As filed with the Securities and Exchange Commission on June 28, 1996.
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ETC TRANSACTION CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Alberta, Canada 8099 N/A
--------------- ---- ---
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
(214) 980-0900
--------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
L. CADE HAVARD
Chairman and Chief Executive Officer
ETC TRANSACTION CORPORATION
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
(214) 980-0900
--------------
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
Richard B. Goodner, Esq. David M. Goldenberg, Esq.
Looper, Reed, Mark & McGraw Beaumont Church
Incorporated 2200 AGT Tower
4100 Thanksgiving Tower 411 - 1st Street S.E.
1601 Elm Street Calgary, Alberta
Dallas, Texas 75201 Canada T2G 5E7
================================================================================
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration
Statement and once all conditions to the continuance and domestication of the
Registrant as a Delaware corporation and the merger of Electronic Transmission
Corporation, a Texas corporation, with and into the Registrant pursuant to the
Merger Agreement described in the enclosed Proxy Statement/Prospectus, have been
satisfied or waived.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered<F1> Offering Price Per Share<F2> Aggregate Offering Price<F2> Registration Fee<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par 10,954,146 $0.001 $10,954.15 $3,651.38
value
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Number of shares of common stock, $0.001 par value, of the Registrant to be
registered on the basis of the exchange ratio for such shares as applicable
to (a) the Registrant's existing shareholders and (b) the shares of common
stock to be issued pursuant to the Merger Agreement with Electronic
Transmission Corporation.
<F2> The registration fee for securities registered hereby, $3,651.38, has been
calculated pursuant to Rule 457(f)(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and represents one-third of the aggregate
par value of the shares to be registered hereunder.
</FN>
</TABLE>
Expenses to be incurred by the Registrant, excluding the Registration Fee, are
estimated to be $125,000.
-----------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
================================================================================
<PAGE>
ETC TRANSACTION CORPORATION
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
NOTICE OF THE COMBINED ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ________________, 1996
NOTICE IS HEREBY GIVEN that the Combined Annual and Special Meeting of the
Shareholders (the "Meeting") of ETC Transaction Corporation (the "Company") will
be held at the offices of Beaumont Church, Barristers and Solicitors, 2200 AGT
Tower, 411 - 1st Street S.E., Calgary, Alberta, Canada T2G 5E7 on
_________________, 1996 at _______ p.m. local time for the following purposes,
namely:
1. To receive and consider the Annual Audited Financial Statements of the
Company for the fiscal year ended December 31, 1995 and the Auditor's
Report thereon.
2. To elect the directors for the ensuing year and to elect the replacement
directors to serve upon completion of the Continuance and Merger, if
approved.
3. To appoint the auditors to serve until the close of the next annual meeting
of the Company and to authorize the directors to fix the auditors'
remuneration.
4. To consider and, if thought fit, to approve the following special
resolutions having the effect of approving the continuance of the Company
into the State of Delaware, U.S.A.:
"BE IT RESOLVED, as special resolutions that:
(a) The Company be and is hereby authorized to apply to the Registrar of
Corporations for the Province of Alberta and the Secretary of State
for the State of Delaware for authorization to continue the Company
into the State of Delaware under section 182 of the Alberta Business
Corporations Act and section 388 of the Delaware General Corporation
Law (the "DGCL") as if the Company had been incorporated under the
DGCL pursuant to section 101 of the DGCL and amendments thereto;
(b) The Certificate of Domestication and Certificate of Incorporation
under the DGCL (collectively, the "Filing Documents") in the form
presented at the Meeting are hereby approved;
(c) Subject to acceptance of the filing of the Filing Documents with the
Delaware Secretary of State, the Filing Documents and form of Bylaws
presented at the Meeting are adopted in substitution for the existing
organizational documents of the Company;
(d) Subject to the shareholders passing the special resolution approving
the amalgamation and merger of the Company with Electronic
Transmission Corporation, a Texas corporation ("ETC-Texas"), the
officers and directors of the Company are hereby authorized and
directed to do such things and to execute such documents as may be
necessary or desirable in order to effect the continuance of the
Company from Alberta to Delaware.
(e) The directors of the Company may revoke these resolutions before they
are acted upon without further approval of the shareholders of the
Company."
5. To consider and, if thought fit, to pass the following special resolutions
approving the amalgamation of the Company and ETC-Texas, namely:
"BE IT RESOLVED, as special resolutions, that:
(a) The Agreement and Plan of Merger (the "Merger Agreement"), to become
effective following the continuance of the Company into Delaware,
between the Company and ETC-Texas, a corporation incorporated under
the laws of the State of Texas, with or without amendment, and all of
the transactions contemplated thereby, including the amalgamation and
merger of the Company with ETC-Texas, whereby the amalgamated or
survivor corporation shall be domiciled in the State of Delaware under
the name Electronic Transmission Corporation, all as more particularly
described in the enclosed Joint Proxy Statement/Prospectus and
Information Circular be and are hereby approved;
<PAGE>
(b) Subject to the shareholders of the Company passing the special
resolutions approving the continuance of the Company from Alberta to
Delaware, the officers and directors of the Company are hereby
authorized and directed to do such things and execute such documents
as may be necessary or desirable in order to give effect to the Merger
Agreement;
(c) The directors of the Company may revoke these resolutions before they
are acted upon without further approval of the shareholders of the
Company."
6. To consider and, if thought fit, to pass the following special resolution
changing the name of the Company to Electronic Transmission Corporation:
"BE IT RESOLVED, as special resolutions, that:
(a) The name of the Company be changed to Electronic Transmission
Corporation if the shareholders of the Company pass the special
resolutions approving the continuance of the Company from Alberta to
Delaware and the Merger Agreement;
(b) The officers and directors of the Company are hereby authorized and
directed to do such things and execute such documents as may be
necessary or desirable in order to give effect to the name change;
(c) The directors of the Company may revoke these resolutions before they
are acted upon without further approval of the shareholders of the
Company."
7. To transact such other business as may properly come before the Meeting or
any adjournments thereof.
TAKE NOTICE that pursuant to the Alberta Business Corporations Act (the
"ABCA") you may until ____________________, 1996 (the day of the Meeting) give
the Company a Notice of Dissent by registered mail addressed to the Company at
c/o Beaumont Church, Barristers and Solicitors, 2200 AGT Tower, 411 1st Street
S.E., Calgary, Alberta, Canada T2G 5E7, with respect to the above special
resolutions regarding the continuance of the Company into the State of Delaware
and the amalgamation and merger of the Company with Electronic Transmission
Corporation. Pursuant to section 184 of the ABCA, a dissenting shareholder is
entitled to be paid by the Company the fair value of the shares held by him in
respect of which he dissents, determined at the close of business on the day
before the Meeting. Details of your dissent rights and a copy of section 184 of
the ABCA are contained in the accompanying Joint Proxy Statement/Prospectus and
Information Circular.
All of the matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus and Information Circular accompanying this Notice.
Shareholders of record on the Company's stock transfer records at the close of
business on ____________________, 1996 are entitled to notice of and to vote at
the Meeting or any adjournment thereof. A list of shareholders entitled to vote
at the Meeting will be available for inspection at the offices of Beaumont
Church, Barristers and Solicitors, 2200 AGT Tower, 411 -- 1st Street S.E.,
Calgary, Alberta, Canada T2G 5E7 at least ten (10) days prior to the Meeting.
If you are unable to attend the Meeting in person, please read the Joint
Proxy Statement/Prospectus and Information Circular enclosed herewith and then
complete and return the Proxy within the time set forth in the Joint Proxy
Statement/Prospectus and Information Circular. The enclosed Proxy is solicited
by management. If any shareholder so desires, the Proxy may be amended by
striking the name(s) listed therein and inserting in the space provided the name
of the person you wish to delegate as your proxy at the Meeting. The proxy
holder need not be a shareholder of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
L. CADE HAVARD
Chairman and Chief Executive Officer
Dallas, Texas
__________, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED REPLY ENVELOPE. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN THOUGH YOU HAVE SENT
IN YOUR PROXY.
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ________________, 1996
A Special Shareholders' Meeting (the "ETC-Texas Meeting") of ELECTRONIC
TRANSMISSION CORPORATION, a Texas corporation ("ETC-Texas") will be held at 5025
Arapaho Road, Suite 515, Dallas, Texas 75248 on _________________, 1996 at
_______ p.m., local time, for the following purposes:
1. To consider and, if thought fit, to approve the following special
resolutions having the effect of approving the merger of ETC Transaction
Corporation, an Alberta, Canada corporation (the "Company" and sometimes
referred to as the "Surviving Corporation"), with and into ETC-Texas (the
"Merger"). The effectiveness of the Merger is expressly conditioned on the
approval and effectiveness of the domestication of the Company into the
State of Delaware under the identical name.
"BE IT RESOLVED, as special resolutions, that:
(a) To approve an Agreement and Plan of Merger (the "Merger Agreement")
between ETC- Texas and the Company, with or without amendment, to
become effective following the continuance and domestication of the
Company into the State of Delaware, and to approve all of the
transactions contemplated thereby, whereby the Surviving Corporation
shall be domiciled in the State of Delaware under the name Electronic
Transmission Corporation, all as more particularly described in the
enclosed Joint Proxy Statement/Prospectus and Information Circular;
(b) The directors of ETC-Texas are authorized to abandon the Merger
Agreement to merge ETC-Texas with the Company, at any time, if in
their sole discretion, they consider it appropriate to do so, without
further approval of the shareholders of ETC-Texas, and in such case,
the relevant special resolution or resolutions shall be deemed to have
been rescinded;
(c) The effectiveness of the Merger of ETC-Texas with and into the Company
is expressly conditioned upon the approval and effectiveness of the
continuation and domestication of the Company into the State of
Delaware; and
(d) Any one of the directors or officers be and each is hereby authorized
and directed to do, sign and execute all instruments, deeds and
documents, including amendments thereof, necessary or desirable to
carry out the foregoing and to affix the corporate seal as necessary."
2. To transact such other business as may properly come before the ETC-Texas
Meeting and any adjournments thereof.
TAKE NOTICE that pursuant to the Texas Business Corporation Act (the
"TBCA"), you may until ________________, 1996 (the day of the ETC-Texas Meeting)
give ETC-Texas a notice of dissent by registered mail addressed to ETC-Texas at
5025 Arapaho Road, Suite 515, Dallas, Texas 75248, Attention: Secretary, with
respect to the above special resolutions. As a result of giving notice of
dissent you may, on receiving notice of intention to act under Article 5.12 of
the TBCA, require ETC-Texas to purchase all your shares in respect of which the
notice of dissent was given. A copy of Articles 5.11, 5.12 and 5.13 of the TBCA
is attached to the accompanying Joint Proxy Statement/Prospectus and Information
Circular.
All of the matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus and Information Circular accompanying this Notice.
Shareholders of record on ETC-Texas' stock transfer records at the close of
business on ____________________, 1996 are entitled to notice of and to vote at
the ETC-Texas Meeting or any postponement or adjournment thereof. A list of
shareholders entitled to vote at the ETC-Texas Meeting will be available for
inspection at ETC- Texas' office, 5025 Arapaho Road, Suite 515, Dallas, Texas
75248, at least 10 days prior to the ETC-Texas Meeting.
<PAGE>
If you are unable to attend the ETC-Texas Meeting in person, please read
the Joint Proxy Statement/Prospectus and Information Circular enclosed herewith
and then complete and return the Proxy within the time set forth in the Joint
Proxy Statement/Prospectus and Information Circular. The enclosed Proxy is
solicited by management. If any shareholder so desires, the Proxy may be amended
by striking the name(s) listed therein and inserting in the space provided the
name of the person you wish to delegate as your proxy at the ETC-Texas Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
L. CADE HAVARD
Chairman, President and
Chief Executive Officer
Dallas, Texas
__________, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE ETC-TEXAS MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED REPLY ENVELOPE. IF YOU
ATTEND THE ETC-TEXAS MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN
THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 28, 1996
ETC TRANSACTION CORPORATION ELECTRONIC TRANSMISSION CORPORATION
(an Alberta, Canada corporation) (a Texas corporation)
5025 Arapaho Road, Suite 515 5025 Arapaho Road, Suite 515
Dallas, Texas 75248 Dallas, Texas 75248
JOINT PROXY STATEMENT/PROSPECTUS
INFORMATION CIRCULAR
COMBINED ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF
ETC TRANSACTION CORPORATION
TO BE HELD ON ________________, 1996
SPECIAL MEETING OF SHAREHOLDERS OF
ELECTRONIC TRANSMISSION CORPORATION
TO BE HELD ON ________________, 1996
This Joint Proxy Statement/Prospectus and Information Circular ("Proxy
Statement/Prospectus") is being furnished to holders of Class "A" common shares
(the "Company Common Stock") of ETC Transaction Corporation (the "Company"), an
Alberta, Canada corporation, proposed to be domesticated into the State of
Delaware under the name "ETC Transaction Corporation" and subsequently the
merger of Electronic Transmission Corporation, a Texas corporation
("ETC-Texas"), with and into the Company, in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Combined Annual
and Special Meeting of Shareholders of the Company to be held on
________________, 1996, at the offices of Beaumont Church, Barristers and
Solicitors, 2200 AGT Tower, 411 -- 1st Street S.E., Calgary, Alberta, Canada T2G
5E7, commencing at _______ p.m., local time, and at any adjournment or
postponement thereof (the "Meeting").
This Proxy Statement/Prospectus is also being furnished to holders of
common stock, no par value, of ETC-Texas (the "ETC-Texas Common Stock"), in
connection with the solicitation of proxies by the Board of Directors of
ETC-Texas related to the merger of ETC-Texas with and into the Company for use
at a Special Meeting of Shareholders of ETC-Texas to be held on
____________________, 1996 at 5025 Arapaho Road, Suite 515, Dallas, Texas 75248,
commencing at __________ p.m., local time, and at any adjournment or
postponement thereof (the "ETC-Texas Meeting").
This Proxy Statement/Prospectus constitutes a prospectus of the Company,
with respect to 10,954,146 shares of Continued Common Stock (as defined herein)
to be issued in connection with the Continuance and the Merger (as each is
defined herein).
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE ELEVEN
OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY INVESTORS.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AND INFORMATION CIRCULAR HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION NOR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO REGULATORY AGENCY OR STOCK EXCHANGE HAS IN ANY WAY PASSED
UPON THE MERITS OF THE TRANSACTIONS DESCRIBED HEREIN AND
ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE.
This Proxy Statement/Prospectus and the accompanying proxy forms are first
being mailed to shareholders of the Company and ETC-Texas, respectively, on or
about ________________, 1996.
The date of this Proxy Statement/Prospectus is _______________, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
SOLICITATION OF PROXIES AND VOTING REQUIREMENTS.............................. v
APPOINTMENT AND REVOCATION OF PROXIES........................................ v
VOTING OF SHARES AND EXERCISE OF DISCRETION OF PROXIES....................... vi
THE MEETINGS................................................................. vi
THE CONTINUANCE.............................................................. vi
THE MERGER................................................................... vi
CONSUMMATION OF THE MERGER...................................................vii
AVAILABLE INFORMATION........................................................vii
SUMMARY...................................................................... 1
RISK FACTORS................................................................. 11
Accumulated Deficit and Independent Accountants'
Report Referring to Going Concern Uncertainties......................... 11
Working Capital Deficit; Lack of Liquidity and
Capital Resources....................................................... 11
Additional Financing Needed................................................ 11
Limited Operating History; Absence of Profits.............................. 11
Probability of Continued Losses............................................ 11
Dependence on Quality of Claims Processing Services........................ 12
No Fairness Opinion Obtained by Either the Company
or ETC-Texas............................................................ 12
Competition................................................................ 12
Proprietary Rights, Risk of Infringement................................... 12
Dependence on Key Personnel................................................ 12
Control by Existing Shareholders, Directors and
Executive Officers of ETC-Texas......................................... 13
Conflicts of Interest...................................................... 13
Employee Leasing Agreement................................................. 13
Consolidation and Uncertainty in the Health Care Industry.................. 13
Effect of Government Regulation............................................ 14
Potential Anti-Takeover Effects of Delaware Law,
Certificate of Incorporation and Bylaws................................. 14
No Public Market; Possible Volatility of Stock Price....................... 14
Over-the-Counter Trading Market............................................ 14
Risks of Low-Priced Stock.................................................. 14
Limitation of Liability and Indemnification of
Officers and Directors.................................................. 15
No Intention to Pay Dividends.............................................. 15
Prior Offerings............................................................ 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S AND ETC-TEXAS'
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 15
The Company................................................................ 15
Development Stage Activities of ETC-Texas.................................. 16
Results of Operations of ETC-Texas......................................... 16
Operating Expenses......................................................... 17
Net Loss................................................................... 17
Liquidity and Capital Resources............................................ 17
THE COMPANIES................................................................ 18
Business Information Concerning the Company................................ 18
Business Information Concerning ETC-Texas.................................. 18
MANAGEMENT................................................................... 21
Directors and Executive Officers........................................... 21
Information Regarding the Board of Directors............................... 22
-ii-
<PAGE>
Executive Compensation..................................................... 22
Stock Options.............................................................. 22
Employment Agreements...................................................... 23
Nondisclosure and Noncompetition Agreements................................ 25
BENEFICIAL OWNERSHIP OF SECURITIES........................................... 25
CERTAIN TRANSACTIONS......................................................... 26
THE CONTINUANCE.............................................................. 27
Right of Dissent........................................................... 27
Difference Between the Delaware Code and
Alberta Business Corporations Act....................................... 28
Certain Income Tax Consequences of the Continuance......................... 32
THE MEETINGS................................................................. 34
Date, Time and Place....................................................... 34
Purposes of the Meetings................................................... 34
Record Date and Outstanding Shares......................................... 34
Voting and Revocation of Proxies........................................... 35
Vote Required.............................................................. 35
Solicitation of Proxies.................................................... 35
Other Matters.............................................................. 35
ELECTION OF COMPANY DIRECTORS................................................ 35
APPOINTMENT OF AUDITORS...................................................... 36
COMPANY NAME CHANGE.......................................................... 36
THE MERGER................................................................... 36
General Description of the Merger.......................................... 36
The Company's Reasons for the Merger; Recommendation
of the Company's Board of Directors..................................... 36
ETC-Texas' Reasons for the Merger; Recommendation
of ETC-Texas' Board of Directors........................................ 37
Interests of Certain Persons in the Merger................................. 37
Employment Arrangements.................................................... 37
Certain Federal Income Tax Consequences.................................... 38
Accounting Treatment....................................................... 38
Rights of Dissenting Shareholders.......................................... 38
Stock Exchange Listing..................................................... 41
U.S. Federal Securities Law Consequences................................... 41
Canadian Securities Law Consequences....................................... 41
CERTAIN TERMS OF THE MERGER AGREEMENT........................................ 41
Effective Time of the Merger............................................... 41
Manner and Basis of Converting Shares...................................... 41
Conditions to the Merger................................................... 42
Representations and Warranties............................................. 42
Certain Covenants; Conduct of Business Prior to the Merger................. 43
Certain Post-Merger Matters................................................ 43
Termination or Amendment of the Merger Agreement........................... 43
COMPARISON OF SHAREHOLDERS RIGHTS............................................ 44
Preemptive Rights; Cumulative Voting....................................... 44
Voting Rights.............................................................. 44
Sale, Lease or Disposition of Property..................................... 44
Appraisal Rights........................................................... 44
Shareholder Action; Election of Directors; Voting.......................... 45
Business Combination; Takeovers............................................ 45
DESCRIPTION OF COMPANY CAPITAL STOCK......................................... 46
General.................................................................... 46
Company Common Stock....................................................... 46
Preferred Stock............................................................ 46
-iii-
<PAGE>
DESCRIPTION OF ETC-TEXAS CAPITAL STOCK....................................... 46
General.................................................................... 46
ETC-Texas Common Stock..................................................... 46
ETC-Texas Preferred Stock.................................................. 46
DESCRIPTION OF SURVIVING CORPORATION CAPITAL STOCK........................... 47
General.................................................................... 47
Continued Common Stock..................................................... 47
Surviving Corporation Preferred Stock...................................... 47
Certain Provisions of the Surviving Corporation Charter.................... 47
Transfer Agent............................................................. 47
EXPERTS...................................................................... 47
LEGAL MATTERS................................................................ 48
ADDITIONAL INFORMATION....................................................... 48
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY AND ETC-TEXAS...................F-1
AGREEMENT AND PLAN OF MERGER..........................................Appendix A
CERTIFICATE OF CHANGE OF AUDITOR......................................Appendix B
CERTIFICATE OF DOMESTICATION..........................................Appendix C
CERTIFICATE OF INCORPORATION OF ETC TRANSACTION
CORPORATION (AS CONTINUED).........................................Appendix D
TAX OPINION OF LOOPER, REED, MARK & McGRAW INCORPORATED...............Appendix E
DISSENTERS RIGHTS UNDER THE ALBERTA BUSINESS CORPORATIONS ACT.........Appendix F
DISSENTERS RIGHTS UNDER THE TEXAS BUSINESS CORPORATION ACT............Appendix G
-iv-
<PAGE>
SOLICITATION OF PROXIES AND VOTING REQUIREMENTS
The Company. The cost of soliciting proxies on behalf of the Company,
including the cost of preparing and mailing the notice of the Meeting and this
Proxy Statement/Prospectus, will be paid by the Company. Solicitation will be
primarily by mailing this Proxy Statement/Prospectus to all shareholders of the
Company entitled to vote at the Meeting. Proxies may be solicited by officers of
the Company personally, but at no compensation in addition to their regular
compensation as officers. The Company may reimburse brokers, banks and others
holding shares in their names for others for the cost of forwarding proxy
materials and obtaining proxies from their principals.
