of
any such claim, and (ii) DIVN allows DIM to control, and fully
cooperates with DIM in, the defense and all related settlement
negotiations. If such a claim of infringement has occurred, or
in DIM's judgment is likely to occur, DIVN agrees to allow DIM,
at DIM's option and expense, to procure the right for DIVN to
continue using the Technology and Invention or to replace or
modify them so that they become noninfringing.
(c) DIM shall execute and deliver to DIVN a UCC-1
financing statement for the Accounts in form reasonably
acceptable to DIVN for filing with the California Secretary of
State.
(d) DIM shall be responsible for collecting and
shall use its best efforts to collect the Accounts when and as
they come due and shall pay all proceeds thereof to DIVN upon
receipt by DIM. Notwithstanding the foregoing, DIM shall not be
required to incur out-of-pocket costs to collect the Accounts.
7. General Terms.
(a) The terms of this Assignment and License may
be modified, in writing only, by the mutual consent of each
party.
(b) No waiver of a breach of any term or
provision of this Assignment and License shall be construed or
operate as a waiver of any other breach of the terms or
provisions of this Assignment and License.
(c) This Assignment and License shall be governed
and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have agreed and
set their hands by proper persons duly authorized to become
effective upon the date first set forth above.
DIGITCOM INTERACTIVE VIDEO NETWORK
By: /s/ Jimmy Chin
Jimmy Chin
President
DIGITCOM INTERACTIVE MULTIMEDIA, INC.
By: /s/ Jimmy Chin
Jimmy Chin
President
STATE OF Nevada )
) ss.
Las Vegas COUNTY OF Clark )
The foregoing Assignment and License was subscribed and
sworn to before me in the Las Vegas County of Clark, State of
Nevada, this 19th day July, 1996, by Jimmy Chin as
President of Digitcom Interactive Video Network.
WITNESS my hand and official seal.
My commission expires: June 24, 2000
/s/ Gina C. Braganza
Notary Public
SEAL
DIGITCOM VOLUME PURCHASE AND
EXCLUSIVE DISTRIBUTION AGREEMENT
* Confidential treatment of the portions of Attachment #1 to this
Agreement indicated by asterisks enclosed in brackets has been
requested.
This Agreement is between Resound Communications Corporation, a
U.S. subsidiary of Digitcom Interactive Video Network
("Digitcom") headquartered at 2190 Colorado Avenue, Suite B,
Santa Monica, CA 90404, and
Al-Anani Group "MAZTRAD" located at Al-Khazzan Commercial &
Residential Center, Tower 2, Suite 12, 1st Commercial Floor,
Riyadh, Saudi Arabia further known for the purposes of this
Agreement as "Buyer".
The purpose of this Agreement is to afford Buyer the opportunity
to obtain a volume discount based on the total amount of
purchases of certain products over the period. This Agreement is
intended for use by Buyer if Buyer has demonstrated the ability
consistently to purchase products totaling at least 30 Voice Mail
systems per month.
The parties hereby agree as follows:
Attachment #1 contains the pricing schedule for, and a list of
the products that may be covered by this Volume Purchase
Agreement ("Products"). In order to take advantage of a volume
discount, Buyer must present Digitcom with a completed Equipment
Delivery Schedule (in the form provided by Digitcom, a copy of
which is attached) for each Product Buyer will purchase. Each
completed Equipment Delivery Schedule will represent Buyer's good
faith forecast of the quantity of each Product Buyer intends to
purchase over the course of this Agreement.
In addition, Buyer will present to Digitcom, upon execution of
this Agreement, a written purchase order detailing exact
quantities and ship dates for all Products forecasted for
shipment within the first three months of the Agreement. Buyer
will also issue to Digitcom, 30 days prior to the end of a
quarter, a written purchase order detailing the exact quantities
and ship dates for all Product forecasted for the subsequent
quarter.
There is (are) no Equipment Delivery Schedule(s) included in this
Agreement, all of which taken together is Attachment #2 to this
Agreement.
1. SALES CONDITIONS
All purchases of Products by Buyer from Digitcom shall reference
this Agreement and shall be governed by the terms and conditions
of this Agreement notwithstanding the presence of different or
additional provisions on Buyer's standard purchase order form.
Buyer represents that all purchases of Products under this
Agreement are for end use or for resale only when sold with
Buyer's software or system. Buyer further represents that
Products purchased under this Agreement will not be sold
independently of software or systems except in the case of
supplying spare parts.
2. ORDERING AND TITLE
The Equipment Delivery Schedule(s) for each Product on Attachment
#2 of this Agreement represents Buyer's good faith forecast for
the term of the Agreement. UPON EXECUTION OF THE AGREEMENT,
BUYER IS REQUIRED TO FURNISH DIGITCOM WITH A WRITTEN PURCHASE
ORDER FOR PRODUCTS FORECASTED FOR SHIPMENT WITHIN THE FIRST 90
DAYS OF THIS AGREEMENT. Buyer shall also issue written purchase
orders to Digitcom for the subsequent 90-day periods of this
Agreement at least 30 days prior to the start of that 90-day
period. Digitcom will ship Products covered by this Agreement in
accordance with instructions on Buyer's written purchase order.
Changes to the written purchase order shall be made in accordance
with Section 6 of the Agreement. No Delivery Schedule or
purchase order is accepted until Digitcom issues a written
confirmation thereof to Buyer. Confirmation shall not be
unreasonably withheld, but Digitcom reserves the right to reject
any Delivery Schedule with a growth rate of 5% or more per month.
All shipments by Digitcom are F.O.B. point of shipment by
Digitcom. Title to Products and risk of loss pass to Buyer upon
delivery to carrier at shipping point. Digitcom will select the
carrier if Buyer does not.
Claims for shortages must be made within ten (10) days after
arrival. In the event of foreign delivery, Buyer shall be
responsible for obtaining any and all export licenses and other
international trade documents required by United States laws and
all applicable laws of other jurisdictions and Buyer shall at all
times comply with all such laws regarding the Products.
3. TERM
The term of this Agreement shall commence on the first day of the
earliest month listed on Attachment #2 and continue for the
period defined in Addendum A.
4. PAYMENT TERMS AND CONDITIONS
Payment to Digitcom from Buyer for all Products shall be made in
certified funds prior to shipment of Products unless other
payment terms are negotiated between the Buyer and Digitcom.
5. PRICING
The unit price Digitcom shall charge Buyer for the Products is
calculated using the Volume Price Schedule (Attachment #1) and
all of the Equipment Delivery Schedules for each Product. The
sum of all the port totals for all the Products specified on
Attachment #2 shall determine, for the first 90 days of this
Agreement, the unit price, as shown on Attachment #1, for each
Product. Instructions for calculating the total number of ports
are included on Attachment #2.
6. SCHEDULE CHANGES
Buyer may cancel or reschedule any order for standard Products,
provided written notice is received by Digitcom 30 days before
scheduled ship date. If 30-day notice is not received by
Digitcom, the following cancellation/reschedule charges shall
apply: a charge of 20% of the purchase price for the Product(s)
in the affected shipment will be applicable for
cancellation/reschedule notices received less than 14 days before
the scheduled ship date, and a charge of 10% will be applicable
for notices received less than 30, but more than 14 days before
the scheduled ship date.
Products not scheduled in the original Attachment #2 may be added
at any time during the term of this Agreement, upon the following
conditions: Buyer may be required to amend Attachment #2 or one
or more Equipment Delivery Schedule(s) to include added Product
if (a) Digitcom determines that the added Product represents a
large volume that is being shipped on a regular basis; (b)
Digitcom determines that the quantity of added Product requested
affects Digitcom's ability to supply the Product; or (c) the
total number of ports specified in the original Attachment #2
plus the added Product quantity results in a change in the price
level. Equipment Delivery Schedules for added Product are
required only for the remainder of the term of this Agreement.
Other changes to the Equipment Delivery Schedules may result in
changes in the unit price of Products under the terms and
conditions of Section 7 of this Agreement.
7. MINIMUM PURCHASE REQUIREMENTS
Buyer is required to meet minimum quarterly purchase requirements
in order to maintain the volume pricing determined under Section
5. Table 1 lists these quarterly minimum purchase requirements.
The quarterly figures are cumulative.
TABLE 1
Minimum Quarterly Port Purchase to Maintain Discount
Percentage of Total
By End of Quarter Port Commitment
Q2 20%
Q4 43%
Q6 66%
Progress toward the stated goal will be measured at the end of
each quarter (90 days; 180 days; and 270 days from the
effective date of this Agreement).