Only shareholders of record of the Company at the close of business on
____________________, 1996 (the "Record Date") may vote at the Meeting or at any
adjournment thereof. On the Record Date, there were 2,007,145 outstanding Class
"A" common shares of Company Common Stock, the only outstanding class of
securities of the Company. Each shareholder of record of the Company is entitled
to one vote for each share registered in his or her name. Cumulative voting is
not permitted. Meeting materials will be mailed to the registered shareholders
by the Company. Beneficial shareholders will receive materials from
intermediaries who hold shares of Company Common Stock on their behalf. These
materials will be delivered to the intermediaries by the Company for
redistribution to the beneficial shareholders.
Five percent (5%) of the shares entitled to vote, present in person or
represented by proxy, will constitute a quorum at the Meeting. Abstentions will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but an abstention as to any particular
matter does not constitute a vote "for" or "against" and will be disregarded in
calculating the votes cast as to such matter. "Broker non-votes" (i.e., where a
broker or nominee submits a proxy specifically indicating the lack of
discretionary authority to vote on a matter), if any, will be treated in the
same manner as abstentions.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE ENVELOPE PROVIDED.
ETC-Texas. The cost of soliciting proxies on behalf of ETC-Texas, including
the cost of preparing and mailing the notice of the ETC-Texas Meeting and this
Proxy Statement/Prospectus, will be paid by ETC-Texas. Solicitation will be
primarily by mailing this Proxy Statement/Prospectus to all shareholders of
ETC-Texas entitled to vote at the ETC-Texas Meeting. Proxies may be solicited by
officers of ETC-Texas personally, but at no compensation in addition to their
regular compensation as officers. ETC-Texas may reimburse brokers, banks and
others holding shares in their names for others for the cost of forwarding proxy
materials and obtaining proxies from their principals.
Only shareholders of record of ETC-Texas at the close of business on
____________________, 1996 (the "ETC-Texas Record Date") may vote at the
ETC-Texas Meeting or at any adjournment thereof. On the ETC-Texas Record Date,
there were 7,157,601 outstanding shares of ETC-Texas Common Stock, the only
outstanding class of securities of ETC-Texas. Each shareholder of record of
ETC-Texas is entitled to one vote for each share registered in his or her name.
Cumulative voting is not permitted.
A majority of the shares entitled to vote, present in person or represented
by proxy, will constitute a quorum at the ETC-Texas Meeting. Abstentions will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but an abstention as to any particular
matter does not constitute a vote "for" or "against" and will be disregarded in
calculating the votes cast as to such matter. "Broker non-votes" (i.e., where a
broker or nominee submits a proxy specifically indicating the lack of
discretionary authority to vote on a matter), if any, will be treated in the
same manner as abstentions.
WHETHER OR NOT YOU PLAN TO ATTEND THE ETC-TEXAS MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE ENVELOPE PROVIDED.
APPOINTMENT AND REVOCATION OF PROXIES
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON TO ATTEND AND ACT FOR HIM
ON HIS BEHALF AT EITHER THE MEETING OR THE ETC-TEXAS MEETING OTHER THAN THE
PERSON(S) NAMED IN THE ENCLOSED INSTRUMENTS OF PROXY. TO EXERCISE THIS RIGHT, A
SHAREHOLDER SHALL STRIKE OUT THE NAMES OF THE PERSON(S) NAMED IN THE APPROPRIATE
INSTRUMENT OF PROXY AND INSERT THE NAME OF HIS NOMINEE IN THE SPACE PROVIDED OR
COMPLETE ANOTHER INSTRUMENT OF PROXY.
The Proxy for the Meeting and the ETC-Texas Meeting, respectively, must be
signed by an individual shareholder or by his attorney authorized in writing
executed by the shareholder. If the shareholder is a corporation, it must either
be under its common seal or signed by a duly authorized officer, or if the
shareholder is a partnership, it must be signed by either a general partner,
managing partner or duly authorized officer of the partnership.
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A shareholder of either the Company or ETC-Texas who has given a Proxy may
revoke it at any time before it is exercised. In addition to revocation in any
other manner permitted by law, a Proxy may be revoked by an instrument in
writing executed by a shareholder of the Company or a shareholder of ETC-Texas
or by their attorney authorized in writing and executed by the shareholder. If
the shareholder is a corporation, it must either be under its common seal, or
signed by a duly authorized officer, or if the shareholder is a partnership it
must be signed by either a general partner, managing partner or duly authorized
officer of the partnership. A revocation of a Proxy by a Company shareholder
should be deposited with the Registrar and Transfer Agent of the Company,
Montreal Trust Company #600, 530 - 8th Avenue S.W., Calgary, Alberta T2P 3S8. A
revocation of a Proxy by an ETC-Texas shareholder should be delivered to
ETC-Texas at 5025 Arapaho Road, Suite 515, Dallas, Texas 75248, Attention:
Secretary. Revocation of a Proxy by either a shareholder of the Company or
ETC-Texas may be delivered at any time up to and including the day of the
Meeting and the ETC-Texas Meeting, respectively, or any adjournment of either of
the meetings, at which the proxy is to be used. A Proxy is also revoked if the
shareholder is present at either of the meetings and elects to vote in person.
VOTING OF SHARES AND EXERCISE OF DISCRETION OF PROXIES
THE SHARES OF BOTH THE COMPANY AND ETC-TEXAS REPRESENTED BY PROXY WILL BE
VOTED OR WITHHELD FROM VOTING BY THE PROXY HOLDER IN ACCORDANCE WITH THE
INSTRUCTION OF THE SHAREHOLDER ON ANY BALLOT THAT MAY BE CALLED FOR AND, IF THE
SHAREHOLDER SPECIFIES A CHOICE WITH RESPECT TO ANY MATTER TO BE ACTED UPON, THE
SHARES WILL BE VOTED ACCORDINGLY.
IN THE ABSENCE OF ANY INSTRUCTIONS IN THE PROXY, IT IS INTENDED THAT SUCH
SHARES WILL BE VOTED IN FAVOR OF THE MOTIONS PROPOSED TO BE MADE AT THE
APPLICABLE MEETING AS STATED IN THIS PROXY STATEMENT/PROSPECTUS.
THE ACCOMPANYING INSTRUMENTS OF PROXY CONFER DISCRETIONARY AUTHORITY ON THE
PERSONS NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS
IDENTIFIED IN THE RESPECTIVE NOTICES OF SPECIAL MEETING AND WITH RESPECT TO
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETINGS. AT THE DATE HEREOF,
MANAGEMENT OF THE COMPANY AND ETC-TEXAS, RESPECTIVELY, KNOW OF NO SUCH
AMENDMENTS, VARIATIONS OR OTHER MATTERS TO COME BEFORE THE MEETINGS OTHER THAN
THE MATTERS REFERRED TO IN THE RESPECTIVE NOTICES OF MEETING.
THE MEETINGS
At the Meeting, shareholders of record of the Company as of the close of
business on the Record Date, will consider and vote upon (i) the election of
directors nominated by management, (ii) the appointment of auditors to serve
until the next annual meeting of the Company, (iii) a proposal to continue and
domesticate the Company into the State of Delaware under the name of "ETC
Transaction Corporation," (iv) a proposal to approve the merger (the "Merger")
between the Company, after continuance, and ETC-Texas pursuant to the terms and
conditions of an Agreement and Plan of Merger (the "Merger Agreement"), a copy
of which is attached to this Proxy Statement/Prospectus as Appendix "A", with
the Company being the surviving corporation, (v) the change of the Company's
name to "Electronic Transmission Corporation" following consummation of the
Merger, and (vi) such other matters as may properly be brought before the
Meeting or any adjournment or postponement thereof.
At the ETC-Texas Meeting, shareholders of record of ETC-Texas as of the
ETC-Texas Record Date will consider and vote upon (i) a proposal to approve the
Merger pursuant to the terms and conditions of the Merger Agreement, (ii) the
election of directors to serve on the Board of Directors of the Surviving
Corporation (as hereinafter defined), and (iii) such other matters as may
properly be brought before the ETC-Texas Meeting or any adjournment or
postponement thereof.
THE CONTINUANCE
Pursuant to the proposed continuance and domestication described herein
(the "Continuance"), the Company would be continued and domesticated into the
State of Delaware, U.S.A., under the name "ETC Transaction Corporation." Upon
the effectiveness of the Continuance, holders of issued and outstanding Company
Common Stock, who do not exercise their rights of dissent and appraisal, shall
receive one share of the common capital stock of the Company, as continued and
domesticated (the "Continued Common Stock"), for each share of Company Common
Stock held of record on the Record Date. See "The Continuance."
THE MERGER
Simultaneous with the approval of and effectiveness of the Continuance, the
Merger will be consummated. See "The Continuance" and "The Merger."
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CONSUMMATION OF THE MERGER
Upon consummation of the Merger, each issued and outstanding share of
ETC-Texas Common Stock (other than any shares to which dissenters' and appraisal
rights are perfected) will be converted into the right to receive one and
one-fourth (1.25) shares of Continued Common Stock (the "Exchange Ratio"). See
"The Merger -- General Description of the Merger."
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company, ETC-Texas or any other
person. This Proxy Statement/Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the solicitation of a
proxy in any jurisdiction to or from any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company or ETC-Texas since the date hereof
or that the information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
Neither the Company nor ETC-Texas are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon the effectiveness of the Continuance and the Merger, the Company
will become subject to the information requirements of the Exchange Act, and in
accordance therewith shall file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information to be filed by the Company, as continued
and domesticated into the State of Delaware, U.S.A., with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Room 1400, 75 Park
Place, New York, New York 10007 and Room 3190 Kluczynski Federal Building, 230
South Dearborn Street, Chicago, Illinois 60604. Copies of such material also may
be obtained from the Public Reference Section of the Commission, Washington,
D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Continued Common Stock to be issued
as a result of the Continuance and the Merger. This Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Such additional information may be obtained from
the Commission's principal office in Washington, D.C. Statements contained in
this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/Prospectus and the Appendixes hereto. Unless otherwise defined
herein, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Proxy Statement/Prospectus. Unless otherwise
indicated, all dollar amounts are stated in U.S. dollars. Shareholders are urged
to read this Proxy Statement/Prospectus and the Appendixes hereto in their
entirety.
The Companies
ETC Transaction Corporation. The Company was incorporated as Solo
Petroleums Ltd. on September 5, 1986 for the purpose of undertaking oil and gas
exploration efforts. In 1987, the Company completed a public offering of the
Company Common Stock as a Junior Capital Pool Company under the policies of The
Alberta Stock Exchange (the "ASE") and the Alberta Securities Commission (the
"ASC"). The Company Common Stock was subsequently listed for trading on the ASE
under the trading symbol "SOP". By 1990, revenues from oil and gas exploration
efforts had substantially declined and the Company began experiencing financial
difficulties. As a result, the Company liquidated substantially all of its
assets and underwent a significant change in management during 1990. Management
of the Company is currently seeking to consummate an acquisition or merger
transaction with a privately-held business which the Company believes has
significant growth potential, thereby allowing the shareholders of both
corporations to benefit by owning an interest in a viable business enterprise.
Since the Company has no significant assets or operations, its principal
potential for profits comes solely from operations it may receive in an
acquisition or merger transaction. Management of the Company has identified
ETC-Texas as a suitable merger candidate because of its position in the emerging
electronic medical claims processing industry and its potential for significant
growth. On March 21, 1996, the Company changed its name to ETC Transaction
Corporation and approved a one-for-five consolidation of capital of the Company
Common Stock to facilitate the effectiveness of the Merger. Unless otherwise
indicated herein, the outstanding shares of Company Common Stock have been
adjusted to reflect a one-for- five consolidation of capital of the Company
Common Stock. The principal executive offices of the Company are located at 5025
Arapaho Road, Suite 515, Dallas, Texas 75248, (214) 980-0900, The registered
office of the Company is located at 2200 AGT Tower, 411 - 1st Street S.W.,
Calgary, Alberta, Canada T2G 5E7. See "The Company -- Business Information
Concerning the Company."
Electronic Transmission Corporation. ETC-Texas was organized in December
1994 under the laws of the State of Texas. Effective January 1, 1995, ETC-Texas
paid to Sterling National Corporation ("Sterling") $210,000 and issued 3,965,100
shares of ETC-Texas Common Stock in exchange for Sterling's electronic medical
claims processing business. L. Cade Havard, the Chairman, President and Chief
Executive Officer of ETC-Texas and the Chairman and Chief Executive Officer of
the Company, is the sole shareholder of Sterling. See "Certain Transactions" and
"The Merger -- Interests of Certain Persons in the Merger." ETC-Texas has
developed and markets an electronic medical claims flow process. The primary
business of ETC-Texas is that of providing automated processing services for
health care claims for (i) self-insured companies that administer their own
health care plans and pay their own medical claims, (ii) third-party
administrators that administer health care plans and pay medical claims for
self-insured companies, (iii) preferred provider organizations, and (iv) other
managed care organizations that offer discounts on medical claims and which
reprice those claims to reflect discounts offered by health care providers to
payors.
ETC-Texas processes more than 90,000 claims per month for six clients, the
majority of which are generated by a self-insured employer which manages its own
health plan. Utilizing its existing work flow process and imaging technology,
ETC-Texas processes standardized claim and plan enrollment forms by scanning
these forms at the client's facilities, with the scanned images being
transmitted to ETC-Texas' imaging center. Once received at ETC-Texas' imaging
center, the data is extracted using an optical character recognition process.
ETC-Texas then processes all data and manually reviews each claim. Once
reviewed, ETC-Texas transmits the claim to the respective managed care
organization, if applicable, then to the payor for adjudication. ETC-Texas is
compensated for these services on a per processed claim basis. The principal
executive offices of ETC-Texas are located at 5025 Arapaho Road, Suite 515,
Dallas, Texas 75248, (214) 980-0900. See "The Companies -- Business Information
Concerning ETC-Texas."
Surviving Corporation. If the Continuance and the Merger are approved by
the Company's shareholders at the Meeting and the Merger is approved by the
ETC-Texas shareholders at the ETC-Texas Meeting, the Company shall be the
surviving corporation of the Merger (the "Surviving Corporation"). Pursuant to
the Merger Agreement, the Certificate of Incorporation of the Company, as
continued, shall be the Certificate of Incorporation of the Surviving
Corporation, the Bylaws of the Company, as continued, shall be the Bylaws of the
Surviving Corporation and the name of the Surviving Corporation will be changed
to Electronic Transmission Corporation. The officers and directors of ETC-Texas
will be the officers and directors of the Surviving Corporation. See "The
Merger" and "Certain Terms of the Merger Agreement."
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Date, Time and Place
The Company. The Meeting will be held on ____________________, 1996, at the
offices of Beaumont Church, Barristers and Solicitors, 2200 AGT Tower, 411 --
1st Street S.E., Calgary, Alberta, Canada T2G 5E7, commencing at __________ p.m.
local time.
ETC-Texas. The ETC-Texas Meeting will be held on ____________________,
1996, at 5025 Arapaho Road, Suite 515, Dallas, Texas 75248, commencing at
__________ p.m. local time.
Record Dates; Shares Entitled to Vote
The Company. Only holders of record of shares of Company Common Stock at
the close of business on _______________, 1996 (the "Record Date") are entitled
to notice of and to vote at the Meeting. On the Record Date, there were
2,007,145 shares of Company Common Stock outstanding, each of which will be
entitled to vote on each matter to be acted upon at the Meeting.
ETC-Texas. Only holders of record of shares of ETC-Texas Common Stock at
the close of business on _______________, 1996 (the "ETC-Texas Record Date") are
entitled to notice of and to vote at the ETC-Texas Meeting. On the ETC-Texas
Record Date, there were 7,157,601 shares of ETC-Texas Common Stock outstanding,
each of which will be entitled to vote on each matter to be acted upon at the
ETC-Texas Meeting.
Quorum; Vote Required
The Company. The presence, in person or by proxy, at the Meeting of the
holders of 5% of the shares of Company Common Stock outstanding and entitled to
vote at the Meeting is necessary to constitute a quorum at the Meeting. The
affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of
the shares present in person or by proxy at the Meeting is required to approve
and adopt the Continuance and the Merger Agreement, the terms of which require
the issuance and reservation for issuance of up to 10,954,146 shares of
Continued Common Stock.
ETC-Texas. The presence, in person or by proxy, at the ETC-Texas Meeting of
the holders of a majority of the shares of ETC-Texas Common Stock outstanding
and entitled to vote at the ETC-Texas Meeting is necessary to constitute a
quorum at the meeting. The affirmative vote of the holders of sixty-six and
two-thirds percent (66-2/3%) of the shares of ETC-Texas Common Stock outstanding
and entitled to vote thereon at the ETC-Texas Meeting is required under the
Texas Business Corporation Act (the "TBCA") to approve and adopt the Merger
Agreement.
Security Ownership of Management
The Company. As of the Record Date, the directors and executive officers of
the Company owned or controlled shares of Company Common Stock representing
approximately 4.1% of the outstanding shares of Company Common Stock entitled to
vote at the Meeting. L. Cade Havard, Chairman and Chief Executive Officer of the
Company, beneficially owns or controls 79,500 shares of Company Common Stock
representing approximately 4% of the outstanding Company Common Stock. Mr.
Havard and each of the other directors and executive officers of the Company
have advised the Company that they plan to vote or direct the vote of all such
shares of Company Common Stock in favor of the Continuance and the Merger
Agreement. See "Beneficial Ownership of Securities."
ETC-Texas. As of the ETC-Texas Record Date, the directors and executive
officers of ETC-Texas owned shares of ETC-Texas Common Stock representing
approximately 54.8% of the outstanding shares of ETC-Texas Common Stock entitled
to vote at the ETC-Texas Meeting. L. Cade Havard, Chairman, President and Chief
Executive Officer of ETC-Texas, beneficially owns or controls 3,097,668 shares
of ETC-Texas Common Stock representing approximately 43.3% of the outstanding
ETC-Texas Common Stock, which includes 997,668 shares owned by Sterling, of
which Mr. Havard is the sole shareholder. Mr. Havard and each of the other
directors and executive officers of ETC-Texas have advised ETC-Texas that they
plan to vote or to direct the vote of all shares of ETC-Texas Common Stock owned
by them in favor of the Merger Agreement. See "Beneficial Ownership of
Securities."
Company Annual Meeting Matters
Election of Directors. At the Meeting, it is proposed that a Board of
Directors consisting of three members be elected. All three of the nominees are
current members of the Board of Directors of the Company. If elected at the
Meeting and upon the completion of the Continuance and the Merger, Edward
Bollinger and Katherine MacDonald have agreed to resign as directors of the
Company. It is proposed that a Board of Directors consisting of six members also
be elected at the Meeting to take office upon completion of the Continuance and
the Merger. L. Cade Havard, one of the nominees for the post-Merger board is
currently a member of the Board of Directors of the Company. It is proposed that
the Board of Directors of the Surviving Corporation be comprised of L. Cade
Havard, Elaine Boze, Timothy P. Powell, David O. Hannah, Michael Eckstein and
Rick L. Snyder, all of whom are currently directors of ETC-Texas. See "Election
of Company Directors."
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Appointment of Auditors. At the Meeting, the shareholders of the Company
will be called upon to appoint auditors to serve until the close of the next
annual meeting of the Company (or the Surviving Corporation) and to authorize
the Board of Directors to fix the remuneration of the auditors so appointed.
Hans P. Cremers, Chartered Accountant, of Calgary, Alberta, served as auditor
for the fiscal years ended December 31, 1991 to and including December 31, 1995.
As the Registration Statement, of which this Proxy Statement/Prospectus is a
part, is being filed with the Commission to register the number of shares of
Continued Common Stock noted herein, Simonton, Kutac & Barnidge, L.L.P. has been
authorized by the Board of Directors of the Company to audit the books and
records of the Company for the fiscal years ended December 31, 1994 and 1995 and
to prepare financial statements for these periods in accordance with generally
accepted accounting principles recognized by the Commission for the purpose of
including such financial statements in the Registration Statement. Because the
Company will become domiciled in the United States upon completion of the
Continuance and the Merger and because of their familiarity with the books and
records of the Company, management recommends that the shareholders vote for the
appointment of Simonton, Kutac & Barnidge, L.L.P. of Houston, Texas to serve as
auditors until the close of the next annual meeting of the Company (or the
Surviving Corporation). See "Appointment of Auditors for the Company" and the
"Notice of Change of Auditor" attached to the Proxy Statement/Prospectus as
Appendix "B".
The Continuance
Effect of the Continuance. The Company will change its jurisdiction from
Alberta, Canada to Delaware, U.S.A. by means of a process called a "continuance"
under Alberta law and a "domestication" under Delaware law. The Continuance will
be effected upon approval of the Certificate of Domestication to be filed by the
Company with the Secretary of State of the State of Delaware. A copy of the form
of Certificate of Domestication is attached to this Proxy Statement/Prospectus
as Appendix "C". Upon the effectiveness of the Continuance, the Company will
become a Delaware corporation as if it had originally been incorporated in that
jurisdiction and it will be discontinued in Alberta, Canada. As a result of the
Continuance, the Company will issue an aggregate of 2,007,145 shares of
Continued Common Stock to holders of Company Common Stock, as of the Record
Date. Effectiveness of the Merger is expressly conditioned on approval and
effectiveness of the Continuance; as a result, a vote against the Continuance
would have the effect of a vote against the Merger.
The Merger and the Merger Agreement
Terms of the Merger. At the Effective Time (as hereinafter defined),
ETC-Texas will merge with and into the Company, with the Company being the
Surviving Corporation. In the Merger, each share of ETC-Texas Common Stock
outstanding at the Effective Time will be converted into 1.25 shares of
Continued Common Stock. As a result of the Merger, the ETC-Texas shareholders
will be issued 8,947,001 shares of Continued Common Stock, representing
approximately 82% of the total Continued Common Stock to be outstanding after
completion of the Continuance and the Merger.
Recommendation of the Company Board of Directors. The Board of Directors of
the Company has determined that the Continuance and the Merger are fair to, and
in the best interests of, the shareholders of the Company and recommends that
the shareholders of the Company approve the Continuance and the Merger,
including the reservation for issuance and the issuance of 8,947,001 shares of
Continued Common Stock pursuant to the terms of the Merger Agreement.
Management of the Company believes that the Continuance and the Merger are
in accordance with the business purpose of the Company which is to seek out and
effect an acquisition or merger transaction with a business which the Company
believes has significant growth potential, thereby allowing its shareholders to
benefit by owning an interest in a viable business enterprise. As the Company
has no significant assets or operations, its principal potential for profit
comes solely from operations it may receive in an acquisition or merger
transaction. The Board of Directors of the Company has unanimously approved the
Merger as it believes that ETC-Texas is a viable enterprise which offers the
opportunity for significant growth in the emerging electronic medical claims
processing industry. See "The Merger -- The Company's Reasons for the Merger;
Recommendation of the Company's Board of Directors."
Recommendation of ETC-Texas Board of Directors. The Board of Directors of
ETC-Texas has determined that the Merger is fair to, and in the best interests
of, the shareholders of ETC-Texas and recommends that the shareholders of
ETC-Texas approve and adopt the Merger Agreement. In considering the
recommendation of the ETC-Texas Board of Directors with respect to the Merger,
ETC-Texas shareholders should be aware that L. Cade Havard, the Chairman of the
Board, President and Chief Executive Officer of ETC-Texas and the Chairman of
the Board and Chief Executive Officer of the Company has certain interests
respecting the Merger, apart from his interest as shareholder of both ETC-Texas
and the Company. See "The Merger -- ETC-Texas' Reasons for the Merger;
Recommendation of ETC-Texas' Board of Directors; -- Interests of Certain Persons
in the Merger."
Effective Time of the Merger. It is anticipated that the Merger will become
effective (the "Effective Time") as promptly as practicable after approval by
the Company's shareholders of both the Continuance and the Merger and approval
of the Merger by the shareholders of ETC-Texas and the filing of a Certificate
of Merger with the Secretary of State of the State of Delaware and Articles of
Merger with the Secretary of State of the State of Texas, or at any later time
stated in the Merger Agreement.
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Certain Conditions to the Consummation of the Merger
The obligations of both the Company and ETC-Texas to consummate the Merger
are subject to the satisfaction of certain conditions, including the following:
(i) approval by the shareholders of the Company of the Continuance and the
Merger Agreement; (ii) approval and adoption of the Merger Agreement by the
shareholders of ETC-Texas; (iii) the absence of any order making the Merger
illegal or otherwise prohibiting consummation of the Merger; and (iv) the
absence of certain regulatory conditions. None of the foregoing conditions will
be waived by either the Company or ETC-Texas. In addition, the obligations of
each of the Company and ETC-Texas are subject to the accuracy of the
representations and warranties of the other party and to compliance with all
agreements and covenants on the part of the other party contained in the Merger
Agreement. Either the Company or ETC-Texas may extend the time for performance
of any of the obligations of the other party or, except as aforesaid, waive
compliance with those obligations at its discretion. See "The Merger" and
"Certain Terms of the Merger Agreement."
Termination of the Merger Agreement
General. The Merger Agreement may be terminated at any time prior to the
Effective Time (i) by mutual consent of the Company and ETC-Texas; (ii) by
either party if any final court or governmental order or ruling shall have
prohibited consummation of the Merger; or (iii) the required approvals of the
shareholders of the Company or ETC-Texas are not received at the applicable
meeting of shareholders.
By the Company. The Company may terminate the Merger Agreement (i) upon a
breach of any material representation, warranty, covenant or agreement on the
part of ETC-Texas set forth in the Merger Agreement, or (ii) if any such
representation or warranty shall have become untrue, in either case such that
the Company's conditions to closing of the Merger would be incapable of being
satisfied. See "Certain Terms of the Merger Agreement -- Conditions to the
Merger."
By ETC-Texas. ETC-Texas may terminate the Merger Agreement (i) upon a
breach of any material representation, warranty, covenant or agreement on the
part of the Company set forth in the Merger Agreement, or (ii) if any such
representation or warranty shall have become untrue, in either case such that
ETC-Texas' conditions to closing of the Merger would be incapable of being
satisfied. See "Certain Terms of the Merger Agreement -- Conditions to the
Merger."
Assumption of ETC-Texas Stock Options and Other Obligations
ETC-Texas has granted to certain directors, officers and employees options
to purchase 441,667 shares of ETC-Texas Common Stock each at an exercise price
of $0.001 per share, which expire at varying times up to February 20, 1999. As
of the Effective Time, the Surviving Corporation will assume each option to
purchase ETC-Texas Common Stock (the "ETC-Texas Options") that remains
unexercised in whole or in part. Accordingly, each ETC-Texas Option will be
deemed to remain outstanding as an option to purchase, in lieu of the shares of
ETC-Texas Common Stock previously subject thereto, an identical number of shares
of Continued Common Stock. The exercise price per share of Continued Common
Stock will be equal to the previous exercise price per share under the ETC-Texas
Option. See "Management -- Stock Options" and "Certain Terms of the Merger
Agreement."
In addition, the Company will assume all other obligations of ETC-Texas
outstanding as of the Effective Time. Certain of the obligations are identified
in the ETC-Texas Financial Statements and the Notes thereto.
Board of Directors
The Board of Directors of the Surviving Corporation will be comprised of
those individuals currently serving on the Board of Directors of ETC-Texas. The
members of the Audit Committee and Compensation Committee of ETC-Texas will
serve on the Audit Committee and Compensation Committee of the Surviving
Corporation.
Regulatory Approval
The Company shall file for approval with the Registrar of Corporations for
the Province of Alberta to continue the Company into the State of Delaware
concurrently with the filing of the Proxy Statement/Prospectus with the
Commission. Upon receipt of appropriate shareholder approval, the Company will
file a Certificate of Domestication and a Certificate of Merger with the
Secretary of State of the State of Delaware, and ETC-Texas will file Articles of
Merger with the Secretary of State of the State of Texas. Once the Continuance
and the Merger are approved by applicable provincial and state authorities, no
other regulatory approvals are necessary for consummation of the Continuance and
the Merger, other than compliance with applicable securities laws.
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Appraisal Rights with Respect to the Continuance and Merger -- The Company
Pursuant to Section 184 of the Alberta Business Corporations Act (the
"ABCA"), a shareholder of the Company is entitled to dissent and is entitled to
be paid by the Company the fair value of his shares of Company Common Stock
determined as of the close of business on the last business day before the day
on which the resolution(s), either to approve the Continuance or the Merger,
from which he dissents is adopted. See "The Continuance -- Right of Dissent" and
"The Merger -- Rights of Dissenting Shareholders."
Appraisal Rights With Respect to the Merger -- ETC-Texas
Should the Merger take place, shareholders of ETC-Texas who oppose and do
not vote for the Merger will be entitled to invoke appraisal rights pursuant to
Articles 5.11, 5.12 and 5.13 of the TBCA, and pursuant to applicable charter
provisions granting appraisal rights. See "The Merger -- Rights of Dissenting
Shareholders."
Certain Canadian Income Tax Consequences on the Continuance
Canadian shareholders will not incur any income tax liability solely by
reason of the Continuance unless such shareholder exercises dissenters' rights
in which case dividend and capital gain taxes will apply. See "The Continuance
- -- Certain Income Tax Consequences of the Continuance."
Certain United States Federal Income Tax Consequences on the Merger
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and should,
therefore constitute a non-taxable transaction for the Company, ETC-Texas and
the holders of ETC-Texas Common Stock, respectively. See "The Merger -- Certain
Federal Income Tax Consequences."
Anticipated Accounting Treatment
The Merger is expected to be accounted for as a "pooling of interests" for
financial accounting purposes. See "The Merger -- Accounting Treatment."
Exchange of ETC-Texas Stock Certificates
Promptly after the Effective Time of the Merger, the Surviving Corporation
will mail a letter of transmittal with instructions to each holder of record of
ETC-Texas Common Stock outstanding immediately before the Effective Time for use
in exchanging certificates formerly representing shares of ETC-Texas Common
Stock for certificates representing shares of Continued Common Stock. No
fractional shares of Continued Common Stock shall be issued in the Merger. In
lieu thereof, all fractional shares of Continued Common Stock that a holder of
ETC-Texas Common Stock would otherwise be entitled to receive as a result of the
Merger shall be automatically converted into the right to receive one full share
of Continued Common Stock. Certificates should not be surrendered by the holder
of ETC-Texas Common Stock until they have received the letter of transmittal
from the Surviving Corporation. See "Certain Terms of the Merger Agreement --
Manner and Basis of Converting Shares."
Interests of Certain Persons in the Merger
As more particularly described in the "Beneficial Ownership of Securities"
section of this Proxy Statement/Prospectus, L. Cade Havard, the Chairman and
Chief Executive Officer of the Company, is also the Chairman, President and
Chief Executive Officer of ETC-Texas. Mr. Havard beneficially owns or controls
79,500 shares of Company Common Stock and 3,097,668 shares of ETC-Texas Common
Stock, representing approximately 4% of the issued and outstanding Company
Common Stock and approximately 43.3% of the issued and outstanding ETC-Texas
Common Stock. After the Effective Time, Mr. Havard will beneficially own or
control approximately 3,951,585 shares of Continued Common Stock representing
36.1% of the outstanding common shares of the Surviving Corporation. See
"Beneficial Ownership of Securities" and "The Merger -- Interests of Certain
Persons in the Merger."
Comparative Rights of ETC-Texas and the Company Shareholders
Rights of shareholders of ETC-Texas are currently governed by the TBCA, and
the Articles of Incorporation (the ETC-Texas Charter") and Bylaws (the
"ETC-Texas Bylaws") of ETC-Texas. Upon consummation of the Merger, ETC-Texas
shareholders will become shareholders of the Surviving Corporation and their
rights as shareholders of the Surviving Corporation will be governed by the
Delaware General Corporation Law (the "DGCL"), the Certificate of Incorporation
of the Surviving Corporation (the "Surviving Corporation Charter"), and the
Bylaws of the Surviving Corporation (the "Surviving Corporation Bylaws"). A copy
of the Surviving Corporation Charter is attached to this Proxy
Statement/Prospectus as Appendix "D". There are certain differences between the
rights afforded a shareholder under the TBCA and the DGCL. See "Comparisons of
Shareholders Rights."
-5-
<PAGE>
Market Price Data
The Company. The Company Common Stock was quoted on the ASE under the
trading symbol "SOP" between May 1987 and July 1992. On July 29, 1992, the
Company received a Cease Trade Order from the ASC for failure to file annual
audited financial statements for the year ended December 31, 1991 and first
quarter interim unaudited financial statements for the period ended March 31,
1992, and for failure to deliver the financial statements to the Company's
shareholders. Since July 1992, there has been no established trading market for
the Company Common Stock. On January 12, 1993, the shares of the Company Common
Stock were removed from the ASE. On March 21, 1996, the ASC varied its Cease
Trade Order for the purpose of allowing the Company to consummate the
Continuance and the Merger and ordered that the Cease Trade Order would be
revoked 48 hours after delivery to the ASC of verification that the Registration
Statement, of which this Proxy Statement/Prospectus is a part, has been declared
effective by the Commission and upon confirmation to the ASC that the Company
has issued a press release setting out the material terms of the Continuance and
the Merger. No cash dividends have been paid by the Company on the Company
Common Stock. See "The Companies -- Business Information Concerning the
Company."
ETC-Texas. There has never been an established trading market for the
ETC-Texas Common Stock. No cash dividends have been paid by ETC-Texas on the
ETC-Texas Common Stock. See "The Companies -- Business Information Concerning
ETC-Texas."
Dividend Policy
It is anticipated that future earnings of the Surviving Corporation will be
retained to finance the continuing development of its business. The payment of
any future dividends will be at the discretion of the Board of Directors of the
Surviving Corporation and will depend upon, among other things, future earnings,
the success of business activities, regulatory and capital requirements, the
general financial condition of the Surviving Corporation and general business
conditions. See "Dividend Policy."
Risk Factors Pertaining to the Continuance and the Merger
While the Boards of Directors of the Company and ETC-Texas are of the
opinion that the transactions contemplated herein are in the best interest of
the Company, ETC-Texas and their shareholders, respectively, there are business
risks related to such transactions. See "Risk Factors."
-6-
<PAGE>
The Company
Selected Historical and Unaudited Pro Forma Financial Information
The following selected historical income statement and balance sheet data
for the periods ended December 31, 1995 and 1994 have been derived from the
Company's financial statements, which have been audited by Simonton, Kutac &
Barnidge, L.L.P., independent certified public accountants. The selected
financial data as of March 31, 1996 and for the three months ended March 31,
1995 and 1996 have been derived from the unaudited financial statements of the
Company, have been prepared on the same basis of accounting as the other
financial statements of the Company and, in the opinion of the Company, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations of the
Company for such periods.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
Year Ended December 31, Unaudited
---------------------------------- ---------------------------------
1994 1995 1995 1996
--------------- ---------------- --------------- ---------------
(In thousands, except per share amounts and shares outstanding)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Expenses:
Interest on debentures.............................. $ 121 $ 93 $ 30 $ 3
Other expense (income).............................. (1) 1 (1) -
-------------- --------------- -------------- ---------------
Total expenses.................................. 120 94 29 3
-------------- --------------- -------------- ---------------
Loss before extraordinary item.......................... (120) (94) (29) (3)
Extraordinary item - gain on forgiveness of interest.... - 392 - -
-------------- --------------- -------------- ---------------
Net earnings (loss)..................................... $ (120) $ 298 $ (29) $ (3)
-------------- --------------- -------------- ---------------
Earnings (loss) per common and common
equivalent share:
Primary............................................. $ (0.04) $ 0.09 $ (0.01) $ 0.00
-------------- --------------- -------------- ---------------
Fully diluted<F1>................................... $ (0.04) $ 0.06 $ (0.01) $ 0.00
-------------- --------------- -------------- ---------------
Weighted average shares outstanding:
Primary............................................. 3,250,000 3,250,000 3,250,000 3,250,000
-------------- --------------- -------------- ---------------
Fully diluted<F2>................................... 3,250,000 4,821,784 3,250,000 3,250,000
-------------- --------------- -------------- ---------------
<FN>
<F1> Earnings per share on a fully diluted basis for the year ended December 31,
1994, and for the three months ended March 31, 1995 and 1996 were less than
primary earnings per share due to the Company's net loss for such periods.