If, at any measuring point, Buyer has not achieved the minimum
quarterly purchase requirement, subsequent shipments will be
priced at the level shown in Attachment #1 that reflects actual
shipment history. Notification of any pricing change, if
applicable, will occur within seven (7) days of each measuring
point.
If actual purchases of Products by Buyer during any one quarter
result in a price increase of more than one level, as shown in
Attachment #1, this Agreement will be void and of no further
effect and Buyer shall not be entitled to any subsequent volume
discount.
Buyer may achieve a greater discount if, at any measuring point,
Buyer has purchased sufficient ports to meet the minimum purchase
requirements for a lower price shown on Attachment #1.
In order to obtain this higher discount, Buyer must present to
Digitcom one or more amended Equipment Delivery Schedule(s)
covering the balance of the term of this Agreement. The total
number of ports outlined in the amended Equipment Delivery
Schedule(s), added to the total number of ports already purchased
by Buyer, must equal the number of ports required for the lower
price.
8. WARRANTY
Products purchased under this Agreement are subject to all the
terms and conditions set forth in the Limited Warranty published
in the documentation for the individual Products.
9. PATENTS AND COPYRIGHTS
Neither this Agreement nor the sale of any Product or part
thereof by Digitcom in accordance with this Agreement confers
upon Buyer any license or other right under any patent,
trademark, copyright or other intellectual property right
pertaining to that Product.
Digitcom computer programs and documentation therefore are
patented or are copyrighted or both, and all rights are reserved
by Digitcom. No Digitcom Product or documentation may, in whole
or in part, be copied, photocopied, translated, or reduced to any
electronic medium without the express prior written permission of
Digitcom.
10. LIABILITY
Digitcom shall not be liable for any costs or damages, and Buyer
will indemnify, defend, and hold Digitcom harmless from any
expenses, damages, costs, or losses resulting from any suit or
proceeding based upon a claim arising from (a) a modification of
any Product by a party other than Digitcom after delivery by
Digitcom; (b) compliance with Buyer's designs, specifications, or
instructions; or (c) the use of any Product or part thereof
furnished hereunder with any other product.
11. CONTINGENCIES
Digitcom shall not be responsible for any failure to perform
under this Agreement due to unforeseen circumstances or causes
beyond Digitcom's reasonable control. Digitcom may defer
delivery for a period equal to the delay caused by such an
unforeseen or uncontrollable contingency.
12. MODIFICATION AND JURISDICTION
This Agreement sets forth the entire understanding of the parties
and supersedes all prior agreements and understandings relating
to the subject matter hereof. No modifications or additions to
or deletions from these terms shall be binding upon either party
unless accepted in writing by an authorized representative of
each party. Buyer shall not delegate any obligations hereunder
nor assign any interest or rights without prior written consent
of Digitcom. This Agreement shall be governed by the laws of the
State of California, and this Agreement shall be deemed to have
been entered into and wholly performed in California.
13. ADDENDUMS
Addendums A and B attached hereto form an integral part of this
Agreement.
ATTACHMENT #1
Digitcom Volume Pricing Schedule
* Confidential treatment of the portions of this page
indicated by asterisks enclosed in brackets has been
requested.
Product Ports System Price
Resound System:
Resound Software 4 [*****]
(hardware provided by
Pyravision)
Total per system [*****]
Optional Items:
Dialogic D42DSX 4 [*****]
Dialogic D42DNS 4 [*****]
Resound Fax-on-Demand 1 [*****]
(software, fax board)
Second Language Module [*****]
Dialogic Mitel D42/SX 4 [*****]
Voice Board
Dialogic Norstar D42/NS 4 [*****]
Voice Board
Dialogic Standard 4 [*****]
Voice Board
Dialogic Gamma Board 1 [*****]
Sentinel Replacement [*****]
Resound Software Version [*****]
Upgrade V5 R1.8+
MS DOS [*****]
MS Windows '95 [*****]
Hardcopy Manual [*****]
Resound User Guides [*****]
([*****] per bundle)
Resound Color Brochures [*****]
([*****] per bundle)
Hospitality Non-PMS [*****]
Interface Module
Hospitality PMS Interface [*****]
Module (Voice Mail
Interface Software Only)
Second Language Module [*****] each
NOTE: Primary technical support shall be distributor (Buyer).
Digitcom will assist only after distributor cannot
resolve voice mail problems. Distributor shall have at
least one technical personnel on staff at all times.
<PAGE>
RESOUND
TWO THINGS YOU MUST KNOW BEFORE BUYING VOICE MAIL:
HOW BIG AND HOW MUCH?
That is, how big a system do you need and how much money
should it have? There are several ways to determine how many
ports and how much digital storage is required for a Voice
Processing system to meet your needs. And we have seen them all.
One company has a twenty page questionnaire. Another has a
computer program they use to generate a very impressive set of
charts. Still another asks that one of their people be allowed
to observe the company's operations for several days! The truth
is that most of pseudo-science misses the mark.
We have developed a simple rule of thumb that's based on our
years of experience matching systems to applications. You can
use it with confidence:
Number of Trunks/ Hours
People Lines Ports Storage Processor
1-15 1-4 2 4 hours 486DX
16-50 5-8 4 4 hours 486DX
51-100 9-20 8 10 hours 486DX
101-250 21-30 12 10 hours 486DX
251-400 31-45 16 20 hours 486DX
401-550 46-75 24 30 hours 486DX
551-1500 76-150 36 50 hours 486DX2
1501-3000 151-300 50 100 hours 486DX2
3001-6000 301-600 96 200 hours 486DX2
Some helpful notes: Storage is as critical as the number of
ports. You should have what may appear at first to be too much.
It is much less expensive to buy too much and grow into it rather
than add more later.
The most wasteful use of storage time is to save already-
heard messages. Delete them and move on when retrieving
messages.
When your Resound system is first installed, use will be
very heavy. After that initial surge, the traffic will decline.
It will then build slowly, exceeding the early peak. Many users
find they need more ports in their system within 90 days of
installation. Expansion of a Digitcom system is simple, without
loss of user's data or programming. With Resound, you can
monitor use and determine exactly what you need by watching the
traffic reports closely.
Digitcom Multimedia Corporation
2190 Colorado Avenue, Suite B
Santa Monica, CA 90404
(310) 504-0750
ADDENDUM A
1. DIGITCOM hereby grants buyer the exclusive distributorship
for its voice mail product for the territory defined by the
geographic limits of the sovereign states known as Saudi
Arabia and Syria.
2. DIGITCOM will advise buyer of any inquiry for sales of
product into buyers territory or into Jordan, Lebanon,
U.A.E., Kuwait, Yemen, Bahrain, Oman, Egypt, Katar and Abu
Dhabi. DIGITCOM grants the buyer a right of first refusal
to be the vendor in respect of any sales to the
aforementioned countries.
3. A continuing confidentiality, non-disclosure and non-
circumvention agreement (marked Addendum B) forms an
integral part of this Agreement.
4. DIGITCOM hereby grants buyer the right to sell and
sublicense DIGITCOM's product to third party wholesale
clients for the purpose of resale and sublicense.
5. Product prices may vary from time to time. However,
DIGITCOM shall provide Buyer with 90 days prior notice of
any change in price.
6. The second paragraph of the Digitcom Volume Purchase and
Exclusive Distributorship Agreement is hereby amended by the
addition of the following sentence: - However, during the
initial period of 12 months from the date of signature of
this agreement buyer may purchase less than the quantity of
voice mail units stipulated.
7. This agreement shall be for an initial term of three years
and shall be renewed automatically thereafter on each
termination date for an equivalent period, save and except
that this agreement can be terminated for cause upon 90 days
notice in the event of the breach of any term of this
agreement.
8. Payment for product to be received with order; no product
will be shipped prior to payment.
9. The terms of this Addendum A take precedence over any
contradictory term contained in the principal agreement.
10. DIGITCOM hereby grants buyer the right and license to use
such trademarks and tradenames as are associated with the
product for the purpose of advertising and promotion.
However, buyer cannot use such trademarks and tradenames in
buyer's commercial or corporate name.
Buyer's Shipping Address:
Al-Anani Marketing Group "MAZTRAD"
Al-Kahzzan Commercial & Residential Center
Tower 2, Suite 12, First Commercial Floor
Riyadh, Saudi Arabia 11437
Buyer's Billing Address:
Al-Anani Marketing Group "MAZTRAD"
P.O. Box 28209
Riyadh, Saudi Arabia 11437
Purchasing Contact:
Firas K. Mazloum, Executive Director
Telephone: (1) 4024703, Ext. 222/111 / Fax: (1) 4056327
FOR DIGITCOM: FOR BUYER:
/s/ Jimmy Chin /s/ Firas K. Mazloum
Jimmy Chin, President Firas K. Mazloum,
Executive Director
<PAGE>
ADDENDUM B
CONFIDENTIALITY, NON-DISCLOSURE AND
NON-CIRCUMVENTION AGREEMENT
IN AND BETWEEN: AL-ANANI MARKETING GROUP "MAZTRAD"
Having its head office and
principal place of business in
Saudi Arabia at P.O. Box 28209,
Riyadh 11437, K.S.A. and its
Canadian office at 1975 blvd de
Maisonneuve West, Suite 7902,
Montreal, Quebec H3H 1K4
(hereinafter the Recipient)
IN FAVOUR OF: DIGITCOM INTERNATIONAL VIDEO
NETWORK, a body politic and
corporate incorporated in
accordance with the laws of the
state of California, having its
head office and principal place of
business at 2190 Colorado Avenue,
Suite "B", Santa Monica, CA 90404
(hereinafter the Company)
WHEREAS, the Recipient has or has the intention to negotiate and
shall continue to negotiate an Agreement with the Company
relating to any of the following;
use, license, sublicense, purchase, sale, franchise, joint
venture or supply in relation to a business opportunity described
as exclusive distributorship for Voice Mail systems.
(hereinafter the business opportunity)
WHEREAS, to evaluate such business opportunity Company must
necessarily divulge certain information to recipient, inter alia
concepts, know-how, corporate materials, computer programs,
computer specifications, hardware specifications as well as
business plans, strategic plans, marketing information and
project descriptions, the whole without limitation.
In consideration of disclosure of certain information and
material by the Company to Recipient related to the business of
the Company, Recipient agrees as follows:
1. The preamble forms an integral part of this Agreement.
2. Proprietary Nature of Information. Recipient acknowledges
and agrees that Recipient may become aware of certain
confidential, proprietary, and other information of the
Company and its shareholders, and that such information and
material are valuable, special and unique assets of the
business of the Company. Recipient agrees that even the
fact that discussions have occurred concerning the possible
business opportunity is a confidential matter which could
affect the business of the Company. Recipient agrees that
all such information and material disclosed or discussed
with the Recipient on this date, and all subsequent such
disclosures and discussions relating to the above matter, is
proprietary to the Company and that such disclosures and
discussions shall be and remain confidential, including the
fact that such discussions have occurred.
Limited Use of Information. Recipient agrees that the
information and material referred to in paragraph 2 is
disclosed to Recipient for the Recipient's sole use for the
limited purpose of evaluating the possible business
opportunity and that conveyance of this information and
material to Recipient does not constitute a general release
of, or license to use information and data relating to the
Company.
4. Confidentiality of Information. Recipient agrees to keep
all of the information and material conveyed to Recipient
confidential, including the fact that discussions have
occurred concerning the possible business opportunity, and
not to communicate or disclose any such information and
materials to any person or entities except to employees of
Recipient who have a need to know all or part of the
information and material for the limited use and purpose
referred to in paragraph 3. Recipient shall make such
disclosure to each such employee limited to that portion of
the information and material disclosed that the employee
needs to know. Recipient shall inform each such employee of
the provisions of this Confidentiality and Non-Disclosure
Agreement and shall be responsible for insuring that each
employee shall abide by these provisions.
5. No Other Use of Information. Recipient agrees not to use
any of the information and materials conveyed to Recipient
for its own benefit or for the use or benefit of any other
person or entity or for any reason other than for the
limited purpose set forth in paragraph 3. And further
Recipient warranties that it will not enter into or engage
in or solicit others to engage in the same or an essentially
conceptionally similar business opportunity.
6. No Unauthorized Reproduction. Recipient agrees not to
reproduce or make any copies of any of the information or
materials conveyed to the Recipient without the prior
written approval of the Company and all information and
materials, together with any copies made shall be returned
to the Company upon completion of the limited permitted use.
7. Breach. In the event of a breach or threatened breach by
the Recipient of this Confidentiality and Non-Disclosure
Agreement, the Company shall be entitled to an injunction
restraining the undersigned from using or disclosing, in
whole or in part, such confidential information and
material. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any available remedy
for any breach of this Agreement.
8. This agreement should remain in full force and effect during
the term of the distributorship agreement to which it is
annexed and for a period of two (2) years after termination
thereof.
La partie (les parties) accept(ent) que cet Accord soit redige en
anglais.
The party(ies) accept that this Agreement be drafted in English.
AT MONTREAL ON THIS 20TH DAY IN THE MONTH OF MAY, 1996.
By: /s/ Firas K. Mazloum
Firas K. Mazloum
On Behalf of: AL-ANANI MARKETING GROUP "MAZTRAD"
SOLEMN DECLARATION
CANADA
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
I, the undersigned, Edward Figlarz, attorney, practicing as a
member of the firm of FIGLARZ GREENFIELD, having our principal
office at 1000 de la Gauchetiere West, Suite 2700, in the City
and District of Montreal, do hereby solemnly declare under my
oath of office and say:
1. I have personal knowledge of the matters set out herein;
2. That I attended at the signature of the attached agreement
between DIGITCOM and AL MAZTRAD.
3. That the agreement bears the true and original signature of
the parties thereto.
4. That the agreement consists of 13 pages numbered one through
13 plus this declaration which is page number 14.
And I have signed at Montreal on this 20th day of May, 1996.
/s/ Edward Figlarz
Edward Figlarz
AMENDMENT TO
DIGITCOM VOLUME PURCHASE AND EXCLUSIVE DISTRIBUTION AGREEMENT
This Amendment to Digitcom Volume Purchase and Exclusive
Distribution Agreement ("Amendment") is dated as of May 20, 1996,
by and between Digitcom Interactive Multimedia, Inc., a Nevada
corporation doing business as Resound Communications Corporation
("Digitcom") and Al-Anani Marketing Group "Maztrad", a company
having its principal place of business at P.O. Box 28209, Riyadh
11437, Kingdom of Saudi Arabia ("Buyer").
WHEREAS, Digitcom and Buyer entered into that certain
Digitcom Volume Purchase and Exclusive Distribution Agreement
dated May 20, 1996 (the "Agreement"); and
WHEREAS, the parties desire to amend such Agreement as set
forth in this Amendment.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree that, notwithstanding anything to the
contrary contained in the Agreement:
1. The correct name of Digitcom is as set forth in this
Amendment. Digitcom is not a subsidiary of Digitcom Interactive
Video Network, a California corporation, and Digitcom Interactive
Video Network shall not be obligated or bound in any way under
the Agreement.
2. The correct name of Buyer is as set forth in this
Amendment.
3. Buyer shall be obligated to purchase and Digitcom shall
be obligated to sell copies of Digitcom's voice mail software
product sold under the trade name Resound (the "Resound
Software") or upgrades thereto representing the right to add
additional ports served by the Resound Software ("Upgrades") in
the cumulative minimum amounts set forth in the table below on or
before the corresponding dates set forth below:
Minimum Resound Software Purchases
Total Sales
(Cumulative)
Date (U.S. Dollars)
December 31, 1997 $ 276,000
June 30, 1998 593,400
December 31, 1998 910,800
June 30, 1999 1,380,000
The foregoing minimum purchase and sale commitments are absolute
and shall not depend in any way upon Buyer's ability to resell
Resound Software or Upgrades. Buyer shall place orders for
Resound Software or Upgrades in the minimum dollar amounts set
forth above no later than thirty days prior to the respective
dates corresponding thereto and Buyer shall tender to Digitcom
full payment representing such minimum cumulative dollar amounts
prior to the respective corresponding dates set forth above.
Upon receipt of such payments, Digitcom shall provide to Buyer
the unlocking password(s) necessary to enable the appropriate
licensed number of ports for each copy of Resound Software and
each Upgrade purchased by Buyer. As used herein, the term
Upgrades include only supplemental licenses for the right to use
existing Resound Software on additional telephone ports and does
not include any future versions or enhancements to the Resound
Software. Purchases by Buyer of any future versions or
enhancements to the Resound Software shall not be deemed to
satisfy the foregoing minimum dollar commitments.
4. Digitcom has delivered to Buyer a master copy of the
Resound Software ("Master Copy") which Buyer has accepted as
conforming goods after a reasonable opportunity for inspection.