Fully diluted earnings (loss) per share was $(0.03) for the year ended
December 31, 1994 as a result of the anti-dilutive effect attributable to
the Company's net loss for such periods.
<F2> Fully diluted weighted average shares outstanding is the same as primary
earnings weighted average shares outstanding for year ended December 31,
1994, and for the three months ended March 31, 1995 and 1996 due to the
anti-dilutive effect of common stock equivalents on earnings per share.
Fully diluted weighted average shares outstanding is 3,775,000 for year
ended December 31, 1994, and 3,775,000 and 7,962,135 for the three months
ended March 31, 1995 and 1996, respectively, including the anti-dilutive
effect.
</FN>
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1996
------------------------------ -----------
1994 1995 Unaudited
------------- -------------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $ (1,279) $ (981) $ (984)
Total assets........................................ - - -
Convertible debentures.............................. 605 605 605
Total shareholders' equity.......................... (1,279) (981) (984)
</TABLE>
-7-
<PAGE>
ETC-TEXAS
Selected Historical Financial Information
The selected historical financial information of ETC-Texas shown below for
the two fiscal periods ended December 31, 1995 and 1994, have been derived from
ETC-Texas' financial statements, which have been audited by Simonton, Kutac &
Barnidge, L.L.P., independent certified public accountants. The selected
financial data as of March 31, 1996 and for the three months ended March 31,
1995 and 1996 have been derived from the unaudited financial statements of
ETC-Texas, have been prepared on the same basis of accounting as the other
financial statements of ETC-Texas and, in the opinion of ETC-Texas, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations of
ETC-Texas for such periods.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
Year Ended December 31, Unaudited
---------------------------------- ---------------------------------
1994 1995 1995 1996
--------------- ---------------- --------------- ---------------
(In thousands, except per share amounts and shares outstanding)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Service revenues, earned during development stage....... $ - $ 67 $ 4 $ 24
-------------- --------------- -------------- ---------------
Costs and expenses:
Direct costs, incurred during development stage..... - 41 3 4
Startup costs....................................... - 939 49 203
Research and development............................ - 180 89 206
-------------- --------------- -------------- ---------------
Total costs and expenses........................ - 1,160 141 413
-------------- --------------- -------------- ---------------
Net earnings (loss)..................................... $ - $ (1,093) $ (137) $ (389)
-------------- --------------- -------------- ---------------
Earnings (loss) per common share and common
equivalent share:
Primary and fully diluted<F1>....................... $ (0.00) $ (0.24) $ (0.03) $ (0.06)
-------------- --------------- -------------- ---------------
Weighted average number of shares outstanding:
Primary and fully diluted<F2>....................... 53 4,523,146 3,966,293 6,345,773
-------------- --------------- -------------- ---------------
<FN>
<F1> Earnings per share on a fully diluted basis for the year ended December 31,
1995, and for the three months ended March 31, 1996 were less than primary
earnings per share due to ETC-Texas' net loss for such periods. Fully
diluted earnings (loss) per share was $(0.21) for year ended December 31,
1995, and $(0.06) for the three months ended March 31, 1996, as a result of
the anti-dilutive effect attributable to ETC-Texas' net loss for such
periods.
<F2> Fully diluted weighted average shares outstanding is the same as primary
earnings weighted average shares outstanding for year ended December 31,
1995, and for the three months ended March 31, 1996 due to the
anti-dilutive effect of common stock equivalents on earnings per share.
Fully diluted weighted average shares outstanding is 5,197,471 for year
ended December 31, 1995, and 7,020,098 for the three months ended March 31,
1996, including the anti-dilutive effect.
</FN>
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1996
--------------------- ----------
1994 1995 Unaudited
--------- --------- ----------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $ 1 $ 53 $ (113)
Total assets........................................ 1 357 482
Long-term debt, excluding current portion........... - - 38
Total shareholders' equity.......................... 1 191 240
</TABLE>
-8-
<PAGE>
Selected Unaudited Pro Forma Financial Information
The following selected unaudited pro forma financial information has been
derived from and should be read in conjunction with the unaudited pro forma
condensed financial information and notes thereto included elsewhere in this
Proxy Statement/Prospectus. The following unaudited selected pro forma combined
financial information is based on adjustments to the historical balance sheets
and related statements of earnings of the Company and ETC-Texas to give effect
to the Merger using the pooling of interests method of accounting for business
combinations. The unaudited selected pro forma combined after acquisition
financial information for the most recent full year and interim period gives
effect to the Merger. The following selected unaudited pro forma financial
information may not necessarily reflect the financial condition or results of
operations of the Company that would have actually resulted had the transactions
referred to above occurred as of the date and for the periods indicated or
reflect the future earnings of the Surviving Corporation.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
Pro Forma Combined<F1> March 31, 1996
Pro Forma
1994 1995 Combined(Unaudited)
------------------- ------------------- ----------------------
<S> <C> <C> <C>
Statements of Operations Data:
Service revenues, earned during development stage....... $ - $ 66,612 $ 23,740
------------------ ------------------ -----------------------
Operating expenses:
Direct costs, incurred during development stage..... - 40,764 3,832
Startup costs....................................... - 939,347 202,806
Research and development............................ - 179,830 206,138
------------------ ------------------ -----------------------
Total operating expenses........................ - 1,159,941 412,776
------------------ ------------------ -----------------------
Earnings (loss) from operations......................... - (1,093,329) (389,036)
------------------ ------------------ -----------------------
Other expense (income):
Interest expense.................................... 121,000 93,375 2,625
Other............................................... (1,189) 807 595
------------------ ------------------ -----------------------
Total other expense............................. 119,811 94,182 3,220
------------------ ------------------ -----------------------
Extraordinary item - gain on forgiveness
of interest........................................... - 392,573 -
------------------ ------------------ -----------------------
Net earnings (loss) from continuing operations.......... $ (119,811) $ (794,938) $ (392,256)
------------------ ------------------ -----------------------
Earnings (loss) per common share and common
equivalent share:
Primary and fully diluted<F2><F3>................... $ (0.18) $ (0.13) $ (0.05)
------------------ ------------------ -----------------------
Weighted average number of shares outstanding:
Primary and fully diluted<F2><F4> .................. 650,031 6,303,932 8,582,217
------------------ ------------------ -----------------------
<FN>
<F1> Pro Forma Combined columns reflect the combination of the Company and
ETC-Texas as a pooling of interests.
<F2> Represents the Company and ETC-Texas on an equivalent pro forma combined
basis calculated by multiplying pro forma combined amounts for ETC-Texas by
the 1.25 Exchange Ratio and consolidating Company shares on a one- for-five
basis.
<F3> Earnings per share on a fully diluted basis for the years ended December
31, 1994 and 1995, and for the three months ended March 31, 1996 were less
than primary earnings per share due to the Company's and ETC-Texas' net
losses for such periods. Fully diluted earnings (loss) per share was
$(0.17) and $(0.11) for years ended December 31, 1994 and 1995,
respectively, and $(0.04) for the three months ended March 31, 1996, as a
result the anti-dilutive effect attributable to the Company's and
ETC-Texas' net losses for such periods.
<F4> Fully diluted weighted average shares outstanding is the same as primary
earnings weighted average shares outstanding for years ended December 31,
1994 and 1995, and for the three months ended March 31, 1996, due to the
anti-dilutive effect of common stock equivalents on earnings per share.
Fully diluted weighted average shares outstanding is 702,531 and 7,200,739
for years ended December 31, 1994 and 1995, respectively, and 10,146,604
for the three months ended March 31, 1996, respectively, including the
anti-dilutive effect.
</FN>
</TABLE>
-9-
<PAGE>
Historical and Pro Forma Comparative Per Share Data
Set forth below are the comparative net income and book value per common
share data of (a) each of the Company and ETC-Texas on an historical basis, (b)
the Company on a pro forma combined basis giving effect to the Merger, and (c)
ETC-Texas on an equivalent pro forma combined basis giving effect to the Merger,
in each case giving effect to the Merger under the pooling of interests method
of accounting for business combinations, all on the basis described in the
unaudited pro forma condensed financial information thereto included elsewhere
in this Proxy Statement/Prospectus. The equivalent pro forma data for ETC-Texas
was calculated by multiplying the Company pro forma per common share data by the
Exchange Ratio. Neither the Company nor ETC-Texas paid any dividends to their
shareholders during the periods presented.
The information set forth below should be read in conjunction with the
respective audited financial statements and related notes of the Company and
ETC-Texas included elsewhere in this Proxy Statement/Prospectus and the
unaudited pro forma condensed financial information included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31, 1996
----------------------------- ---------------
THE COMPANY: 1994 1995 Unaudited
------------- ------------- ---------------
<S> <C> <C> <C>
Historical<F1>:
Net earnings (loss) - primary.................... $ (0.04) $ 0.09 $ 0.00
------------- ------------- --------------
Net earnings (loss) - fully diluted.............. $ (0.04) $ 0.06 $ 0.00
------------- ------------- --------------
Book value....................................... $ (0.39) $ (0.30) $ (0.30)
------------- ------------- --------------
ETC-TEXAS:
Historical:
Net earnings (loss) - primary.................... $ - $ (0.24) $ (0.06)
------------- ------------- ---------------
Net earnings (loss) - fully diluted.............. $ - $ (0.24) $ (0.06)
------------- ------------- ---------------
Book value....................................... $ 1.00 $ 0.03 $ 0.04
------------- ------------- ---------------
COMBINED PRO FORMA:
Pro forma combined after the Merger<F2><F4>:
Net earnings (loss) - primary.................... $ (0.04) $ (0.10) $ (0.04)
------------- ------------- ---------------
Net earnings (loss) - fully diluted.............. $ (0.04) $ (0.10) $ (0.04)
------------- ------------- ---------------
Book value....................................... $ (0.39) $ (0.08) $ (0.08)
------------- ------------- ---------------
Equivalent pro forma combined after the
Merger<F3><F4>:
Net earnings (loss) - primary.................... $ (0.18) $ (0.13) $ (0.05)
------------- ------------- ---------------
Net earnings (loss) - fully diluted.............. $ (0.18) $ (0.13) $ (0.05)
------------- ------------- ---------------
Book value....................................... $ (1.96) $ (0.09) $ (0.08)
------------- ------------- ---------------
<FN>
<F1> The Company's net earnings (loss) per share (primary and fully diluted) on
a pro forma basis, excluding the Merger, was $(0.33) and $0.00 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
<F2> Represents the Company and ETC-Texas on a pro forma combined basis.
<F3> Represents the Company and ETC-Texas on an equivalent pro forma combined
basis calculated by multiplying pro forma combined amounts by the 1.25
Exchange Ratio.
<F4> Pro forma per share data is presented based upon earnings from continuing
operations.
</FN>
</TABLE>
-10-
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Proxy Statement/Prospectus. Except for the
historical information contained herein, the discussion in this Proxy
Statement/Prospectus contains certain forward looking statements that involve
risks and uncertainties, such as statements of the Surviving Corporation's
plans, objectives, expectations and intentions. The cautionary statements made
in this Proxy Statement/Prospectus should be read as being applicable to all
related forward looking statements wherever they appear in this Proxy
Statement/Prospectus. The Surviving Corporation's actual results could differ
materially from those discussed here.
Accumulated Deficit and Independent Accountants' Report Referring to Going
Concern Uncertainties
From inception, both the Company and ETC-Texas have incurred losses from
operations, and as of March 31, 1996 the Company and ETC-Texas had an
accumulated deficit of $1,071,717 and $1,692,365, respectively. On a pro forma
basis, as of March 31, 1996, the Surviving Corporation would have had an
accumulated deficit of $2,764,082 after the Continuance and Merger. This history
of recurring losses indicates that the Surviving Corporation's continuation as a
going concern is dependent upon its ability to generate sufficient cash flows to
meet its obligations on a timely basis, to obtain additional financing or
capital and ultimately to attain profitable operations. The independent
accountants for both the Company and ETC-Texas, in their reports regarding the
Company's and ETC-Texas' financial statements for the fiscal year ended December
31, 1995, respectively, stated that, since the Company and ETC-Texas had a
history of losses since inception and had a significant working capital deficit,
substantial doubt existed as to their ability to continue as a going concern.
See "Management's Discussion and Analysis of the Company's and ETC-Texas'
Financial Condition and Results of Operations."
Working Capital Deficit; Lack of Liquidity and Capital Resources
As of March 31, 1996, the Company had total current assets of $145 and
total current liabilities of $984,295 resulting in a working capital deficit of
$984,150. Also as of March 31, 1996, ETC-Texas had total current assets of
$90,111 and total current liabilities of $203,418 resulting in a working capital
deficit of $113,307. On a pro forma basis, as of March 31, 1996, the Surviving
Corporation would have had total current assets of $90,256 and total current
liabilities of $1,187,713 resulting in a working capital deficit of $1,097,457.
Subsequent to March 31, 1996, the Company converted $837,428 of debt into
837,428 shares of Company Common Stock. The ability of the Surviving Corporation
to alleviate its working capital deficit, and to obtain the necessary capital
resources to fund future costs associated with its operations and expansion
plans is dependent upon: (i) improving claims processing operations through cost
reductions and increased market penetration; (ii) entering into long-term claims
processing contracts with self-insured companies, third-party administrators and
management services organizations; and (iii) its ability to link the various
medical claims processing activities of payees and payors. Even if the Surviving
Corporation achieves some success with its operational strategy, there can be no
assurance that it will be able to generate sufficient revenues to reduce its
working capital deficit and have funds available for growth. To achieve all of
its objectives, the Surviving Corporation may be required to raise additional
working capital in the short term by issuing debt and/or equity securities. If
the Surviving Corporation is unable to raise additional capital as needed, it
could be forced to limit its expansion plans. See "Management's Discussion and
Analysis of the Company's and ETC-Texas' Financial Condition and Results of
Operations," "The Companies -- Business Information Concerning the Company" and
"The Companies -- Business Information Concerning ETC-Texas."
Additional Financing Needed
Without additional capital, the Surviving Corporation may have to curtail
its expansion plans. While the Company and ETC-Texas have historically raised
the necessary capital to fund operations, there can be no assurance of the
Surviving Corporation's ability to continue to do so in the future.
Limited Operating History; Absence of Profits
The Surviving Corporation will be assuming the business operations of
ETC-Texas as the Company has no significant operations or assets. ETC-Texas'
operations have a limited operating history upon which an evaluation of its
performance can be made. As such, the Surviving Corporation's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment and operation of a new business in the medical
claims processing industry. There can be no assurance that the Surviving
Corporation will be able to generate operating income, and net income in the
future will depend on the Surviving Corporation's management of its existing
operations, the success of management's plans to alleviate the Company's and
ETC-Texas' working capital deficit, the nature and extent of market penetration
and expansion, capital structure and general economic conditions.
Probability of Continued Losses
ETC-Texas incurred losses of approximately $1,093,000 for the fiscal year
ended December 31, 1995 and $389,000 for the quarter ended March 31, 1996. In
addition to the historical losses of ETC-Texas, the Surviving Corporation
expects to have continued losses in the short term primarily as a result of (i)
its accumulated deficit and (ii) capital expenditures related
-11-
<PAGE>
to the installation of claims processing systems into client's businesses during
the initial 90-day no-risk review period. See "The Company -- Business
Information Concerning ETC-Texas."
Dependence on Quality of Claims Processing Services
Substantially all of ETC-Texas' revenues are currently derived from
electronic claims processing services provided to third parties. There can be no
assurances that ETC-Texas' processing methodology will meet the demands of the
marketplace in the future. The Surviving Corporation's future success and
financial performance will depend in large part upon its ability to provide an
increasing system functionality required by its customers through the linkage of
payees and payors of medical claims. There can be no assurance that the
Surviving Corporation will successfully implement electronic claims processing
applications that will meet the requirements of health care providers and payors
and thereby achieve market acceptance. See "The Companies -- Business
Information Concerning ETC-Texas."
No Fairness Opinion Obtained by Either the Company or ETC-Texas
Neither the Company nor ETC-Texas engaged an independent third party to
review the terms of the Merger and prepare a fairness opinion related to the
Exchange Ratio. The Exchange Ratio was determined as the result of negotiations
between management of the Company and ETC-Texas related to the relative value of
each entity. The factors considered in establishing the Exchange Ratio included
(i) the public nature and existing shareholder base of the Company, (ii) the
operating and financial history of both the Company and ETC-Texas, (iii) the
benefits afforded to ETC-Texas in being a public entity, including market
credibility resulting in an expansion of ETC-Texas' existing client base and the
ability to raise additional capital, and (iv) the potential for growth in value
of the Company Common Stock in light of the Company's present financial
condition, which includes no significant assets or operations. See "The Merger
- -- The Company's Reasons for the Merger; Recommendation of the Company's Board
of Directors; -- ETC-Texas' Reasons for the Merger; Recommendation of ETC-Texas'
Board of Directors."
Competition
ETC-Texas is aware that there are other entities which offer claims
automation, contracting for discount and repricing services for the benefit of
participants in the market currently served by ETC-Texas, and that its claims
processing methodology is easily duplicated. There are certain insurance
companies or other third party administrators and management services
organizations which are substantially larger than the Surviving Corporation with
much greater financial and technical resources and longer operating histories
than the Surviving Corporation which provide, to varying degrees, the range of
services currently offered by ETC-Texas. The Surviving Corporation will face
substantial competition as it expands within the health care industry. There can
be no assurance that the Surviving Corporation will compete effectively within
the health care industry. Furthermore, the Surviving Corporation is subject to
an industry characterized by constantly evolving technology. There can be no
assurance that the Surviving Corporation's existing processing methodology will
not become obsolete before the Surviving Corporation has the resources to alter
its work flow process, as needed, to be able to serve the marketplace in which
it operates. See "The Companies -- Business Information Concerning ETC-Texas."
Proprietary Rights, Risk of Infringement
The Surviving Corporation will rely on nondisclosure and other contractual
provisions to protect its proprietary rights. ETC-Texas has registered its
service mark in the State of Texas and has made application to do so in the
States of Maryland and Arkansas. ETC-Texas has also copyrighted its ETC Claims
Flow Chart and Managed Care Claim Flow Chart. ETC-Texas has made application
with the United States Patent and Trademark Office to copyright its Automated
Claim Flow Options for Payor Chart and segments of its marketing brochure. There
can be no assurance that measures taken by ETC-Texas to protect its intellectual
property will be adequate or that the Surviving Corporation's competitors will
not independently develop services that are substantially equivalent or superior
to those of the Surviving Corporation. Although ETC-Texas believes that it has
not infringed upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Surviving Corporation in the future or that a license or similar agreement will
be available on reasonable terms in the event of an unfavorable ruling on any
such claim. In addition, any such claim may require the Surviving Corporation to
incur substantial litigation expenses or subject the Surviving Corporation to
significant liabilities and could have a material adverse effect on the
Surviving Corporation's business, financial condition or results of operations.