Buyer shall use the Master Copy solely to obtain Resound Software
products ordered and paid for by Buyer pursuant to the Agreement
and this Amendment. The Master Copy contains the entire Resound
Software application. Digitcom has no further obligation with
respect to the Resound Software other than the provision to Buyer
of unlocking passwords as set forth in Section 3 hereof. Without
limiting the generality of the foregoing, Digitcom shall have no
obligation to Buyer to provide updates, enhancements, corrections
or technical support related in any way to the Resound Software.
5. The Agreement as amended by this Amendment sets forth
the entire understanding of the parties and supersedes all prior
agreements and understandings relating to the subject matter
hereof. No modifications or additions to or deletions from these
terms shall be binding upon either party unless explicitly
consented to in writing by a duly authorized representative of
the party to be bound thereby. This Amendment may be executed in
counterparts and each such counterpart shall constitute an
original of this Amendment.
6. In all other respects, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
DIGITCOM INTERACTIVE
MULTIMEDIA, INC.
By: /s/ Jimmy Chin
Jimmy Chin, President
AL-ANANI MARKETING GROUP
"MAZTRAD"
By: /s/ Firas Mazloum
Print Name: Firas Mazloum
Title: Executive Director
DIGITCOM VOLUME PURCHASE AGREEMENT
MAY 2, 1996
* Confidential treatment of the portions of Attachment #1 to this
Agreement indicated by asterisks enclosed in brackets has been
requested.
This Agreement is between Resound Communications Corporation, a
U.S. subsidiary of Digitcom Interactive Video Network
("Digitcom") headquartered at 2190 Colorado Avenue, Suite B,
Santa Monica, CA 90404, and
Pyravision, located at 2155 Guy Street, Suite 775, Montreal,
Quebec, Canada H3H 2R9 further known for the purposes of this
Agreement as "Buyer".
The purpose of this Agreement is to afford Buyer the opportunity
to obtain a volume discount based on the total amount of
purchases of certain products over a two-year period. This
Agreement is intended for use by Buyer if Buyer has demonstrated
the ability consistently to purchase products totaling at least
20 four-port Voice Mail systems per month.
The parties hereby agree as follows:
Attachment #1 contains the pricing schedule for, and a list of
the products that may be covered by this Volume Purchase
Agreement ("Products"). In order to take advantage of a volume
discount, Buyer must present Digitcom with a completed Delivery
Schedule (in the form provided by Digitcom, a copy of which is
attached) for each Product Buyer will purchase. Each completed
Delivery Schedule will represent Buyer's good faith forecast of
the quantity of each Product Buyer intends to purchase over the
course of this Agreement.
In addition, Buyer will present to Digitcom, upon execution of
this Agreement, a written purchase order detailing exact
quantities and ship dates for all Products forecasted for
shipment within the first three months of the Agreement. Buyer
will also issue to Digitcom, 30 days prior to the end of a
quarter, a written purchase order detailing the exact quantities
and ship dates for all Product forecasted for the subsequent
quarter.
There is (are) one Delivery Schedule(s) included in this
Agreement, all of which taken together is Attachment #2 to this
Agreement.
1. SALES CONDITIONS
All purchases of Products by Buyer from Digitcom shall reference
this Agreement and shall be governed by the terms and conditions
of this Agreement notwithstanding the presence of different or
additional provisions on Buyer's standard purchase order form.
Buyer represents that all purchases of Products under this
Agreement are for end use or for resale only when sold with
Buyer's software or system. Buyer further represents that
Products purchased under this Agreement will not be sold
independently of software or systems except in the case of
supplying spare parts.
2. ORDERING AND TITLE
The Delivery Schedule(s) for each Product on Attachment #2 of
this Agreement represents Buyer's good faith forecast for the
term of the Agreement. UPON EXECUTION OF THE AGREEMENT, BUYER IS
REQUIRED TO FURNISH DIGITCOM WITH A WRITTEN PURCHASE ORDER FOR
PRODUCTS FORECASTED FOR SHIPMENT WITHIN THE FIRST 90 DAYS OF THIS
AGREEMENT. Buyer shall also issue written purchase orders to
Digitcom for the subsequent 90-day periods of this Agreement at
least 30 days prior to the start of that 90-day period. Digitcom
will ship Products covered by this Agreement in accordance with
instructions on Buyer's written purchase order. Changes to the
written purchase order shall be made in accordance with Section 6
of the Agreement. No Delivery Schedule or purchase order is
accepted until Digitcom issues a written confirmation thereof to
Buyer. Confirmation shall not be unreasonably withheld, but
Digitcom reserves the right to reject any Delivery Schedule with
a growth rate of 5% or more per month. All shipments by Digitcom
are F.O.B. point of shipment by Digitcom. Title to Products and
risk of loss pass to Buyer upon delivery to carrier at shipping
point. Digitcom will select the carrier if Buyer does not.
Claims for shortages must be made within ten (10) days after
arrival. In the event of foreign delivery, Buyer shall be
responsible for obtaining any and all export licenses and other
international trade documents required by United States laws and
all applicable laws of other jurisdictions and Buyer shall at all
times comply with all such laws regarding the Products.
3. TERM
The term of this Agreement shall commence on the first day of the
earliest month listed on Attachment #2 and continue for a term of
24 months.
4. PAYMENT TERMS AND CONDITIONS
Payment in United States dollars to Digitcom from Buyer for all
Products shall be made in certified funds prior to shipment of
Products unless other payment terms are negotiated between the
Buyer and Digitcom.
5. PRICING
The unit price Digitcom shall charge Buyer for the Products is
calculated using the Volume Price Schedule (Attachment #1) and
all of the Delivery Schedules for each Product. The sum of all
the port totals for all the Products specified on Attachment #2
shall determine, for the first 90 days of this Agreement, the
unit price, as shown on Attachment #1, for each Product.
Instructions for calculating the total number of ports are
included on Attachment #2.
6. SCHEDULE CHANGES
Buyer may cancel or reschedule any order for standard Products,
provided written notice is received by Digitcom 30 days before
scheduled ship date. If 30-day notice is not received by
Digitcom, the following cancellation/reschedule charges shall
apply: a charge of 20% of the purchase price for the Product(s)
in the affected shipment will be applicable for
cancellation/reschedule notices received less than 14 days before
the scheduled ship date, and a charge of 10% will be applicable
for notices received less than 30, but more than 14 days before
the scheduled ship date.
Products not scheduled in the original Attachment #2 may be added
at any time during the term of this Agreement, upon the following
conditions: Buyer may be required to amend Attachment #2 or one
or more Delivery Schedule(s) to include added Product if (a)
Digitcom determines that the added Product represents a large
volume that is being shipped on a regular basis; (b) Digitcom
determines that the quantity of added Product requested affects
Digitcom's ability to supply the Product; or (c) the total number
of ports specified in the original Attachment #2 plus the added
Product quantity results in a change in the price level.
Delivery Schedules for added Product are required only for the
remainder of the term of this Agreement.
Other changes to the Delivery Schedules may result in changes in
the unit price of Products under the terms and conditions of
Section 7 of this Agreement.
7. MINIMUM PURCHASE REQUIREMENTS
Buyer is required to meet minimum quarterly purchase requirements
in order to maintain the volume pricing determined under Section
5. Table 1 lists these quarterly minimum purchase requirements.
The quarterly figures are cumulative.
TABLE 1
Minimum Periodic Purchase to Maintain Discount
Percentage of Total
By End of Quarter System Commitment
Q2 20%
Q4 43%
Q6 66%
Progress toward the stated goal will be measured at the end of
each second quarter (180 days; 270 days; and 450 days from the
effective date of this Agreement).
If, at any measuring point, Buyer has not achieved the minimum
quarterly purchase requirement, subsequent shipments will be
priced at the level shown in Attachment #1 that reflects actual
shipment history. Notification of any pricing change, if
applicable, will occur within seven (7) days of each measuring
point.
If actual purchases of Products by Buyer during any one quarter
result in a price increase of more than one level, as shown in
Attachment #1, this Agreement will be void and of no further
effect and Buyer shall not be entitled to any subsequent volume
discount.
Buyer may achieve a greater discount if, at any measuring point,
Buyer has purchased sufficient ports to meet the minimum purchase
requirements for a lower price shown on Attachment #1.
In order to obtain this higher discount, Buyer must present to
Digitcom one or more amended Delivery Schedule(s) covering the
balance of the term of this Agreement. The total number of ports
outlined in the amended Delivery Schedule(s), added to the total
number of ports already purchased by Buyer, must equal the number
of ports required for the lower price.