Dependence on Key Personnel
The Surviving Corporation will continue to be dependent to a significant
extent upon the efforts and ability of L. Cade Havard, its Chairman of the
Board, President and Chief Executive Officer. The loss of the services of either
Mr. Havard or any other executive officer of the Surviving Corporation could
have a material adverse effect on the Surviving Corporation. Neither the Company
nor ETC-Texas maintains key-man life insurance on Mr. Havard. However, it is
anticipated that a key- man life insurance policy will be obtained on the life
of Mr. Havard, with the Surviving Corporation as the sole beneficiary thereof,
following the consummation of the Merger. Mr. Havard has entered into employment
and non-competition agreements with ETC-Texas which will be assumed by the
Surviving Corporation. In addition, the Surviving Corporation's future growth
-12-
<PAGE>
will be dependent to a significant degree upon its ability to attract and retain
additional skilled management personnel. See "Management" and "The Merger --
Employment Arrangements."
Control by Existing Shareholders, Directors and Executive Officers of ETC-Texas
ETC-Texas's existing shareholders, executive officers, directors and their
affiliates will beneficially own approximately 82% of the outstanding shares of
the Continued Common Stock following the Merger. As a result, these shareholders
will continue to be able to elect all of the Surviving Corporation's directors,
will retain the voting power to approve most matters requiring shareholder
approval and will continue to have significant influence on the affairs of the
Surviving Corporation. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Surviving
Corporation. See "Beneficial Ownership of Securities."
Conflicts of Interest
Certain officers, directors and related parties have engaged in business
transactions with ETC-Texas and the Company which were not the result of
arm's-length negotiations between independent parties. Management of both
entities believes that the terms of these transactions were as favorable to the
Company and ETC-Texas, respectively, as those that could have been obtained from
unaffiliated third parties under similar circumstances. It will be the Surviving
Corporation's policy that transactions between it and its affiliates will be on
terms no less favorable than could be obtained from unaffiliated third parties
and be approved by a majority of the disinterested members of the Board of
Directors of the Surviving Corporation. L. Cade Havard, the Chairman of the
Board, President, Chief Executive Officer and the majority shareholder of
ETC-Texas, owns and participates in the management of a factoring company.
Management of the Surviving Corporation does not believe that conflicts of
interest will arise between Mr. Havard and the Surviving Corporation as a result
of his ownership and management of this entity, nor will Mr. Havard be required
to devote a significant amount of his time to the management of this business.
See "Certain Transactions."
Employee Leasing Agreement
Since January 1, 1996, ETC-Texas has been a party to a Staff Leasing
Services Agreement with Network Employers Group, Inc. ("Network"). The Staff
Leasing Services Agreement, with the consent of Network, which is not expected
to be denied, will be assigned to and assumed by the Surviving Corporation upon
completion of the Merger. Under such agreement, all personnel working for the
Surviving Corporation, including its executive officers (totalling 30 persons as
of May 31, 1996), will actually be employed by Network and "leased" to the
Surviving Corporation. Under such contract, the "leased" employees will perform
services for the Surviving Corporation in a manner substantially identical to
being directly employed by the Surviving Corporation; however, Network will be
their actual employer and will provide such employees with their medical,
unemployment, workmen's compensation and liability insurance through group
insurance plans maintained by Network for the Surviving Corporation and other
clients of Network. Pursuant to the terms of the contract, the cost of the
aforesaid insurance as well as the payroll obligations for the leased employees
will be funded by the Surviving Corporation to Network, and Network will be
required to then apply such proceeds to cover the payroll and administrative
costs of the employees. The agreement may be terminated by either party by
giving 30 days prior written notice to the non-terminating party. Should Network
fail to meet its obligations under the contract, the Surviving Corporation would
be required to either locate a substitute employee leasing firm or directly
employ its labor force. In addition, workmen's compensation coverage through
Network could be at a more favorable rate than that available in the general
workmen's compensation pool for comparable classes of employees from which the
Surviving Corporation might be required to look to for such coverage. Should a
payroll payment be tendered to Network by the Surviving Corporation under such
contract, and should Network not apply such payment toward a payroll payment to
the Surviving Corporation's work force for any reason, the Surviving Corporation
may be required to cover such deficiency to avoid the loss of its work force.
See "The Companies -- Business Information Concerning ETC-Texas."
Consolidation and Uncertainty in the Health Care Industry
Consolidation of the payor and provider segments of the health care
industry could erode the Surviving Corporation's customer base and reduce the
size of the Surviving Corporation's target market. In addition, the resulting
enterprises could have greater bargaining power, which could lead to price
erosion of the Surviving Corporation's services. The reduction in the size of
the Surviving Corporation's target market or the failure of the Surviving
Corporation to maintain adequate price levels could have a material adverse
effect on the Surviving Corporation's business, financial condition and results
of operations. The health care industry also is subject to change of political,
economic and regulatory influences that may affect the procurement of contracts
and the operation of health care industry participants. During the past several
years, the United States health care industry has been subject to an increase in
governmental regulation reform proposals. These reforms may increase
governmental involvement in health care, lower reimbursement rates, and
otherwise change the operating environment for the Surviving Corporation's
customers. The failure of the Surviving Corporation to retain adequate claims
processing efficiency or price levels as a result of legislative or market
driven reforms could have a material adverse effect on the Surviving
Corporation's business, financial conditions and results of operations. See "The
Companies -- Business Information Concerning ETC-Texas."
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Effect of Government Regulation
The Surviving Corporation will not be subject to any direct federal or
state government regulation because of the nature of its business. There can be
no assurance that federal or state authorities will not in the future impose
restrictions on its activities that might adversely effect the Surviving
Corporation's business. The failure by the Surviving Corporation to obtain or
retain any applicable licenses, certifications or operational approvals could
adversely effect its existing operations and professional performance. There can
be no assurance that in the future the Surviving Corporation will be able to
acquire all the necessary licenses, permits or approvals, if any, necessary to
conduct its business or that the costs associated with complying with laws and
regulations affecting its business will not have a materially adverse effect on
the Surviving Corporation.
Potential Anti-Takeover Effects of Delaware Law, Certificate of Incorporation
and Bylaws
Certain provisions of Delaware law applicable to the Surviving Corporation
could delay or make more difficult mergers, tender offers or proxy contests
involving the Surviving Corporation. In addition, the Board of Directors of the
Surviving Corporation may issue shares of preferred stock without shareholder
approval on such terms as the Board of Directors may determine. The rights of
all the holders of Continued Common Stock will be subject to, and may be
adversely effected by, the rights of the holders of any preferred stock that may
be issued in the future. In addition, the Surviving Corporation Charter and
Surviving Corporation Bylaws eliminate the right of shareholders to act by
written consent without a meeting and eliminate cumulative voting in the
election of directors. All of the foregoing could have the effect of delaying,
deferring or preventing a change in control of the Surviving Corporation and
could limit the price that certain investors might be willing to pay in the
future for shares of the Continued Common Stock. See "Management" and
"Description of Securities."
No Public Market; Possible Volatility of Stock Price
There is no public market for the Company Common Stock and there can be no
assurance that a viable public market for the Continued Common Stock will
develop or be sustained after the transactions referenced herein have been
consummated. Factors such as market expansion, the development of additional
services, its competitors and other third parties, as well as quarterly
variations in the Surviving Corporation's anticipated or actual results of
operations or market conditions generally, may cause the market price of the
Continued Common Stock to fluctuate significantly if a trading market does in
fact develop. In addition, the stock market has on occasion experienced extreme
price and volume fluctuations, which have particularly effected the market
prices of many companies. These broad market fluctuations may adversely effect
the market price of the Continued Common Stock, if a trading market is
established.
Over-the-Counter Trading Market
If the Surviving Corporation is unable to satisfy the listing requirements
of the Nasdaq SmallCap Market, and no assurance can be given that the Surviving
Corporation will meet such criteria, trading, if any, in the Continued Common
Stock will thereafter be conducted on the NASD's "Electronic Bulletin Board."
Consequently, liquidity of the Surviving Corporation's securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analysts and the news media coverage of the Surviving Corporation and lower
prices for the Surviving Corporation's securities than might otherwise be
attained.
Risks of Low-Priced Stock
If the Surviving Corporation's securities are traded on the NASD's
Electronic Bulletin Board, they will become subject to Rule 15(g)-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker/dealers who sell securities to persons other than established customers
and accredited investors (generally, individuals with net worths in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouses). For transactions covered by this rule, a broker/dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely effect the ability of broker/dealers to sell the Surviving
Corporation's securities and may adversely effect the holder's ability to sell
in the secondary market.
The Commission's regulations define a penny stock to be any non-Nasdaq
equity security that has a market price (as therein defined) of less than $5.00
or with an exercise price of less than $5.00 per share subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
Commission's rules require delivery, prior to any transaction in penny stock, of
a disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions to both the
broker/dealer and the registered representative in current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Surviving Corporation's securities if such securities are listed on Nasdaq and
have certain price and volume information provided on a current and continuing
basis or meet certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Surviving Corporation's securities will
qualify for exemption from these restrictions. In any event, even if the
Surviving Corporation's securities were exempt from such restrictions, they
would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
Commission
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the authority to prohibit any person that is engaged in unlawful conduct while
participating in a distribution of a penny stock from associating with a
broker/dealer for participating in a distribution of a penny stock, if the
Commission finds that such restriction would be in the public interest. If the
Surviving Corporation's securities were subject to the rules on penny stock, the
market liquidity for the Surviving Corporation's securities could be severely
adversely effected.
Limitation of Liability and Indemnification of Officers and Directors
Pursuant to the Surviving Corporation Bylaws, as authorized under the DGCL,
directors and officers of the Surviving Corporation will not be liable for
monetary damages for breach of fiduciary duty, except in connection with a
breach of the duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law. Furthermore,
the Surviving Corporation Bylaws will provide that the Surviving Corporation may
indemnify its directors, officers, employees or agents to the full extent
permitted by the DGCL, and the Surviving Corporation shall have the right to
purchase and maintain insurance on behalf of any such person whether or not the
Surviving Corporation would have the power to indemnify such person against the
liability. The Surviving Corporation intends to enter into indemnification
agreements with each of its directors and officers, which agreements will
provide that the Surviving Corporation will indemnify the indemnitee to the
fullest extent permitted by applicable law, provided that the indemnitee acted
in good faith and in the manner he reasonable believed to be in the best
interests of the Surviving Corporation and, with respect to any criminal action,
had reasonable cause to believe his conduct was lawful.
No Intention to Pay Dividends
Neither the Company nor ETC-Texas has ever declared or paid any cash
dividends on its capital stock. It is anticipated that the Surviving Corporation
will retain any future earnings to fund operations and, therefore, it is
anticipated that no cash dividends will be paid in the foreseeable future. See
"Dividend Policy."
Prior Offerings
Since inception, ETC-Texas and the Company have issued securities in
transactions believed by their respective management to have been exempt from
the securities regulation requirements under applicable securities laws. These
exemptions are complex and it is often difficult to determine if their terms
have been fully complied with. If for any reason the claimed exemptions were not
available for the transactions, the Surviving Corporation could be subject to
civil liabilities, the amount of which could be materially adverse to the
Surviving Corporation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S AND ETC-TEXAS'
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
The Company is, and has been for several years, an inactive Canadian based
public company previously listed on the ASE. The major focus of the Company
during the last two years has been to merge with a commercially viable private
company in exchange for the additional liquidity and financing opportunities
that are available in the public markets. The Company has no assets, other than
its rights under an unsecured promissory note in the principal amount of
$779,575.50 executed in favor of the Company by ETC-Texas, and had no continuing
operations during fiscal 1995. Substantially all of management's efforts during
fiscal 1995 and during the first quarter of fiscal 1996 were directed toward
identifying a suitable merger candidate, preparing for such merger and obtaining
capital through the issuance of equity securities to pay the legal, accounting
and other expenses associated with such merger. Concurrent with the contemplated
Merger with ETC-Texas, the Company plans to continue out of Canada and
domesticate into the State of Delaware, and begin trading on the NASD's
Electronic Bulletin Board as the Surviving Corporation. Eventually, the
Surviving Corporation may seek listing on either the NASDAQ SmallCap Market or
another national stock exchange.
The Company, in 1991 and 1992, issued $605,000 in convertible debentures.
The proceeds of these offerings were used to fund costs and expenses incurred in
identifying and negotiating acquisition or merger transactions with
privately-held entities and for working capital. The Company did identify and
conduct preliminary negotiations with two entities during 1993 and 1994. As a
result of the Company's inability to consummate an acquisition or merger
transaction, the debentures went into default. In April 1996, the Company issued
552,500 shares of Company Common Stock to the debenture holders in satisfaction
of $552,500 of debt. Also in April 1996, the Company issued 284,928 shares of
Company Common Stock in satisfaction of loans to the Company primarily from L.
Cade Havard and certain non-affiliated parties. Mr. Havard, the Chairman of the
Board and Chief Executive Officer of the Company and the Chairman of the Board,
President and Chief Executive Officer of ETC-Texas, received 201,112 shares of
Company Common Stock as a result of this debt to equity conversion. See "Certain
Transactions" and "The Merger -- Interests of Certain Persons in the Merger."
On June 5, 1996, the Company consummated a private offering of Company
Common Stock pursuant to which the Company issued 519,717 shares of Company
Common Stock at a per share price of $1.50 for aggregate proceeds of
$779,575.50. The proceeds of this offering have been loaned to ETC-Texas to fund
(i) its business operations, (ii) costs
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associated with the Merger, including legal, accounting and related proxy
statement preparation costs and (iii) for general working capital. See "Certain
Transactions" and "Certain Terms of the Merger Agreement -- Certain Post-Merger
Matters."
Since the Company has no significant assets and has been relatively
inactive during the past two years, management of the Company does not believe
that a discussion of the Company's financial condition and results of operations
would be relevant or meaningful to either the Company's or ETC-Texas'
shareholders. See "The Companies -- Business Information Concerning the
Company."
In connection with the proposed Merger, the Company, on March 21, 1996,
changed its name from Solo Petroleums Ltd. to ETC Transaction Corporation, and
will be the Surviving Corporation of the Merger. Also, on March 21, 1996, the
shareholders of the Company approved a one-for-five consolidation of capital of
the outstanding shares of the Company Common Stock.
Development Stage Activities of ETC-Texas
ETC-Texas, a development stage enterprise, is engaged in the business of
electronic collection, manipulation and transmission of health care claims
information. ETC-Texas' primary customers are self-insured companies that
administer and pay their own claims, third party administrators ("TPAs") that
assist self-insured companies, preferred provider organizations ("PPOs") and
certain managed care organizations. ETC-Texas has not generated sufficient
revenues during its limited operating history to repay its outstanding
indebtedness, pay its existing trade accounts or fund its ongoing operating
expenses or service development activities. During the first quarter of fiscal
1996, ETC-Texas completed development of its operating systems. ETC-Texas
currently provides three specific types of services to its clients:
* Automation services for health care claims for self-insured
companies. Self-insured companies typically employ an in-house
staff or TPA that manually processes medical claim forms.
ETC-Texas assists companies in automating this process. Through
ETC-Texas' systems and processes, claim forms are scanned at the
client's location, then electronically captured, sent to any
applicable managed care organization for repricing, and returned
to the payor in an acceptable format for evaluation and payment.
As a result, claims are paid faster, a greater degree of control
over data integrity is maintained, and the customers' in-house
claims processing costs are dramatically reduced.
* Locating and contracting for discounts from medical providers.
Health care providers may contract with various managed care
organizations, and those contracts may limit the amount that
providers may charge for a particular service. ETC-Texas utilizes
provider information directly from the medical claim in order to
contact either the managed care organization or a provider
directly to secure a discount for medical services. The cost
savings realized further reduces costs to ETC-Texas' self-insured
customers.
* Processing medical claims on behalf of PPOs that are not
automated. Many PPOs cannot receive or send medical claims
electronically despite the fact that electronic transmission is
required by an increasing number of payors. ETC-Texas provides
electronic processing to these organizations on a contract basis.
This service is currently provided to and paid for entirely by
the PPO networks.
ETC-Texas believes there is a need for its services in the medical claims
processing market. The market includes self-insured companies, their TPAs and
the managed care organizations that serve them. ETC-Texas has expended
considerable effort and resources, including operating briefly as a TPA and
hiring personnel with extensive experience in paying medical claims, to develop
its current work flow process. Additional resources were devoted to (i) defining
the exact services that were needed by the market segment and (ii) developing,
testing and ultimately implementing these services. While expensive and time
consuming, these activities serve as the basis on which the future business of
the Surviving Corporation will be built.
Results of Operations of ETC-Texas
For the Twelve Months Ended December 31, 1995. For the twelve months ended
December 31, 1995, the results of the operations were significant in that
ETC-Texas determined the types of clients to pursue and the nature of processing
services to be provided. The development of the work flow process was virtually
completed and tested to determine its ultimate feasibility. A comprehensive
marketing effort was begun in the last quarter of fiscal 1995 with encouraging
results. Management secured its first substantial clients and began the process
of implementing its system for commercial use. Although no revenues were
generated from the electronic transmission of data, the process of handling
claims information was established.
Revenues and Cost of Revenues -- 1995. Revenues earned during the year
ended December 31, 1995 were $66,612, resulting primarily from the sale of
ETC-Texas' Automated Medical Practice Solution ("AMPS") system and from
electronic claims processing for military clients. ETC-Texas ceased sales of its
AMPS system on December 31, 1995 and no future sales are contemplated. During
fiscal 1995, management activity was focused on programming, research and
development, and staffing.
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The work flow process methodology was completed in the first quarter of
fiscal 1996, and the first clients to use this service on a commercial basis
were engaged. The first commercial operation utilizing the developed system
began operation in April 1996. Despite the extended development period,
ETC-Texas believed it was important to bring to market a service that was fully
functional. Also, management recognized that much of ETC-Texas' potential market
consists of larger, more established companies, and that success and credibility
would be largely determined by the reliability of ETC-Texas' systems and
processes. ETC-Texas has not encountered significant technical or procedural
problems in any area of its claims processing operation since implementation of
its work flow process during the first quarter of fiscal 1996.
Direct expenses incurred for services provided during the development stage
in fiscal 1995 were $40,764 or 61% of total revenues for the period. In the
opinion of management, given that ETC-Texas posted insignificant revenues in
fiscal 1995, such performance should not be used as a significant measure of
future projections. In addition to low income, ETC-Texas' lack of operating
history resulted in a reluctance by vendors to extend any credit to ETC-Texas
and any credit that was offered was on unfavorable terms. With the lack of
adequate trade credit to build its business, ETC-Texas relied on its ability to
generate additional capital through the issuance of debt and/or equity
securities to fund the operating expenses of the business.
ETC-Texas anticipates gross profit margins on its services will increase
during 1996. Although still in the initial stages of operations, management
believes that gross profit percentages will be approximately 60%-68% for fiscal
1996. Also, ETC-Texas' current fixed costs of approximately $80,000 per month
are not expected to change significantly in the near future. There can be no
assurance that profitable operations will be achieved or sustained. ETC-Texas
projects that annual revenues of $1.3 million to $1.6 million will be required
for ETC-Texas to reach break even.