8. WARRANTY
Products purchased under this Agreement are subject to all the
terms and conditions set forth in the Limited Warranty published
in the documentation for the individual Products.
9. PATENTS AND COPYRIGHTS
Neither this Agreement nor the sale of any Product or part
thereof by Digitcom in accordance with this Agreement confers
upon Buyer any license or other right under any patent,
trademark, copyright or other intellectual property right
pertaining to that Product.
Digitcom computer programs and documentation therefore are
patented or are copyrighted or both, and all rights are reserved
by Digitcom. No Digitcom Product or documentation may, in whole
or in part, be copied, photocopied, translated, or reduced to any
electronic medium without the express prior written permission of
Digitcom.
10. LIABILITY
Digitcom shall not be liable for any costs or damages, and Buyer
will indemnify, defend, and hold Digitcom harmless from any
expenses, damages, costs, or losses resulting from any suit or
proceeding based upon a claim arising from (a) a modification of
any Product by a party other than Digitcom after delivery by
Digitcom; (b) compliance with Buyer's designs, specifications, or
instructions; or (c) the use of any Product or part thereof
furnished hereunder with any other product.
11. CONTINGENCIES
Digitcom shall not be responsible for any failure to perform
under this Agreement due to unforeseen circumstances or causes
beyond Digitcom's reasonable control. Digitcom may defer
delivery for a period equal to the delay caused by such an
unforeseen or uncontrollable contingency.
12. MODIFICATION AND JURISDICTION
This Agreement sets forth the entire understanding of the parties
and supersedes all prior agreements and understandings relating
to the subject matter hereof. No modifications or additions to
or deletions from these terms shall be binding upon either party
unless accepted in writing by an authorized representative of
each party. Buyer shall not delegate any obligations hereunder
nor assign any interest or rights without prior written consent
of Digitcom. This Agreement shall be governed by the laws of the
State of California, and this Agreement shall be deemed to have
been entered into and wholly performed in California.
Buyer's Shipping Address:
Pyravision Teleconnection Canada, Inc.
2155 Guy Street, Suite 775
Montreal, Quebec, CANADA H3H 2R9
Buyer's Billing Address:
Same as above
Purchasing Contact:
Maha El Kelish, President
(514) 937-4636, Ext. 202
FOR DIGITCOM: FOR BUYER:
/s/ Jimmy Chin /s/ Maha El Kelish
Jimmy Chin, President Maha El Kelish, President
May 2, 1996 May 2, 1996
<PAGE>
ATTACHMENT #1
Digitcom Volume Pricing Schedule
* Confidential treatment of the portions of this page indicated
by asterisks enclosed in brackets has been requested.
Product Ports System Price
Resound System:
Resound Software 4 [*****]
(hardware provided by
Pyravision)
Total per system [*****]
Optional Items:
Dialogic D42DSX 4 [*****]
Dialogic D42DNS 4 [*****]
Resound Fax-on-Demand 1 [*****]
(software, fax board)
Second Language Module [*****]
Dialogic Mitel D42/SX 4 [*****]
Voice Board
Dialogic Norstar D42/NS 4 [*****]
Voice Board
Dialogic Standard 4 [*****]
Voice Board
Dialogic Gamma Board 1 [*****]
Sentinel Replacement [*****]
Resound Software Version [*****]
Upgrade V5 R1.8+
MS DOS [*****]
MS Windows '95 [*****]
Hardcopy Manual [*****]
Resound User Guides [*****]
([*****] per bundle)
Resound Color Brochures [*****]
([*****] per bundle)
Hospitality Non-PMS [*****]
Interface Module
Hospitality PMS Interface [*****]
Module (Voice Mail
Interface Software Only)
Second Language Module [*****]each
NOTE: Primary technical support shall be distributor (Buyer).
Digitcom will assist only after distributor cannot
resolve voice mail problems. Distributor shall have at
least one technical personnel on staff at all times.
AMENDMENT TO
DIGITCOM VOLUME PURCHASE AGREEMENT
This Amendment to Digitcom Volume Purchase Agreement
("Amendment") is dated as of May 2, 1996, by and between Digitcom
Interactive Multimedia, Inc., a Nevada corporation doing business
as Resound Communications Corporation ("Digitcom") and Pyravision
Teleconnection Canada, Inc., a ___________ corporation ("Buyer").
WHEREAS, Digitcom and Buyer entered into that certain
Digitcom Volume Purchase Agreement dated May 2, 1996 (the
"Agreement"); and
WHEREAS, the parties desire to amend such Agreement as set
forth in this Amendment.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree that, notwithstanding anything to the
contrary contained in the Agreement:
1. The correct name of Digitcom is as set forth in this
Amendment. Digitcom is not a subsidiary of Digitcom Interactive
Video Network, a California corporation, and Digitcom Interactive
Video Network shall not be obligated or bound in any way under
the Agreement.
2. The correct name of Buyer is as set forth in this
Amendment.
3. Buyer shall be obligated to purchase and Digitcom shall
be obligated to sell copies of Digitcom's voice mail software
product sold under the trade name Resound (the "Resound
Software") or upgrades thereto representing the right to add
additional ports served by the Resound Software ("Upgrades") in
the cumulative minimum amounts set forth in the table below on or
before the corresponding dates set forth below:
Minimum Resound Software Purchases
Total Sales
(Cumulative)
Date (U.S. Dollars)
December 31, 1996 $ 200,000
June 30, 1997 430,400
December 31, 1997 660,800
June 30, 1998 1,000,000
The foregoing minimum purchase and sale commitments are absolute
and shall not depend in any way upon Buyer's ability to resell
Resound Software or Upgrades. Buyer shall place orders for
Resound Software or Upgrades in the minimum dollar amounts set
forth above no later than thirty days prior to the respective
dates corresponding thereto and Buyer shall tender to Digitcom
full payment representing such minimum cumulative dollar amounts
prior to the respective corresponding dates set forth above.
Upon receipt of such payments, Digitcom shall provide to Buyer
the unlocking password(s) necessary to enable the appropriate
licensed number of ports for each copy of Resound Software and
each Upgrade purchased by Buyer. As used herein, the term
Upgrades include only supplemental licenses for the right to use
existing Resound Software on additional telephone ports and does
not include any future versions or enhancements to the Resound
Software. Purchases by Buyer of any future versions or
enhancements to the Resound Software shall not be deemed to
satisfy the foregoing minimum dollar commitments.
4. Digitcom has delivered to Buyer a master copy of the
Resound Software ("Master Copy") which Buyer has accepted as
conforming goods after a reasonable opportunity for inspection.
Buyer shall use the Master Copy solely to obtain Resound Software
products ordered and paid for by Buyer pursuant to the Agreement
and this Amendment. The Master Copy contains the entire Resound
Software application. Digitcom has no further obligation with
respect to the Resound Software other than the provision to Buyer
of unlocking passwords as set forth in Section 3 hereof. Without
limiting the generality of the foregoing, Digitcom shall have no
obligation to Buyer to provide updates, enhancements, corrections
or technical support related in any way to the Resound Software.
5. The Agreement as amended by this Amendment sets forth
the entire understanding of the parties and supersedes all prior
agreements and understandings relating to the subject matter
hereof. No modifications or additions to or deletions from these
terms shall be binding upon either party unless explicitly
consented to in writing by a duly authorized representative of
the party to be bound thereby. This Amendment may be executed in
counterparts and each such counterpart shall constitute an
original of this Amendment.
6. In all other respects, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
DIGITCOM INTERACTIVE
MULTIMEDIA, INC.
By: /s/ Jimmy Chin
Jimmy Chin, President
PYRAVISION TELECONNECTION
CANADA, INC.
By: /s/ M. El-Kelish
Print Name: Maha El-Kelish
Title: President
LEASE AGREEMENT
This Lease Agreement is entered into as of November 1, 1995
by and between Resound Communications Corporation ("Landlord"), a
Nevada corporation and Digitcom Interactive Video Network
("Tenant"), a California corporation.
I. RECITALS
A. Landlord holds a legal lease from The Arboretum
Development Partners, L.P. to the property known as 2190 Colorado
Avenue, Suite B, Santa Monica, California.
B. Tenant will sublease a portion equal to 1,600 square
feet consisting of offices and loft facing Colorado Avenue at the
rate of $1.15 per square foot each month.
NOW, THEREFOR, in consideration of the mutual covenants and
conditions of this agreement, and consistent and subject to the
Lease Agreement between Resound Communications Corporation and
Arboretum Development Partners, L.P., Landlord and Tenant
(together the "Parties") hereby agree and covenant with each
other as follows:
1. Demise of Premises. Landlord shall lease and demise to
Tenant and Tenant shall hire and accept from Landlord, the
Premises on and subject to the terms of this Lease.
2. Term. The term of this Lease for the Premises shall be
on a month-to-month basis commencing on November 1, 1995.
3. Rent.
(a) As Rent for the Premises under this Agreement,
Tenant shall pay Landlord the sum of $1,840.00 per month. Rent
commences on November 1, 1995.
(b) Schedule of payment: Rent is due on the first day
of each month.
4. Maintenance. Tenant shall, at its expense, keep in the
same order and condition and repair the Premises and every part
thereof, except for the failure or malfunction of any building
system or similar causes in above or about the Premises as
prevailed on the first day of this Agreement.
5. Use. Tenant shall use the Premises for the lawful
conduct of business.
6. Utilities and Services. Arboretum Development Partners
shall pay for electricity and water and trash pickup per Resound
Communications Corporation's lease agreement with them.
7. Alterations and Additions. Except as reasonably
necessary for installation of communication and computer cabling,
Tenant shall not make any alterations or additions in, on or
about the Premises without Landlord's prior consent, which will
not be unreasonably withheld.
8. Parking. Tenant shall be entitled to four (4) free
parking space(s) located in the general parking area behind the
building facing onto Colorado Avenue, subject to the rates,
conditions and regulations imposed by Arboretum Development
Partners. Thereafter, each parking space is $55.00 monthly, or
the then established market rate payable to Arboretum Development
Partners.
9. Default. An "Event of Default" shall occur by failure
to pay Rent when due, if such failure continues for three (3)
days after written notice has been given to Tenant.
10. Remedies for Tenant Default. Upon and after the
occurrence of any Event of Default (and until cure of such
default has been tendered by Tenant and accepted by Landlord),
Landlord shall have the right to terminate this Lease and the
interest and estate granted in the Premises hereby, by giving
Tenant written notice of such termination (which shall be
effective upon the later of the receipt of such notice or the
date and time of termination specified therein).
11. Insurance, Indemnification and Limitations on
Liability.
(a) Landlord shall maintain a policy of public
liability, bodily injury and property damage insurance acceptable
to Arboretum Development Partners, L.P., as specified in
Landlord's Lease Agreement.
(b) Landlord shall indemnify, defend and hold harmless
Tenant, its officers, directors, agents and employees, from and
against any and all claims, suits, demands, liability, damages
and expense, including reasonable attorney's fees and costs,
arising from or in connection with Tenant's uses of the Premises
for the conduct of its business, or from any activity performed
or permitted by Tenant in or about the Premises, or from any
other act, neglect, fault or omission of Tenant or any of its
officers, directors, partners, agents, contractors, employees,
licensees or invitees, except to the extent that such claim,
suit, demand, liability, damages and expenses are the direct
result of the negligence or willful misconduct of the Tenant.
12. Notices. Any notice required or permitted to be given
hereunder shall be in writing and delivered to the applicable
party personally, or by United States Postal Service to the
address indicated for such party below:
If to Landlord:
Resound Communications Corporation
2190 Colorado Avenue, Suite B
Santa Monica, CA 90404
Attn: Jimmy Chin
If to Tenant:
Digitcom Interactive Video Network
2190 Colorado Avenue, Suite B
Santa Monica, CA 90404
Attn: Roger Templeton
13. Entire Agreement. This Lease constitutes the entire
agreement between the Parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings and
representations of the Parties with respect to the subject matter
hereof. This Lease may not be modified, amended, supplemented or
otherwise changed, except by a writing executed by both Parties.
Except as otherwise expressly provided herein, this Lease shall
bind and inure to the benefit of the Parties and their respective
successors and assigns.
14. Governing Law. This Lease shall be governed by and
interpreted in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, Landlord and Tenant executed this Lease
as of the date first written above.
LANDLORD: TENANT:
RESOUND COMMUNICATIONS DIGITCOM INTERACTIVE VIDEO
CORPORATION NETWORK
By: /s/ Jimmy Chin By: /s/ Jimmy Chin
Jimmy Chin, President Jimmy Chin, President
LEIBMAN & OESCH, L.L.P.
Attorneys at Law
24 Greenway Plaza, Suite 1210
Houston, Texas 77046
May 1, 1996
Mr. Jimmy Chin
Digitcom Interactive Video Network
2190 'A' Colorado Ave.
Santa Monica, CA 90404
Dear Mr. Chin:
It is our understanding that Digitcom Interactive Video
Network (the "Company") is a California corporation formed April
2, 1996 which intends to establish an interactive video on-line
service for home and business users accessible directly through
the Company's dial-in network or through the Internet.
It is our understanding that the Company desires growth
through raising money in a private placement transaction and
becoming a publicly-traded company. In connection therewith, the
Company wishes to hire Leibman & Oesch, L.L.P. ("L & O") to
assist in the development and execution of a plan of financing
and reorganization whereby:
I. The Company will merge with a suitable corporation
having at least 300 shareholders (hereinafter
referred to as the "Merger");
II. The Company will undertake to sell up to 490,000
shares of its common stock, $.001 par value
("Common Stock") at $2.00 per share in a private
placement transaction (hereinafter referred to as
the "Private Placement"); and
III. Assuming the sale of at least 50,000 shares of
Common Stock in the Private Placement, the Company
will file a registration statement with the
Securities and Exchange Commission ("SEC") on Form
10-SB and immediately thereafter apply for listing
on the NASDAQ SmallCap system.
The foregoing steps are referred to herein as the
"Plan." This letter sets forth the agreement between the Company
and L & O with respect to the Plan.
It is understood by the Company that although L & O is
a law firm, the services that it shall render pursuant to this
Agreement are non-legal in nature and L & O is not by this
Agreement undertaking any legal representation of the Company.
The Company has retained Cohen Brame & Smith Professional
Corporation ("CBS") as its attorneys in connection with the Plan
and also retains another law firm to assist it with corporate and
business matters unrelated to the Plan.
The Company and L & O understand that approval for
listing on the NASDAQ SmallCap system requires the Company to
satisfy a number of requirements, including having audited
financial statements indicating assets used in the business of at
least $4,000,000 and net worth of at least $2,000,000 and a
commitment from two market makers indicating that they will open
the stock of the Company at no less than $3.00 per share. In the
event that the Company does not qualify for listing on the NASDAQ
SmallCap system, it shall take steps necessary to establish a
market for its Common Stock on the Bulletin Board, including
causing a Form 15c2-11 to be filed with the National Association
of Securities Dealers ("NASD").
Each element of the Plan, and the services that L & O
shall perform with respect to each element, are more particularly
described below.
A. Merger
The Merger shall be with a target company with the
following characteristics:
i. Nominal assets and liabilities, and no
material business operations;
ii. A minimum of 300 shareholders;
iii. A corporation in good standing in its state
of incorporation; and
iv. Possessing current audited financial
statements.
The Merger shall be a forward merger whereby the
target company shall merge with and into the Company. The
Company shall issue in the Merger an aggregate of 510,000 shares
of its Common Stock to the shareholders of the target company in
exchange for all of the outstanding shares of the target company.
The issuance of Common Stock to the shareholders of the target
company is expected to be exempt from federal registration
pursuant to Regulation D, Rule 504, promulgated under the
Securities Act of 1933, as amended (the "Act").
L & O shall identify a suitable target company and
shall coordinate all of the work in connection with the Merger.
L & O shall also pay all expenses in connection with the Merger,
including costs associated with identifying and securing majority
control of the target company and the legal costs of the Company
in connection with the Merger.
The Company understands that L & O, or one or more
of its partners, may directly or beneficially own a substantial
(majority or greater) percentage of the outstanding shares in the
target company at the time of the Merger and accordingly may be
issued a substantial percentage of the 510,000 shares of Common
Stock to be issued in the Merger. By its execution of this
Agreement, the Company hereby acknowledges and waives the
potential conflict of interest created by beneficial ownership by
L&O of stock in the target company.
B. Private Placement
The Private Placement contemplated by this
Agreement shall be a private offering designed to be exempt from
federal registration pursuant to Regulation D, Rule 504,
promulgated under the Act. The Private Placement shall be sold
by the Company or third-party broker-dealers on a best efforts
basis. A private placement memorandum (the "Memorandum") shall
be prepared by the Company and CBS with the assistance of L & O,
which assistance shall be limited to advice on matters of a
non-legal nature relating to the marketing of the Private
Placement. The Memorandum shall include audited financial
statements of the Company. The Company (with the assistance of
CBS) shall file an appropriate notice form with the SEC and with
the securities commissions of any states into which the Private
Placement offering is made, to the extent required.