Operating Expenses
Start-up costs in fiscal 1995 consisted of $424,301 in employee costs and
benefits, $245,526 in general and administrative expenses, and $37,613, $39,000
and $144,717 in legal, marketing and general consulting fees, respectively.
Travel and entertainment costs were $71,469 and costs incurred in financing the
reorganization and restructuring of the Company were $23,281. Research and
development expenses in fiscal 1995 primarily consisted of $97,171 in
programming personnel and benefits, $47,525 in professional computer fees and
$35,135 from an investment in a TPA. Management believes that it will be able to
manage the relationship between cost and revenues during fiscal 1996 as income
should increase at a much faster rate than expenses as would be expected once
the implementation of claims processing services begins in earnest.
Net Loss
ETC-Texas incurred a net loss of $1,093,329 for the fiscal year ended
December 31, 1995. ETC-Texas expects to incur losses in future periods until it
generates sufficient revenues from an expanded client base to offset ongoing
operating costs and expansion expenses.
Liquidity and Capital Resources
ETC-Texas has funded its initial capital needs and operations largely with
funds provided by private debt and equity financing. For the fiscal year ended
December 31, 1995, ETC-Texas issued an aggregate of $120,000 principal amount of
debentures bearing interest at 12%. At various times throughout fiscal 1995,
holders of $120,000 of debentures accepted ETC-Texas' offer to convert such
debentures into shares of ETC-Texas Common Stock at a conversion rate of one
share of common stock for each $1.25 of principal. All debentures were converted
into a total of 96,000 shares of ETC-Texas Common Stock. This conversion allowed
management to operate ETC-Texas without debt, which management believes was
essential to the success of the venture. Management's decision to eliminate debt
and to operate by increasing capital was necessary due to the sporadic nature
and overall lack of revenue generated by ETC-Texas.
During fiscal 1995, ETC-Texas acquired the business operations of Sterling
for $210,000 and the issuance of 3,965,100 shares of ETC-Texas Common Stock.
Also during fiscal 1995, ETC-Texas raised $1,335,098 by issuing 2,077,110 shares
of ETC-Texas Common Stock to private investors. All of the offering proceeds
were used to fund capital expenditures, research and development and general
start-up costs. Also during this period, ETC-Texas issued an aggregate of 20,000
shares of ETC-Texas Common Stock for a sum total of $37,925 representing payment
for services valued at $4,000 and equipment valued at $33,925.
ETC-Texas has incurred losses from operations since its inception, and at
present ETC-Texas may be unable to meet its funding needs with existing
available resources. The ability of ETC-Texas to fund future costs associated
with its operations is dependent upon its ability to raise additional capital
through private offerings of ETC-Texas securities. ETC-Texas may require capital
principally for the enhancement of its existing services and to fund its
marketing efforts to existing and prospective clients.
The availability of future sources of external capital are not known.
Internal sources of capital are limited to ETC-Texas successfully achieving
profitable operations in future periods, or raising additional contributions of
capital from shareholders and private investors.
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ETC-Texas may need to obtain additional funds by debt or equity financing
from its management, current shareholders or other investors. Management
believes that its plans to conserve working capital, coupled with the
availability of funds from management and other private sources, will enable it
to continue operations for the ensuing six-month period.
THE COMPANIES
Business Information Concerning the Company
The Company was incorporated as Solo Petroleums Ltd. on September 5, 1986
for the purpose of undertaking oil and gas exploration efforts. In 1987, the
Company completed a public offering of the Company Common Stock as a Junior
Capital Pool Company under the policies of The Alberta Stock Exchange (the
"ASE") and the Alberta Securities Commission (the "ASC"). The Company Common
Stock was subsequently listed for trading on the ASE under the trading symbol
"SOP". By 1990, revenues from oil and gas exploration efforts had substantially
declined and the Company began experiencing financial difficulties. As a result,
the Company liquidated substantially all of its assets and underwent a
significant change in management during 1990. Management of the Company is
currently seeking to consummate an acquisition or merger transaction with a
privately-held business which the Company believes has significant growth
potential, thereby allowing the shareholders of both corporations to benefit by
owning an interest in a viable business enterprise. Since the Company has no
significant assets or operations, its principal potential for profits comes
solely from operations it may receive in an acquisition or merger transaction.
Management of the Company has identified ETC-Texas as a suitable merger
candidate because of its position in the emerging electronic medical claims
processing industry and the related potential for significant growth. On March
21, 1996, the Company changed its name to ETC Transaction Corporation and
effected a one-for-five consolidation of capital of the outstanding shares of
Company Common Stock to facilitate the effectiveness of the Merger.
The Company, in 1991 and 1992, issued $605,000 in convertible debentures.
The proceeds of these offerings were used to fund costs and expenses incurred in
identifying and negotiating acquisition or merger transactions with
privately-held entities and for working capital. The Company did identify and
conduct preliminary negotiations with two entities during 1993 and 1994. As a
result of the Company's inability to consummate an acquisition or merger
transaction, the debentures went into default. In April 1996, the Company issued
552,500 shares of Company Common Stock to the debenture holders in satisfaction
of $552,500 of debt. Also in April 1996, the Company issued 284,928 shares of
Company Common Stock in satisfaction of loans to the Company primarily from L.
Cade Havard and other non-affiliated third parties. Mr. Havard, the Chairman of
the Board and Chief Executive Officer of the Company and the Chairman of the
Board, President and Chief Executive Officer of ETC-Texas, received 201,112
shares of Company Common Stock as a result of this debt to equity conversion.
See "Certain Transactions" and "The Merger -- Interests of Certain Persons in
the Merger."
On July 29, 1992, the Company received a Cease Trade Order from the ASC for
failure to file annual audited financial statements for the year ended December
31, 1991 and first quarter interim unaudited financial statements for the period
ended March 31, 1992, and for failure to forward such financial statements to
the Company's shareholders. On January 12, 1993, the shares of Company Common
Stock were automatically removed from the ASE. On March 21, 1996, the ASC varied
its Cease Trade Order for the purpose of allowing the Company to issue
securities in satisfaction of the debt obligations referenced above and to
consummate the Continuance and the Merger and ordered that the Cease Trade Order
would be revoked 48 hours after deliver to the ASC of verification that the
Registration Statement, of which this Proxy Statement/Prospectus is a part, has
been declared effective by the Commission and upon confirmation to the ASC that
the Company has issued a press release setting out the material terms of the
Continuance and the Merger.
On June 5, 1996, the Company consummated a private offering of Company
Common Stock pursuant to which the Company issued 519,717 shares of Company
Common Stock at a per share price of $1.50 for aggregate proceeds of
$779,575.50. The proceeds of this offering have been loaned to ETC-Texas to fund
(i) its business operations, (ii) costs associated with the Merger, including
legal, accounting and related proxy statement preparation costs and (iii) for
general working capital. See "Certain Transactions" and "Certain Terms of the
Merger Agreement -- Certain Post-Merger Matters."
The Company has never generated significant revenues or assets, owns no
real or personal property, has no full-time personnel and is not involved in any
material litigation. The Company has 147 holders of record of its Company Common
Stock, of which 103 are residents of the United States, plus a larger number of
unregistered shareholders whose shares are held in brokerage accounts.
Business Information Concerning ETC-Texas
Generally. ETC-Texas was organized in December 1994 under the laws of the
State of Texas. Effective January 1, 1995, ETC-Texas paid to Sterling National
Corporation ("Sterling") $210,000 and issued 3,965,100 shares of ETC-Texas
Common Stock in exchange for Sterling's electronic medical claims processing
business. L. Cade Havard, the Chairman, President and Chief Executive Officer of
ETC-Texas and the Chairman of the Board and Chief Executive Officer of the
Company, is the sole shareholder of Sterling. See "Certain Transactions" and
"The Merger -- Interests of Certain Persons in the Merger." ETC-Texas has
developed and markets an electronic medical claims flow process whereby paper
medical claims are electronically scanned and transposed into images formatted
for the claims payor for adjudication and payment.
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Claims Automation. The primary business of ETC-Texas is that of providing
automated processing services of health care claims for (i) self-insured
companies that administer their own health care plans and pay their own medical
claims, (ii) TPAs that administer health care plans and pay medical claims for
self-insured companies, (iii) PPOs, and (iv) other managed care organizations
that offer discounts on medical claims and who reprice those claims to reflect
discounts offered by providers to payors.
ETC-Texas processes more than 90,000 claims per month for six clients, the
majority of which are generated by a self-insured employer. Utilizing its
existing work flow process and imaging technology, ETC-Texas processes
standardized claim and plan enrollment forms by scanning these forms at the
client's facilities, with the scanned data being transmitted to ETC-Texas'
imaging center. Once received at ETC-Texas' imaging center, they are processed
using an optical character recognition process. ETC-Texas then extracts all
available data from the scanned claim form, manually reviews each claim, and
transmits the claim to the respective payor for adjudication and payment.
Contracting for Discounts. Health care providers may contract with various
managed care organizations, and those contracts may limit the amount that
providers may charge for a particular service. ETC-Texas utilizes provider
information directly from the medical claim in order to contact either the
managed care organization or a provider directly to secure a discount for
medical services for the benefit of self-insured clients.
Repricing. Many PPOs cannot receive or send medical claims electronically
despite the fact that electronic transmission is required by an increasing
number of payors. ETC-Texas provides electronic processing and repricing to
these organizations on a contract basis. This service is currently provided to
and paid for entirely by the PPO networks.
Growth Strategy. ETC-Texas intends to grow by consolidating its position in
its existing market by expanding its base of self-insured, TPA and PPO clients.
The objective of ETC-Texas is to become the dominant provider of electronic
medical claims processing services. ETC-Texas intends to implement its strategy
in the following manner:
* Internal Market Development. The majority of ETC-Texas' growth is
driven from its claims automation processing activities.
ETC-Texas' internal growth initiatives consist of marketing its
existing claims automation, contracting for discounts and
repricing services to self-insured, TPA and PPO clients.
ETC-Texas' relationships with existing clients in various
geographic regions allow it to engage additional clients through
referrals generated from its client base. ETC-Texas hopes to
utilize the interrelationships between various self-insured
companies, TPAs and PPOs for the purpose of enhancing its
reputation in the marketplace and in turn increasing its client
base through referrals within medical claims payor networks.
* Long-Term Customer Contracts. ETC-Texas typically enters into
90-day service provider agreements which are cancelable by either
the client or ETC-Texas at any time. During this 90-day period,
ETC-Texas evaluates the needs of the client, develops a tailored
claims processing system and initiates claims processing
procedures for the client's analysis. Upon expiration of the
90-day period, ETC-Texas will enter into a long- term agreement,
generally for a term of two years, under the terms of which
ETC-Texas will provide claims automation processing services to
the client on a per-claim processed fee basis. ETC-Texas intends
to utilize the 90-day review process, which is risk free to the
client, as a proving ground for its services thereby allowing it
to enter into more lucrative long-term provider contracts.
ETC-Texas believes that long-term contracts provide benefits to
both itself and its clients. Clients are able to realize the cost
savings associated with the processing of medical claims through
an electronic medium, while long-term contracts add stability to
ETC-Texas' revenue base and may deter potential competition.
After the expiration of the initial term of a long-term contract,
the term of the contract continues in effect until either
ETC-Texas or the client notifies the other of its desire to
terminate. To date, ETC-Texas has not entered into any long-term
contracts with any of its existing clients. It is anticipated,
however, that ETC-Texas will enter into a long-term arrangement
with Wal-Mart, ETC-Texas' largest client. See "-- Clients and
Marketing."
* Superior Customer Service. ETC-Texas seeks to differentiate
itself through its attention to client service. Clients receive
the necessary training in implementing the automated claims
processing system and have the ability to consult with an
ETC-Texas representative via a help line which is operational
during normal business hours. ETC-Texas promptly responds to
service calls on a timely basis and the experience level of its
personnel aids in the resolution of clients' concerns.
Recognizing the public visibility of its clients, ETC-Texas
carefully maintains the professional image of its employees.
* Rapid Installation and Enhanced Processing Capability. ETC-Texas
installs claims processing equipment, including computer,
telecommunications and scanning equipment, for use at the
client's facility. Once the contractual relationship is entered
into, it is ETC-Texas' intention to initiate claims processing
services within 20 days of the date that an agreement is reached.
ETC-Texas believes its ability to rapidly install a processing
system at a client's location with minimal disruption gives it a
significant advantage in the marketplace. ETC-Texas intends to
enhance its claims processing capabilities by increasing its
number of scanners and retaining the services of additional
claims processors, both of which will afford ETC-Texas the
capability of increasing the volume of claims processed while
reducing the time involved in doing so.
-19-
<PAGE>
Clients and Marketing. ETC-Texas markets its processing services primarily
to self-insured health plans, TPAs and PPOs. ETC-Texas currently provides
services to one self-insured health plan client, one TPA client and four PPO
clients. ETC-Texas generally enters into 90-day service provider agreements,
which are cancelable either by the client or ETC-Texas at any time. During the
90-day period, ETC-Texas evaluates the needs of the client, develops a tailored
claims processing system and initiates claims processing procedures for the
client's analysis. Following the 90-day period, long-term service contracts are
entered into. The long-term agreements are generally for a period of two years
and detail the services to be provided for the benefit of the client.
On March 5, 1996, ETC-Texas and Wal-Mart entered into an Agreement for
Processing Medical Claims on a Temporary Basis (the "Wal-Mart Agreement")
pursuant to which ETC-Texas was retained to evaluate the manner in which
Wal-Mart processed its medical claims and to implement an electronic claims
processing system for claims generated from medical services provided to
Wal-Mart employees. Under the terms of the Wal-Mart Agreement, ETC-Texas
installed all necessary equipment on-site to scan all machine-printed medical
claim forms submitted by health care providers who rendered services for the
benefit of Wal-Mart employees. ETC-Texas has trained Wal-Mart employees in
scanning the machine-printed medical claims for the purpose of transmitting an
effective image to ETC-Texas for processing. During May 1996, ETC-Texas
electronically processed 69,000 medical claims for the benefit of Wal-Mart,
resulting in revenues to ETC-Texas of approximately $69,000. Revenues generated
from the Wal-Mart Agreement represent approximately 75% of ETC-Texas' revenues
as of May 31, 1996. It is anticipated that a long-term agreement will be entered
into with Wal-Mart in July, 1996.
ETC-Texas utilizes direct marketing efforts to solicit new clients and
retain the business of existing clients. ETC-Texas possesses a marketing
department consisting of two individuals who focus on identifying and preparing
presentations for the benefit of self-insured companies, TPAs and PPOs
describing ETC-Texas' electronic claims processing services. The efforts of
ETC-Texas' marketing staff are supplemented by ETC-Texas' executive officers.
Also, ETC-Texas relies upon referrals within the network of medical claims
payors to expand its client base. ETC-Texas does not anticipate that it will be
required to expand its marketing efforts beyond the strategies currently in
place in order to achieve a client base necessary to attain profitability.
Regulatory Matters. ETC-Texas is not subject to any direct federal or state
government regulation because of the nature of its business. There can be no
assurance that federal or state authorities will not in the future impose
restrictions on its activities that might adversely effect the Surviving
Corporation's business. The failure by the Surviving Corporation to obtain or
retain any applicable licenses, certifications or operational approvals could
adversely effect its existing operations and professional performance. There can
be no assurance that in the future the Surviving Corporation will be able to
acquire all the necessary licenses, permits or approvals, if any, necessary to
conduct its business or that the costs associated with complying with laws and
regulations affecting its business will not have a materially adverse effect on
the Surviving Corporation.
Competition. ETC-Texas is aware that there are other entities which offer
claims automation, contracting for discount and repricing services for the
benefit of participants in the market currently served by ETC-Texas, and that
its claims processing methodology is easily duplicated. There are certain
insurance companies or other TPAs and management services organizations which
are substantially larger than the Surviving Corporation with much greater
financial and technical resources and longer operating histories than the
Surviving Corporation which provide, to varying degrees, the range of services
currently offered by ETC-Texas. The Surviving Corporation will face substantial
competition as it expands within the health care industry. There can be no
assurance that the Surviving Corporation will compete effectively within the
health care industry. Furthermore, the Surviving Corporation is subject to an
industry characterized by constantly evolving technology. There can be no
assurance that the Surviving Corporation's existing processing methodology will
not become obsolete before the Surviving Corporation has the resources to alter
its work flow process, as needed, to be able to serve the marketplace in which
it operates.
Employees. At June 12, 1996, ETC-Texas had 30 full-time employees, of whom
seven were involved in an executive, marketing or administrative capacity, nine
of whom were in technical development and support, 12 of whom were data entry
personnel and two of whom performed clerical and support staff functions. See
"Risk Factors -- Employee Leasing Agreement."
Properties. ETC-Texas owns no real property. ETC-Texas' principal executive
office is located in a 4,937 square foot office space facility in Dallas, Texas.
The lease (the "Lease") for the ETC-Texas' offices expires September 30, 2001
and provides for monthly rental payments of $5,554. ETC-Texas has executed a
Second Amendment to Lease Agreement providing that ETC-Texas may lease an
additional 7,239 square feet of office space at its current location effective
October 1, 1996. If either ETC-Texas or the Surviving Corporation chooses to
lease this additional square footage, the average monthly rental rate will
increase to $15,662. The Lease, as amended, will be assumed by the Surviving
Corporation.
Legal Proceedings. ETC-Texas is not a party to any litigation that, in the
judgment of management, is likely to have a material adverse effect on
ETC-Texas, its business or the Surviving Corporation and its business.
-20-
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the directors
(including committee members) and executive officers (including positions) of
ETC-Texas who will also serve in similar capacities with the Surviving
Corporation.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
L. Cade Havard<F1><F2><F3>.......... 44 Chairman, President and Chief Executive Officer and Director
Elaine Boze<F2><F3>................. 47 General Counsel and Director
Louann C. Smith..................... 37 Controller, Treasurer, Corporate Secretary
Ann C. McDearmon.................... 46 Executive Vice President-- Director of Marketing
Timothy P. Powell<F3>............... 37 Executive Vice President-- Data Services and Director
Michael Eckstein<F1><F3>............ 48 Director
David O. Hannah<F1><F3>............. 71 Director
Rick L. Snyder<F2><F3>.............. 44 Director
<FN>
<F1> Member of Compensation Committee of ETC-Texas.
<F2> Member of Audit Committee of ETC-Texas.
<F3> Nominees for election as directors of the Surviving Corporation by the
shareholders of the Company after the Continuance and the Merger.
</FN>
</TABLE>
Each director of the Surviving Corporation will hold office until the next
annual meeting of shareholders and until a successor has been elected and
qualified or until his earlier resignation or removal.
L. Cade Havard has served as Chairman of the Board and Chief Executive
Officer of ETC-Texas since its inception in December 1994. In April 1996, Mr.
Havard was elected President of ETC-Texas. Since 1992, Mr. Havard has also
served as Chairman of the Board and Chief Executive Officer of the Company. Mr.
Havard also is the sole officer, director and shareholder of Sterling, a
factoring company. From 1990 through 1992, Mr. Havard served as an independent
venture capitalist providing financing for various companies, while also serving
as Chairman of the Board of the Regional Missouri Bank, Marceline, Missouri.