The shares issued in the Private Placement shall
in general be "Restricted Securities" subject to certain resale
limitations provided under state blue sky laws and shall
accordingly be issued with restrictive legends. Notwithstanding
the foregoing, L & O believes that the Private Placement will
qualify for a registration exemption under California law which
will permit shares to be issued to California residents without
restrictive legend provided that the offers are made only to
"qualified purchasers" as that term is defined in Section
25102(n) of the California Corporations Code. Private Placement
shares may be issuable without restrictive legend in certain
other states as well, but the availability of appropriate
exemptions therefor will need to be confirmed by the Company and
CBS.
The Private Placement shall be for a maximum of
490,000 shares of Common Stock at $2.00 per share, subject to a
minimum subscription requirement of 50,000 shares ($100,000) (the
"Minimum Offering"). Selling commissions of up to ten percent,
plus non-accountable expense allowances of up to an additional
five percent, may be paid to broker-dealers who agree to sell
shares in the Private Placement. If the full amount of such
commissions and fees are paid, the Company would realize a
maximum of $833,000 in net proceeds from the Private Placement.
L & O shall coordinate the Private Placement by
working with the Company, its auditor, broker-dealers and CBS. L
& O shall also pay the legal fees, costs of preparation and
printing of the Memorandum and blue sky registration fees in
connection with the Private Placement. L & O cannot however
ensure the success of the Private Placement and in no way
guarantees that any funds will be raised in the Private
Placement.
C. Form 10-SB and NASDAQ Registration
Upon the successful sale of the Minimum Offering,
the Company shall cause CBS to commence preparation of a Form
10-SB for filing with the SEC and shall cause the Form 10-SB to
be filed as soon as practicable thereafter. The Company shall
also if necessary obtain updated audited financial statements as
of a date sufficiently recent for inclusion in the Form 10-SB.
As soon as practicable after filing the Form 10-SB with the SEC,
the Company shall make application to the NASD for listing on the
NASDAQ SmallCap system. The Company, with the assistance of CBS
and its auditor, shall respond to any and all comments of the SEC
and NASD and shall use its best efforts to obtain the approval of
the NASD for listing on NASDAQ.
L & O shall identify potential market makers and
coordinate the work in connection with preparation of the Form
10- SB and establishment of a NASDAQ SmallCap trading market,
including working with the Company, its auditor, CBS and
potential market makers. L & O shall also pay the legal fees and
filing fees in connection with the Form 10-SB and NASDAQ
application, including without limitation the legal fees of CBS
in connection with (i) drafting an agreement between the
Company's corporate parent and the Company in connection with the
issuance of 9,000,000 shares of Common Stock to the parent, (ii)
drafting amendments to certain distributorship agreements for
which certain receivables have been assigned to the Company, and
(iii) drafting this Agreement.
In the event that despite its best efforts, the
Company is unable to list its Common Stock on the NASDAQ SmallCap
system, the Company shall promptly use its best efforts to
establish a trading market on the Bulletin Board, including
cooperation in preparing a Form 15c2-11 for filing with the NASD.
In such event, L & O shall coordinate the work in connection with
establishment of a Bulletin Board trading market, including
working with the Company, its auditor, CBS and potential market
makers. L & O shall also pay the legal costs and filing fees
associated with the Form 15c2-11.
Assuming successful completion of the Merger and the
Private Placement, the Company's issued and outstanding Common
Stock shall be as follows:
Shares Issued to Parent Company 9,000,000
Shares Issued in Private Placement 490,000
Shares Issued in Merger 510,000
Total 10,000,000
L & O shall receive a fixed, non-accountable fee of
$200,000 as compensation for its services and advancement of
expenses. Such amount shall be payable out of proceeds from the
Private Placement as follows: The first $100,000 of net proceeds
(after subtracting broker commissions and fees or consulting fees
in lieu thereof) from the Private Placement shall be paid to L &
O; the next $400,000 of net proceeds from the Private Placement
shall be paid to the Company; the next $100,000 of net proceeds
from the Private Placement shall be paid to L & O; all remaining
net proceeds from the Private Placement shall be paid to the
Company (subject to the bonus provisions set forth below).
In the event that sufficient cash is not raised in the
Private Placement to pay the full $200,000 fee due to L & O, any
difference between the amount paid to L & O in cash pursuant to
the above schedule and $200,000 shall be paid to L & O in the
form of shares of Common Stock, valued for such purpose at $2.00
per share. L & O understands that these shares may be
"restricted securities" as that term is defined in Rule 144
promulgated under the Act and accordingly, that such shares may
be issued with a restrictive legend. In connection with the
issuance of such shares to L & O, L & O agrees to execute a
customary subscription agreement in a form reasonably required by
the Company, which subscription agreement shall contain
representations and warranties of L & O that L & O is a
sophisticated investor which has had access to all material
information concerning the Company and which could fend for
itself in the acquisition of the shares. Except as expressly set
forth above, the compensation to L & O shall not depend upon the
success of the Private Placement and shall be payable regardless
of whether the Minimum Offering is sold.
In additional to the foregoing, and contingent upon at
least 350,000 shares of Common Stock being sold in the Private
Placement, L & O shall receive a bonus in the amount of $60,000.
Such bonus shall be payable in cash to the extent that net
proceeds from the Private Placement exceed $600,000. To the
extent that net proceeds from the Private Placement are not
sufficient to pay such bonus, any difference between the amount
of such bonus actually paid in cash and $60,000 shall be payable
in Common Stock of the Company, valued for such purpose at $2.00
per share, subject to the same conditions set forth in the
preceding paragraph.
The Company shall be responsible for its formation
expenses, accounting fees (including fees and expenses charged by
the auditor), expenses related to establishing market makers for
the Company's Common Stock, transfer agent fees, fees of Standard
& Poor for timely listing in the Corporation Manual (in order to
establish secondary trading blue-sky exemptions in a number of
states), fees of obtaining a CUSIP number and printing costs for
stock certificates. The Company agrees to pay these fees as they
come due. The Company further agrees to cooperate fully in the
Plan, including completion of all necessary corporate
documentation, provision of all information reasonably requested
by the SEC, NASD, CBS or the auditor in connection with the Plan
in a timely and responsive fashion and timely and full completion
of the Company and Officer and Director Questionnaires provided
by CBS in connection with the Form 10-SB filing.
Your execution of this letter constitutes your
acceptance of the Plan and your acknowledgment that you have read
and understood the provisions of this Agreement, including (i)
that L & O is not undertaking a legal representation of the
Company; (ii) that L & O may beneficially own a substantial
(majority or greater) interest in the target company immediately
prior to the Merger; (iii) that L & O does not guarantee the
success of the Private Placement and (iv) that L & O's right to
compensation does not depend upon the success or failure of the
Private Placement except as expressly set forth herein.
This Agreement shall supersede all prior written and
oral agreements between the Company and L & O.
Very Truly Yours,
/s/ Neil M. Leibman
Neil M. Leibman
For the Firm
Agreed and Accepted as of the date of this letter.
DIGITCOM INTERACTIVE VIDEO NETWORK
By: /s/ Jimmy Chin
Jimmy Chin, President
James M. Hutchings, CPA
6122 Cerca Blanca Houston, Texas 77083-4939
Voice 713-277-4090 Fax 713-277-6474
To the Board of Directors and Stockholders
Digitcom Interactive Video Network
2190 Colorado Ave., Suite A
Santa Monica, CA 90404
I have audited the accompanying balance sheet of Digitcom
Interactive Video Network as of May 31, 1996, and the related
statements of operations, stockholders equity and cash flows for
April 2, 1996 (inception) through May 31, 1996. These financial
statements are the responsibility of the company s management. My
responsibility is to express an opinion on these financial
statements based on my audit.
I have conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet and statements of operations, stockholders
equity, and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the balance sheet and statements of
operations, stockholders equity and cash flows. I believe that
my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Digitcom Interactive Video Network as of May 31, 1996, and the
results of its operations and its cash flows for the period then
ended in conformity with generally accepted accounting
principles.
/s/ James M. Hutchings
James M. Hutchings, CPA
August 2, 1996
<PAGE>
Digitcom Interactive Video Network
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies
Nature of Business and Ownership
Digitcom Interactive Video Network (the Corporation ) was
formed on April 2, 1996 under the laws of the State of California
for the purpose of developing an interactive, high-speed video
on-line service for home and business users. The Corporation is
a development stage company under Statement of Financial
Accounting Standards ( SFAS ) No. 7, Accounting and Reporting by
Development Stage Enterprises. On April 2, 1996, the Corporation
issued 9,000,000 shares of common stock to Digitcom Interactive
Multimedia, Inc., a Nevada corporation (the Parent ) in exchange
for rights to collections on certain contracts receivable and
certain intangible assets. (See Note B.). In April 1996, the
Corporation initiated a private placement offering of up to
490,000 shares of its common stock for $2 per share. Through May
31, 1996, the Corporation had issued in connection with this
offering 155,000 common shares for $213,500, net of offering
costs of $96,500, of which $18,500 remained unpaid as of May 31,
1996. (See Note E and F).
Allowance for Doubtful Accounts
The Corporation determines its Allowance for Doubtful
Accounts with respect to the Corporation s rights to the
collections by the Parent of the Parent s contracts receivable as
2.5% of the underlying contracts receivable (short and
long-term). (See Note B.)
Property and Equipment
Property and equipment are stated at cost. Depreciation for
property and equipment placed in service is computed using the
straight line method over estimated lives ranging from five to
thirty-nine years.
Amortization of Intangibles
The intangible asset consisting of the distribution rights
within Israel of the Internet International Call Back System
received from the Parent in exchange for the Corporation s common
stock is stated at the amount realized by the Parent from a
similar recent licensing agreement executed with another party
for distribution of the same product in Saudi Arabia, and is
amortized using the straight line method over 60 months. (See
Note B.)
Intangible assets related to certain proprietary
technologies for the video service business received from the
Parent in exchange for the Corporation s common stock are stated
at the Parent s cost of developing the underlying technologies,
and are amortized using the straight line method over 60 months.
(See Note B.)
Small Equipment / Furniture
The Corporation elects to expense capital items less than
$500 in cost.
Income Taxes
The Corporation reports income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes, which requires the
liability method with respect to accounting for income taxes.
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes primarily due to differences
between the basis of certain assets and liabilities for financial
and tax reporting. The deferred taxes represent the future tax
consequences of those differences, which will either be taxable
when the assets and liabilities are recovered or settled.
Deferred tax amounts are determined by using the tax rates
expected to be in effect when the taxes will actually be paid or
refunds received, as provided under currently enacted tax law.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Concentration of Credit Risk
The Corporation s rights to collections by the Parent of the
Parent s contracts receivable are derived from sales by the
Parent of a voice mail software product to a distributor in
Canada and a distributor in Saudi Arabia. Although the
receivables are expected to be repaid from the proceeds from the
resale of the voice mail software product by the distributors,
the receivables are not secured by any assets of the distributors
and the ability of the distributors to honor the contracts is
dependent on the acceptance of the Parent s product in the
relevant geographic market. Accordingly, the Corporation is
exposed to a significant concentration of credit risk. (See Note
B.)
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from the estimates.
Note B - Related Party Transactions / Non-Monetary Transactions
On April 2, 1996, the Corporation issued 9,000,000 shares of
its common stock to the Parent in exchange for the following:
1. The transfer to the Corporation by the Parent of the
rights to collections by the Parent of certain receivables from
two contracts, which were then under negotiation, for the sale by
the Parent of one of its voice mail software products for a total
of $2,380,000. The two contracts, one of which is with a
Canadian distributor and the other of which is with a Saudi
Arabian distributor, were executed and amended on May 2, 1996 and
May 20, 1996, respectively. The contracts receivable are
collectible by the Parent from the distributors as orders of the
voice mail software product are received, but the distributors
have committed to minimum purchases of such product in the
amounts of $200,000, $736,800, $974,000 and $469,200 during the
twelve month periods ending May 31, 1997, 1998, 1999, and 2000,
respectively. The Parent has delivered to each distributor a
master disk containing the software product and has no further
obligations with respect to such product. The Corporation will
not incur any costs associated with these receivables.
2. A licensing agreement between the Corporation and the
Parent for exclusive rights by the Corporation to distribute the
Parent s Internet International Call Back system within Israel.
The licensing agreement was recorded by the Corporation at
$1,000,000, which was the amount realized by the Parent from a
similar recent licensing agreement executed with another party
for distribution of the same product in Saudi Arabia. The
licensing agreement is amortized using the straight line method
over 60 months.
3. The assignment to the Corporation by the Parent of
intangible assets consisting of certain proprietary technologies
developed by the Parent and to be used in connection with the
Corporation s planned video service business. These assignments
are absolute, with the exception that the covered technologies
may not be further assigned by the Corporation without the
express written consent of the Parent. These intangible
assets were recorded by the Corporation at the Parent s cost of
developing the technologies of $894,700, and are being amortized
by the Corporation using the straight line method over 60 months.
A summary of items 1 - 3 is as follows:
Items received by the Corporation
Contracts Receivable $ 2,380,000
Allowance for Doubtful Accounts ( 59,500)
Intangible Assets 1,894,700
Total $4,215,200
Items issued to the Parent
9,000,000 shares of Common Stock,
par value $ 9,000
Additional Paid In Capital 4,206,200
Total $4,215,200
4. As of May 31, 1996, the Corporation had short-term
borrowings, payable on demand, from related parties in the
following amounts:
Parent $ 58,204
Gene Chin, brother of an officer 50,000
and director of the Corporation
Penny Chin, sister of an officer 50,000
and director of the Corporation
Wan Ying Chin, an officer and 2,513
director of the Corporation
Total $160,717
The above short-term borrowings are not collateralized.
Interest is imputed on the borrowings at 10% per annum. Of the
above short-term borrowings of $58,204 due to the Parent, $55,689
arose as a result of the transfer by the Parent to the
Corporation of computer equipment in exchange for a short-term
obligation of $55,689 to the Parent.
Note C - Income Taxes
At May 31, 1996, the Corporation has a net operating loss
carryforward of $244,529 for federal income tax purposes and
$122,265 for state income tax purposes. This loss gives rise to a
deferred tax asset of $78,616 and $13,816, respectively. The
carryovers will expire in 2011.
The Corporation has recorded a valuation allowance equal to
the full value of the deferred tax asset since it is uncertain
that the Corporation will generate future taxable income to allow
utilization of the net operating loss carryforwards.
Note D - Accrued Professional Fees
Through may 31, 1996, the Corporation had received
professional services, related to integrated efforts to raise
startup capital through the private offering of the Corporation's
common stock and to eventually establish a public market for the
Corporation s common stock, from an entity in the amount of
$200,00, $50,000 of which is attributed to financing costs. (See
Note E). $100,000 of the $200,000 fee remained unpaid as of May
31, 1996. Under an agreement entered into in May 1996, the
remaining $100,000 is to be paid in cash to the extent that the
aggregate net proceeds (after subtracting broker commissions
or consulting fees in lieu thereof) of the private offering of up
to 490,000 shares of the Corporation s common stock exceed
$500,000, with any difference between the remaining $100,000 and
the amount thereof paid in cash to be paid through the issuance
of the Corporation s common stock at $2 per share. (See Notes A
and F.)
Note E - Accrued Financing Costs
Through May 31, 1996, the Corporation had incurred financing
costs in the amount of $96,500 attributable to the Corporation s
private offering of up to 490,000 shares of its common stock for
$2 per share, of which $18,500 remained unpaid as of May 31,
1996. The remaining $18,500 will be paid through the issuance of
9,250 shares of the Corporation s common stock at $2 per
share. (See Note A.)
Note F - Subsequent Events
From June 1, 1996 through July 31, 1996, the Corporation
received subscriptions to acquire 42,500 shares of common stock
for $85,000 pursuant to the Corporation's private offering of up
to 490,000 shares of its common stock for $2 per share initiated
in April 1996. (See Note A.)
On June 4, 1996, the Corporation acquired all of the
issued and outstanding common stock of Ouzel Acquisition Corp., a
Delaware corporation ( OAC ) pursuant to a Plan of Merger whereby
the Corporation issued to each shareholder of OAC immediately
prior to the acquisition one share of the Corporation s common
stock for each eight shares of OAC common stock, and OAC was
merged with and into the Corporation. A total of 510,000 shares
of the Corporation s common stock were issued in connection with
the acquisition of OAC.
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<NAME> DIGITCOM INTERACTIVE VIDEO NETWORK
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