Elaine Boze has served as General Counsel and a Director of ETC-Texas since
July 1995. For the nine years prior to her affiliation with ETC-Texas, Ms. Boze
was involved in the private practice of law in Dallas, Texas. From 1977 to 1986,
Ms. Boze was employed in the General Counsel's office of Sun Exploration and
Production Company in Dallas, Texas. Ms. Boze received her Doctor of
Jurisprudence degree from Texas Tech School of Law in 1973. Ms. Boze is Board
Certified -- Oil, Gas and Mineral Law, Texas Board of Legal Specialization.
Louann C. Smith has served as Controller, Treasurer and Corporate Secretary
of ETC-Texas since its inception in 1994. From March 1994 to the present, Ms.
Smith has served as Controller, Treasurer and Corporate Secretary of Sterling.
Prior to 1994, Ms. Smith worked as an accountant for Jonmar Services, attended
the University of Texas at Dallas, served as Assistant Controller for Remington
Companies and Senior Accounting Manager for Southmark Public Syndications. At
Southmark, Ms. Smith was responsible for SEC reporting for 10 public
partnerships.
Ann C. McDearmon has served as Executive Vice President and Director of
Marketing of ETC-Texas since June 1995. From November 1989 to May 1995, Ms.
McDearmon worked for Tucker and Clark, a third party administrator, as the
claims manager. Her responsibilities included claims processing, employee
management and subrogation. While serving as claims manager, Ms. McDearmon wrote
the claims logic for automated claims, created a budget and new filing system,
and wrote plan benefit designs to comply with ERISA and the ADA. Ms. McDearmon
has successfully completed the Health Insurance Association of America courses
as well as the International Claims Administration course on Medical and Dental
claims and LOMA I. Ms. McDearmon obtained a Bachelor of Arts degree from
Arkansas State in 1973.
Timothy P. Powell has served as Executive Vice President -- Data Services
and as a Director of ETC-Texas since February 1995. From 1981 to February 1995,
Mr. Powell served as a self-employed computer consultant for individuals and
corporations in the State of California. Mr. Powell contracted consulting
projects with independent, governmental organizations and Fortune 1000
companies. He provided services in system design, implementation, applications
development and procurement specifications.
Michael Eckstein has served as a Director of ETC-Texas since January 1996.
Mr. Eckstein is the President of EDI For Healthcare, a Pennsylvania-based
technology company specializing in systems, networking and EDI applications for
health care and insurance industries. Mr. Eckstein's personal experience
includes over 20 years of designing and implementing data processing and
information management solutions for health care providers and payors. He is an
active member of the ANSI Standards Committee for EDI Insurance and Healthcare
Applications, and participates in numerous EDI initiatives including the
National Information Infrastructure task force for health care and medical
applications.
-21-
<PAGE>
David O. Hannah has served as a Director of ETC-Texas since February 1995.
For the proceeding five years, Mr. Hannah has managed his personal investments.
Mr. Hannah has spent most of his professional career in real estate development.
His area of expertise is in the purchasing and development of real estate for
the sole purpose of leasing to commercial entities.
Rick L. Snyder has served as a Director of ETC-Texas since January 1996.
Mr. Snyder has been President of The L.P. BAIER Company located in Fairfax,
Virginia since 1985. The L.P. BAIER Company is an independent provider of
Section 125, COBRA, Qualified Retirement Plan, and Automated Payroll Processing
administrative services. Mr. Snyder also serves as the firm's Senior Consultant
for the Section 125 and COBRA administration practice. Mr. Snyder also lectures
on issues related to Section 125 and COBRA compliance. His courses are approved
by various State Insurance and Certified Public Accounting Departments for
continuing education credits.
Information Regarding the Board of Directors
Neither the Company nor ETC-Texas has a formal plan for compensating its
Directors for their service in their capacity as Directors. Directors of both
entities are currently, and those on the Board of Directors of the Surviving
Corporation will be, entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors. The Board of Directors of the Surviving Corporation may
award special remuneration to any Director undertaking any special services on
behalf of the Surviving Corporation other than services ordinarily required of a
Director.
During fiscal 1995, no funds were set aside or accrued by the Company or
ETC-Texas to provide pension, retirement or similar benefits for Directors or
executive officers.
The Board of Directors of ETC-Texas has created an Audit Committee and a
Compensation Committee. The Audit Committee is composed of three members, one of
which is an independent Director, and is charged with reviewing ETC-Texas'
annual audit and meeting with ETC-Texas' independent accountants to review
internal controls and financial management practices. The Compensation Committee
is composed of three members, the majority of which are independent Directors.
The Compensation Committee recommends to the Board of Directors of ETC-Texas
compensation for key employees. Following the Merger, identical committees will
be established by the Surviving Corporation, and its members will be those
currently serving in such capacity(ies) for ETC-Texas.
Executive Compensation
The following table sets forth, for the years indicated, amounts of cash
and certain other compensation paid by ETC-Texas to its Chief Executive Officer.
No other executive officer of ETC-Texas received salary and bonus in excess of
$100,000 in the 1995 fiscal year. No executive officer of the Company received
any remuneration during the referenced periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards
Securities
Other Annual Restricted Underlying
Name/Title Year Salary/Bonus Compensation Stock Awards Options/SARs
- ---------- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
L. Cade Havard, Chairman of the Board, 1995 $ 96,736 $ -0- -0- 400,000<F1>
President and Chief Executive Officer
<FN>
<F1> Pursuant to the terms of Mr. Havard's employment agreement, Mr. Havard was
issued options to purchase 400,000 shares of ETC-Texas Common Stock at the
exercise price of $0.001 per share. Mr. Havard has exercised options to
purchase 100,000 shares of ETC-Texas Common Stock, with the remaining
300,000 shares vesting as follows: 100,000 shares upon the consummation of
the Merger, 100,000 shares on January 1, 1997 and 100,000 on January 1,
1998. See "-- Stock Options."
</FN>
</TABLE>
Stock Options
The Company. The Company has no outstanding options to purchase shares of
Company Common Stock. On June 1, 1996, the Company issued warrants (the "Company
Warrants") to purchase an aggregate of 220,000 shares of Company Common Stock at
an exercise price of $1.50 per share on or before June 15, 1997 to two
affiliated and three unaffiliated parties in consideration for services provided
to the Company. Upon completion of the Continuance and the Merger, the holders
of the Company Warrants will continue to have the right to acquire the identical
number of shares of Continued Common Stock upon payment of the $1.50 per share
exercise price. Edward Bollinger and Katherine L. MacDonald, both Directors of
the Company, each received 10,000 Company Warrants.
-22-
<PAGE>
ETC-Texas. Mr. Havard owns options to purchase 300,000 shares of ETC-Texas
Common Stock at a purchase price of $0.001 per share, which options vest as
follows: 100,000 shares upon the consummation of the Merger, 100,000 shares on
January 1, 1997 and 100,000 on January 1, 1998. The options expire upon the
termination of Mr. Havard's employment with either ETC-Texas or a surviving
entity. Upon consummation of the Merger, Mr. Havard's ETC-Texas options will
entitle him to purchase the identical number of shares of Continued Common Stock
under terms and conditions similar to those currently governing these options.
In addition to Mr. Havard's stock options, ETC-Texas has granted options to
purchase an aggregate of 141,667 shares of ETC-Texas Common Stock, at an
exercise price of $0.001 per share, to certain other employees of ETC-Texas. The
options vest over the period commencing October 1996 and ending February 1999
and expire upon the termination of the holder's employment with ETC-Texas or a
surviving entity. Upon the effectiveness of the Merger, the holders of these
options will have the right to acquire the identical number of shares of
Continued Common Stock under terms and conditions similar to those currently
governing the options granted by ETC-Texas.
Option/SAR Grants in Last Fiscal Year by ETC-Texas
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price
Name Granted (#) in Fiscal 1995 ($/Sh) Expiration Date
- ---- ----------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
L. Cade Havard, Chairman of the Board, 400,000 87% $0.001 See footnote <F1>
President and Chief Executive Officer
<FN>
<F1> The options to purchase 400,000 shares of ETC-Texas Common Stock granted to
Mr. Havard expire upon the termination of Mr. Havard's employment with
ETC-Texas.
</FN>
</TABLE>
Aggregated Fiscal Year-End Option Values
(Options Granted by ETC-Texas)
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options in-the-Money Options-no market
at Fiscal Year-End at Fiscal Year-End
Name/Title Exercisable Unexercisable Exercisable Unexercisable
- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
L. Cade Havard, Chairman of the Board, -0- 300,000 $ -0- $ 12,348
President and Chief Executive Officer
</TABLE>
Following the Continuance and the Merger, the Surviving Corporation intends
to implement a new outside director and employee stock option plan. It is
anticipated that a Form S-8 will be filed with the Commission to register the
common stock into which the stock options are exercised.
Employment Agreements
The Company is not currently a party to any employment contracts or similar
type arrangements.
The employment agreements of ETC-Texas will be assumed and continued by the
Surviving Corporation after the Continuance and the Merger.
ETC-Texas has an entered into an employment agreement with L. Cade Havard,
Chairman of the Board, President and Chief Executive Officer. Under the terms of
this agreement, Mr. Havard is entitled to receive a base salary of $180,000 per
year and is eligible to receive annual bonuses and raises consistent with
performance. Mr. Havard also has been given the right to receive options to
purchase the number of shares of ETC-Texas Common Stock representing 20% of all
stock options granted at any time by ETC-Texas under the terms of any
non-qualified or qualified stock option plan established and properly approved
by the shareholders of ETC-Texas. The agreement further provides that if Mr.
Havard becomes permanently disabled, ETC-Texas will pay Mr. Havard one-year's
salary, provide him health insurance for life and offer to purchase his shares
of ETC-Texas Common Stock at the highest price that has ever been paid for such
stock sold in an "arms length" transaction. Also, if Mr. Havard dies during the
term of the agreement, ETC-Texas must offer to purchase all ETC-Texas Common
Stock owned by Mr. Havard from his estate at the highest price that has ever
been paid for such stock sold in an "arms length" transaction. If Mr. Havard is
terminated other than "for cause," he is entitled to all sums due him for the
remainder of the term of the agreement. Mr. Havard agrees for a period of two
years after termination of the agreement not to solicit, on his own behalf or on
behalf of any future employer or other entity, any business from any entity with
which ETC-Texas did business during the term of the agreement. The agreement is
to expire on December 31, 2010.
-23-
<PAGE>
ETC-Texas has entered into an employment agreement with Elaine Boze, its
General Counsel. The agreement provides that Ms. Boze shall devote 30 hours per
week of her business time and efforts to ETC-Texas. In exchange, Ms. Boze is
entitled to receive a base salary of $60,000 per year and is eligible to receive
annual raises and bonuses. Ms. Boze shall have the continuing right to receive
options to purchase the number of shares of ETC-Texas Common Stock equal to the
product of the number of shares reserved for issuance under a stock option plan
to be developed and duly approved and ratified by the shareholders of ETC-Texas
multiplied by the percentage her total salary is to the total salaries paid to
other employees of ETC-Texas, excluding the base salary paid to Mr. Havard. The
agreement further provides that if Ms. Boze becomes permanently disabled,
ETC-Texas will pay Ms. Boze one-year's salary, provide her with health insurance
for life, and allow her to participate in any existing retirement program in
place at the time of her disability. If Ms. Boze is terminated by ETC-Texas
other than "for cause," she is entitled to an amount equal to 25% of her salary
due for the remainder of the term of the agreement. Furthermore, should there be
a change in control in ETC-Texas's management or she is removed as General
Counsel or her duties significantly changed, Ms. Boze shall receive an amount
each year, through the term of the agreement, equal to her then annual salary,
including raises and bonuses that she would have received had she remained
employed as General Counsel by ETC-Texas, be provided with free medical
insurance coverage, and be given the option to participate in pension and profit
sharing programs. Ms. Boze agrees for a period of two years after termination of
the agreement not to solicit, on her own behalf or on behalf of any future
employer or other entity, any business from any entity with which ETC-Texas did
business during the term of the agreement. The agreement is to expire on
December 31, 1998.
ETC-Texas has entered into an employment agreement with Louann C. Smith,
Corporate Secretary, Treasurer and Controller. As compensation for her services,
ETC-Texas agrees to pay to Ms. Smith a base salary of $50,000 per year and she
is eligible to receive annual raises and bonuses. The agreement expires on
December 31, 1998. The agreement is terminable upon Ms. Smith's death or
permanent disability, as determined by the Board of Directors of ETC-Texas. If
the agreement is terminated as a result of Ms. Smith's permanent disability, Ms.
Smith shall be entitled to receive compensation equal to her current annual base
salary, health insurance for life, and to participate in any existing retirement
program in place at the time of her termination. The agreement may be terminated
by ETC-Texas for cause at any time the ETC-Texas Board of Directors determines,
in the exercise of its good faith judgment, that Ms. Smith has engaged in gross
malfeasance or willful misconduct in performing her duties thereunder. Ms. Smith
may terminate this agreement at any time. If ETC-Texas terminates Ms. Smith's
employment prior to the expiration of the term of the agreement, other than "for
cause," then ETC-Texas will be responsible to pay to Ms. Smith an amount equal
to 25% of all salary due for the remainder of the term of the agreement, such
amount payable at Ms. Smith's salary at the time of termination. Should there be
a change of control of ETC-Texas' management, Ms. Smith shall receive an amount
each year until the end of the contract term equal to what her yearly salary,
raises and bonuses would have been had she remained employed by ETC-Texas. If
ETC-Texas removes Ms. Smith from her current positions or significantly changes
her duties as set forth therein, without her consent, then Ms. Smith at her
option may treat such actions as an unauthorized termination. Furthermore, Ms.
Smith will be treated as an early retiree and ETC-Texas will provide free
medical insurance coverage to Ms. Smith for the rest of her life, and Ms. Smith
shall have the option to participate in all pension and profit sharing programs
as other ETC directors and employees. Ms. Smith agrees for a period of two years
after the termination of the agreement not to solicit, on her own behalf or on
behalf of any future employer or other entity, any business from any entity with
which ETC-Texas did business during the term of the agreement.
ETC-Texas has entered into an employment agreement, dated May 1, 1996, with
Ann C. McDearmon, Executive Vice President -- Director of Marketing. As
compensation for her services, ETC-Texas agrees to pay to Ms. McDearmon a base
salary of $48,000 per year and a commission of 9% of all gross income generated
from services provided to companies referred to ETC-Texas by Ms. McDearmon. Ms.
McDearmon is also entitled to receive a commission of 2% of all gross income
generated from services provided to companies referred to ETC-Texas by another
employee of ETC-Texas under Ms. McDearmon's supervision. Gross income, for the
purpose of this agreement, is to be calculated for each calendar month during
the term thereof by (i) determining the gross income received by ETC-Texas and
the immediately available funds during such calendar month from commissions,
administrative and other fees, fees for editing and transmitting claims and
other direct sources, from accounts credited to Ms. McDearmon and (ii)
subtracting any third-party subcontractor or consultant or other third-party
expenses incurred by ETC-Texas with respect to such accounts during such
calendar month. Commissions are payable for the life of applicable accounts as
long as the employment agreement or any extension thereof is in effect. If the
agreement is terminated or not renewed, commissions shall be paid on said
accounts for one year after termination or non-renewal. Should the agreement be
terminated without cause by ETC-Texas, liquidated damages of such termination
shall be payment of commissions to Ms. McDearmon for the remainder of the term
of the agreement and for one year thereafter. The agreement expires on December
31, 1998. The agreement is terminable upon Ms. McDearmon's death or permanent
disability, as determined by the Board of Directors of ETC-Texas. The agreement
may be terminated by ETC-Texas for cause at any time the ETC-Texas Board of
Directors determines, in the exercise of its good faith judgment, that Ms.
McDearmon has engaged in gross malfeasance or willful misconduct in performing
her duties thereunder. Ms. McDearmon may terminate this agreement at any time.
Ms. McDearmon agrees for a period of six months after the termination of the
agreement not to solicit, on her own behalf or on behalf of any future employer
or other entity, any business from any entity with which ETC-Texas did business
during the term of the agreement.
ETC-Texas has entered into an employment agreement with Timothy P. Powell,
Executive Vice President -- Data Services. Under the terms of this agreement,
Mr. Powell is entitled to receive a base salary of $72,000 per year and is
eligible to receive annual raises and bonuses. Mr. Powell shall have the
continuing right to receive options to purchase the number of shares of
ETC-Texas Common Stock equal to the product of the number of shares reserved for
issuance under a stock option
-24-
<PAGE>
<PAGE>
plan to be developed and duly approved and ratified by the shareholders of
ETC-Texas multiplied by the percentage his total salary is to the total salaries
paid to other employees of ETC-Texas, excluding the base salary paid to Mr.
Havard. The agreement further provides that if Mr.Powell becomes permanently
disabled, ETC-Texas will pay Mr. Powell one-year's salary, provide him with
health insurance for life, and allow him to participate in any existing
retirement program in place at the time of his disability. If Mr. Powell is
terminated by ETC-Texas other than "for cause," he is entitled to an amount
equal to 25% of his salary due for the remainder of the term of the agreement.
Furthermore, should there be a change in control in ETC-Texas's management or he
is removed from office or his duties are significantly changed, Mr. Powell shall
receive an amount each year, through the term of the agreement, equal to his
then annual salary plus raises and bonuses that he would have received had he
remained employed by ETC-Texas, be provided with free medical insurance
coverage, and be given the option to participate in pension and profit sharing
programs. Mr. Powell agrees for a period of two years after termination of the
agreement not to solicit, on his own behalf or on behalf of any future employer
or other entity, any business from any entity with which ETC-Texas did business
during the term of the agreement. The agreement is to expire on December 31,
1998.
Nondisclosure and Noncompetition Agreements
ETC-Texas has entered into noncompetition agreements with each of its
executive officers. These agreements provide that during the term of their
employment and for one year thereafter, the officers, without the prior consent
of ETC-Texas, will refrain from competing with ETC-Texas within the State of
Texas, or employ, or solicit the employment of, any employee of ETC-Texas. These
agreements will be assigned to and assumed by the Surviving Corporation
following the Merger.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table provides certain information based on the outstanding
securities of the Company and ETC-Texas as of June 1, 1996, and gives effect to
the Merger with respect to each director, each beneficial owner of more than 5%
of the Company Common Stock and ETC-Texas Common Stock and all corporate
officers and directors of the Company and ETC-Texas as a group.
<TABLE>
<CAPTION>
Amount of Percent of
Amount of Percent of Amount of Percent of Beneficial Outstanding
Beneficial Outstanding Beneficial Outstanding Ownership in Common Stock
Name and Address Ownership in the Common Stock of Ownership in Common Stock of the Surviving of the Surviving
of Beneficial Owner<F1><F2> Company the Company ETC-Texas ETC-Texas Corporation Corporation
------------------------- ------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
L. Cade Havard<F3><F4><F5> 79,500 4.0 3,197,668<F6><F7> 43.3 4,051,585<F6><F7> 36.1
Sterling National Corporation<F6><F7> -0- -0- 997,668 13.5 1,247,085 11.1
Anneal Osbon Havard<F8> -0- -0- 400,000 5.4 500,000 4.5
Elaine Boze<F4><F5><F9> -0- -0- 66,666 * 83,333 *
Louann C. Smith<F10> -0- -0- 13,333 * 16,666 *
Ann C. McDearmon<F11> -0- -0- 13,333 * 16,666 *
Timothy P. Powell<F4><F5><F12> -0- -0- 133,333 1.8 166,666 1.5
David O. Hannah<F4><F5> -0- -0- 728,542 10.8 910,678 8.1
Michael Eckstein<F4><F5> -0- -0- -0- -0- -0- -0-
Rick L. Snyder<F4><F5> -0- -0- -0- -0- -0- -0-
Edward Bollinger<F3><F13> 13,000 * -0- -0- 13,000 *
Katherine L. MacDonald<F3><F14> 10,000 * -0- -0- 10,000 *
All executive officers and 102,500 5.1 4,152,875 56.2 5,268,594 46.9
directors as a group (three
persons as to the Company
and 10 persons as to the
Surviving Corporation)<F15>
* Indicates less than 1%.
<FN>
<F1> A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days following the date of this Proxy
Statement/Prospectus upon the exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date of
this Proxy Statement/Prospectus have been exercised. Unless otherwise
noted, the Company and ETC-Texas believe that all persons named in the
table have sole voting and investment power with respect to all common
shares beneficially owned by them.
<F2> Unless otherwise indicated, the address of each beneficial owner identified
is: c/o Electronic Transmission Corporation, 5025 Arapaho Road, Suite 515,
Dallas, Texas 75248.
<F3> Director of the Company.
<F4> Director of ETC-Texas.
<F5> Proposed Director of the Surviving Corporation.
<F6> Includes (i) options to purchase 100,000 shares of Continued Common Stock
at an exercise price of $0.001 per share upon the effectiveness of the
Merger; (ii) 400,000 shares of ETC-Texas Common Stock issued in the name of
Mr. Havard's minor children over which Mr. Havard exercises sole voting and
investment power; and (iii) 997,668 shares of ETC-Texas Common Stock issued
in the name of Sterling, of which Mr. Havard is the sole shareholder. See
"Management -- Stock Options" and "Certain Transactions."
<F7> Includes 594,368 shares of ETC-Texas Common Stock issued in the name of
Sterling, but which are held for the benefit of certain former employees of
Sterling who are presently employed by ETC-Texas pursuant to options (the
"Sterling Options") to purchase such shares at an exercise price of $0.001
per share over various vesting periods. The Sterling Options have no
expiration date, but are cancelable upon the termination of the holder as
an employee of ETC-Texas. Mr. Havard has been designated trustee of the
shares underlying the Sterling
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<PAGE>
Options pursuant to a Voting Trust Agreement, dated January 26, 1995,
between Sterling and the holders of the Sterling Options and, therefore,
has sole voting and investment control over said shares until such time as
the Sterling Options are exercised. It is anticipated that within 90 days
of the date of this Proxy Statement/Prospectus, Mr. Havard will resign as
trustee of the Sterling Options and that an unaffiliated person or entity
will be retained as trustee under the terms of the Voting Trust Agreement.
Upon effectiveness of the Merger, the holders of the Sterling Options will
be entitled to purchase an aggregate of 742,960 shares of Continued Common
Stock at the current exercise price. Any shares subject to the Sterling
Options which are not exercised will revert to Sterling. See "Certain
Transactions."
<F8> Ms. Havard is the wife of L. Cade Havard. Ms. Havard exercises sole voting
and investment control over the 400,000 shares of ETC-Texas Common Stock of
which she is the record holder.
<F9> Does not include options to purchase an aggregate of 133,332 shares of
ETC-Texas Common Stock under Sterling Options granted to Ms. Boze which
vest 66,666 shares on March 1, 1997 and 66,666 shares on March 1, 1998.
<F10>Does not include options to purchase an aggregate of 26,666 shares of
ETC-Texas Common Stock under Sterling Options granted to Ms. Smith which
vest 13,333 shares on March 1, 1997 and 13,333 shares on March 1, 1998.
<F11>Does not include options to purchase an aggregate of 26,666 shares of
ETC-Texas Common Stock under Sterling Options granted to Ms. McDearmon
which vest 13,333 shares on March 1, 1997 and 13,333 shares on March 1,
1998.
<F12>Includes Sterling Options to purchase 133,333 shares of ETC-Texas Common
Stock at $0.001 per share which became exercisable on May 10, 1996 and
which expire upon Mr. Powell's termination as an employee of the Company.
Does not include Sterling Options to purchase an aggregate of 266,666
shares of ETC-Texas Common Stock which vest 133,333 on March 1, 1997 and
133,333 on March 1, 1998.
<F13>Includes warrants to purchase 10,000 shares of Company Common Stock at an
exercise price of $1.50 per share, which warrants expire on June 15, 1997.
<F14>Includes warrants to purchase 10,000 shares of Company Common Stock at an
exercise price of $1.50 per share, which warrants expire on June 15, 1997.
<F15>Mr. Bollinger and Ms. MacDonald will resign as directors of the Company
upon the consummation of the Merger, and will not serve the Surviving
Corporation as either a director or officer.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
The Company
On April 1, 1996, the Company issued 201,112 shares of Company Common Stock
to L. Cade Havard, the Chairman of the Board and Chief Executive Officer of the
Company, in satisfaction of $201,112 of debt owed by the Company to Mr. Havard.
Mr. Havard transferred 121,612 of such shares in satisfaction of debt
obligations owed by Mr. Havard to unaffiliated third parties.
On June 1, 1996, ETC-Texas executed an unsecured promissory note (the
"Note") in the principal amount of $779,575.50 in favor of the Company. The Note
accrues interest at the rate of 6% per annum and is due and payable on July 1,
1997. The obligation of ETC-Texas under the Note will be forgiven upon the
consummation of the Merger.
ETC-Texas
On January 1, 1995, ETC-Texas purchased all of the assets of Sterling,
including the claims processing business currently operated by ETC-Texas, in
exchange for a cash payment of $210,000 and the issuance of 3,965,100 shares of
ETC-Texas Common Stock. Sterling is currently in the business of factoring
accounts receivable. L. Cade Havard, the Chairman of the Board, President and
Chief Executive Officer of ETC-Texas and the Chairman of the Board and Chief
Executive Officer of the Company, is the sole shareholder of Sterling. Sterling
is currently the record owner of 997,668 shares of ETC-Texas Common Stock, of
which 594,368 shares are subject to the Sterling Options, representing
approximately 14% of all issued and outstanding shares of ETC-Texas Common
Stock. Sterling and ETC-Texas periodically advance and repay funds to one
another. Net borrowings of Sterling as of March 31, 1996 were $109,309, which
amount is due on demand and without interest. It is not anticipated that the
Surviving Corporation will enter into any further agreements with Sterling for
the purpose of borrowing or lending funds. Sterling may provide certain computer
hardware equipment to the Surviving Corporation at below market prices as the
result of contractual arrangements Sterling has with third party suppliers.
Should such transactions be undertaken, they will be effected on terms and
conditions similar to those available to the Surviving Corporation as if dealing
with an independent third party.
On December 12, 1995, ETC-Texas entered into a marketing agreement (the
"Marketing Agreement") with L.P. BAIER ("Baier"). Rick Snyder, the President of
Baier, is also a director of ETC-Texas. Under the terms of the Marketing
Agreement, Baier will assist ETC-Texas in identifying and bringing under
contract clients requiring ETC-Texas' claims processing services. As
compensation of his marketing services, Baier shall receive an amount equal to
15% of the "gross income from revenue," as defined in the Agreement, realized by
ETC-Texas from accounts credited to Baier. Also under the terms of the Marketing
Agreement, ETC-Texas has agreed to assist Baier in marketing its flexible
benefits and COBRA administrative services. In consideration for this marketing
assistance, Baier has agreed to pay ETC-Texas, on a monthly basis, an amount
equal to 10% of the gross income of revenue realized by Baier from the services
provided to clients introduced to Baier by ETC-Texas which are brought under
contract. The Marketing Agreement is for a term ending on November 30, 1997 and
shall be extended automatically for additional two-year rollover periods unless
either party desires to terminate its rights under same with at least 60-days
notice to the non-terminating party prior to the scheduled expiration date.
On January 18, 1996, ETC-Texas entered into a consulting agreement with
Michael Eckstein, a director of ETC-Texas, pursuant to which Mr. Eckstein agreed
to assist ETC-Texas in identifying and placing under contract TPA, PPO and other
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<PAGE>
managed care companies which may be able to utilize ETC-Texas's claims
processing services. Under the terms of this agreement, Mr. Eckstein is entitled
to receive compensation on a monthly basis equal to $3,500 and commissions equal
to 8% of the "gross income from revenue," as defined in the agreement, realized
by ETC-Texas from clients generated by Mr. Eckstein. The consulting agreement
expires on January 20, 1998, and will automatically renew for additional
one-year periods unless canceled by either ETC-Texas or Mr. Eckstein on 30-days
notice prior to the applicable expiration date.
ETC-Texas is a party to an equipment lease and stock option agreement,
dated April 23, 1996 (the "Lease Agreement") with Ironwood Leasing Ltd., a Texas
corporation ("Ironwood"). Principals of Ironwood are also shareholders of
ETC-Texas. Under the terms of the Lease Agreement, ETC-Texas leases the scanning
equipment necessary to scan paper claims and convert them into electronically
transmittable claims data information. The Lease Agreement is for a term of five
years and automatically renews for consecutive one-year periods unless a party
thereto notifies the other of its intent to terminate the Lease Agreement 90
days prior to the end of the renewal term.
Also under the Lease Agreement, ETC-Texas has granted to Ironwood the
option to either (i) sell to ETC-Texas all the equipment referenced in the Lease
Agreement in exchange for the number of shares of ETC-Texas Common Stock, or an
equivalent number of shares of an entity with which ETC-Texas may merge, equal
to the purchase price for said equipment divided by 1.25 per share or (ii)
purchase, at a per share price of $1.25, the number of shares of ETC-Texas
Common Stock equal to the purchase price of the equipment divided by 1.25
whereby ETC-Texas may in turn purchase the equipment referenced in the Lease
Agreement at the expiration of the lease term for $1.00.
On June 20, 1996, Ironwood and ETC-Texas entered into a letter agreement
whereby Ironwood waived the escrow requirements imposed upon ETC-Texas pursuant
to the Lease Agreement for the period ending June 30, 1996. Ironwood further
agreed that ETC-Texas would not have to comply with the escrow provisions of the
Lease Agreement until ETC-Texas had received 30-days written notice from
Ironwood. Furthermore, Ironwood acknowledged that any option to purchase shares
of the common capital stock of ETC-Texas pursuant to the Lease Agreement would
have an exercise price of $1.25 per share.
Effective May 1, 1996, Roy W. Mers ("Mers") resigned from his position as
President and Director of ETC-Texas. As a consequence to his resignation,
ETC-Texas and Mers entered into a Settlement and Employment Agreement. Pursuant
to that agreement, ETC-Texas has agreed to pay to Mers, as compensation for his
efforts in assisting ETC-Texas to obtain financing for ETC-Texas' business
ventures, a commission of: (a) 10% of all capital invested by private investors
for which no commission is due to any other funding source, (b) the following
percentages based upon a "Lehman Formula" for additional capital provided by an
investment banking or brokerage group to which a commission is due, 5% on the
first $1,000,000, 4% on the second $1,000,000, 3% on the third $1,000,000, 2% on
the fourth $1,000,000 and 1% on the capital raised in excess of $5,000,000; (c)
2% of the loan amount or maximum amount used on any credit line for any loans
generated or credit lines established by Mers on behalf of ETC-Texas. Mers is
also entitled to receive ETC-Texas stock at the rate of 100,000 shares for the
first $1,000,000 of capital raised, 75,000 shares for the second $1,000,000 of
capital raised, 50,000 shares for the third $1,000,000 of capital raised and
25,000 shares for the fourth $1,000,000 and each additional $1,000,000 in
capital raised. The stock may be earned pro rata beginning at $500,000. If less
than $500,000 in capital is provided, then no shares will be earned.
Furthermore, ETC-Texas shall continue to provide medical insurance to Mers for
the term of the agreement. The agreement is to terminate on July 31, 1996.
However, ETC-Texas has agreed to continue to honor Mers' compensation and stock
bonuses should any entity that Mers introduced to ETC-Texas subsequently provide
financing to ETC-Texas prior to August 1, 1997.
THE CONTINUANCE
Generally, the Company is being continued and domesticated into the State
of Delaware in order to facilitate its merger with ETC-Texas in fulfillment of
its business strategy. See "The Companies -- Business Information Concerning the
Company." By taking these steps to accomplish the Continuance, management is
also of the opinion that the Company's internal procedures will also be
simplified in the areas of accounting, tax, securities and general operations.
After the Continuance, the Company will no longer be obligated to comply with
Canadian law that affects these matters.
Additionally, the Continuance allows for the Company to be positioned to be
listed on a U.S. securities exchange. By achieving a listing on a U.S.
securities exchange, management is of the opinion that a wider and more
significant market will be available to allow for the trading of the Continued
Common Stock than what currently exists for the Company Common Stock. This type
of trading will provide a direct benefit to the Company's shareholders in their
efforts to trade the Company's securities. The Company has not applied for, and
there is no assurance that the Company will, after the Continuance and the
Merger, qualify for listing on a U.S. securities exchange.
For those shareholders who are opposed to the Continuance, dissenters'
rights are set forth by law to govern the valuation process. For more
information regarding dissenters' rights, see "-- Right of Dissent."
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<PAGE>
Right of Dissent
Shareholders of the Company will be asked to consider and, if thought fit,
pass a special resolution authorizing the Continuance of the Company out of the
Province of Alberta and into the State of Delaware in accordance with Section
182 of the Alberta Business Corporations Act (the "ABCA"). The Continuance gives
a right to dissent to the Company's shareholders.
Each of the Company's shareholders is entitled to dissent and be paid the
fair value of such shareholder's shares if the shareholder objects to the
Continuance and the Continuance becomes effective. The shareholder may dissent
only with respect to all of the shares held by the shareholder on behalf of any
one beneficial owner and registered in the shareholder's name. A shareholder is
not entitled to dissent from the resolution with respect to any shares
beneficially owned by one owner if the shareholder votes any shares beneficially
owned by that owner in favor of the resolution that is adopted. In order to
dissent, a shareholder must send to the Company, c/o Beaumont Church, Barristers
and Solicitors, 2200 AGT Tower, 411 -- 1st Street S.E., Calgary, Alberta, Canada
T2G 5E7, on or before the date of the Meeting, a written objection (an
"Objection Notice") to the Continuance in respect of which the shareholder
proposes to dissent. A vote against the Continuance or an abstention in respect
thereof does not constitute such an Objection Notice, but a shareholder need not
vote his shares against the Continuance in order to dissent in respect of the
Continuance. Similarly, the revocation of a proxy conferring authority on the
proxy holder to vote in favor of the Continuance does not constitute an
Objection Notice in respect of the Continuance, but any such proxy granted by a
shareholder who intends to dissent should be validly revoked. Within 10 days
following the date of the Meeting, the Company will deliver to each shareholder
who has filed an Objection Notice in respect of the resolution passed at the
Meeting, at the address specified for such purpose in the Objection Notice, a
notice stating the special resolution authorizing the Continuance has been
adopted.
After the Continuance has been approved, an application may be made to the
Court of Queen's Bench of Alberta (the "Court") by the Company or by any
dissenting shareholder to fix the fair value of the shares of the Company Common
Stock held by the dissenting shareholder. If an application is made to the
Court, the Company shall, unless the Court otherwise orders, send to each
dissenting shareholder a written offer (the "Offer to Purchase") to pay him an
amount considered by the Board of Directors of the Company to be the fair value
of such shares as of the close of business on the day before the Meeting
accompanied by a statement showing how the fair value was determined. Every
Offer to Purchase shares of Company Common Stock made to a shareholder of the
Company Common Stock who dissents to the Continuance shall be on the same terms
as every other Offer to Purchase made to other dissenting shareholders of the
Company.
A dissenting shareholder may make an agreement with the Company for the
purchase of his shares by the Company in the amount of the Company's Offer to
Purchase or otherwise at any time before the Court fixes the fair value of the
shares. If a settlement cannot be reached, the parties will proceed to the
Court. All dissenting shareholders whose shares have not been purchased by the
Company will be joined as parties to the application and will be bound by the
decision of the Court. The Court order will fix the fair value of the shares of
all dissenting shareholders who are parties to the application, give judgment in
that amount against the Company in favor of each of the dissenting shareholders
and fix the time within which the Company must pay the amount to the dissenting
shareholders.
On the earlier of: (a) the Company being continued into Delaware, (b) the
Company and the dissenting shareholder entering into a settlement agreement, or
(c) the pronouncement of a Court order giving judgment against the Company for
the fair value of the shares of the dissenting shareholder, a dissenting
shareholder ceases to have any rights as a shareholder of the Company other than
the right to be paid the fair value of his shares. The Company will not make a
payment to a dissenting shareholder if there are reasonable grounds for
believing that: (a) the Company is or would after the payment be unable to pay
its liabilities as they become due or (b) the realizable value of the Company's
assets would thereby be less than the aggregate amount of its liabilities. If
either of these tests cannot be met, the Company shall within 10 days of the
Court order or reaching its settlement with a dissenting shareholder send a
notice to each dissenting shareholder that the Company cannot lawfully make the
payment for the shares. Once this notice is received, a dissenting shareholder
may, by written notice delivered to the Company within 30 days after receiving
the Company's notice, withdraw his Objection Notice, in which case the
dissenting shareholder is returned his full rights as a shareholder. If the
dissenting shareholder does not withdraw his Objection Notice, he retains his
status as a claimant against the Company to be paid as soon as the Company is
lawfully able to do so or, in liquidation, to be ranked subordinate to the
rights of the creditors but in priority to its shareholders.
The foregoing is only a summary of the rights of dissenting shareholders
and is qualified in its entirety by the provisions of Section 184 of the ABCA, a
copy of which is attached as Appendix "F". Any shareholder desiring to exercise
a right of dissent should seek legal advice and its failure to comply strictly
with the provisions of that section may prejudice that right. The right of
shareholders to dissent is not exclusive of any other rights available to
shareholders generally, such as rights in respect of a corporate director's
duties of good faith and care under the ABCA, or otherwise.
Difference Between the Delaware Code and Alberta Business Corporations Act
After the Continuance, and upon consummation of the Merger, shareholders of
the Company will become shareholders of the Surviving Corporation and subject to
the DGCL. The DGCL is similar in many ways to the ABCA, to which the Company is
now subject, but differs in several material respects, including the following:
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Vote on Extraordinary Corporate Transactions. Under the ABCA, continuances,
sales of substantially all assets of a corporation, amendments to the articles
of incorporation and other extraordinary corporate actions require
authorizations by a special resolution, meaning a resolution passed by sixty-six
and two-thirds percent (66-2/3%) of the votes cast by the shareholders who voted
in respect of that resolution, or by instrument signed by all shareholders
entitled to vote on that resolution. Under the DGCL, mergers or consolidations
require the approval of the holders of a majority of the outstanding stock of
the corporation entitled to vote thereon. A sale, lease or exchange of all or
substantially all the property and assets of a corporation requires the approval
of the holders of a majority of the outstanding stock of the corporation
entitled to vote thereon, and an amendment to the certificate of incorporation
of a corporation generally requires the approval of the holders of a majority of
the outstanding stock entitled to vote thereon.
Bylaw Amendments. Under the ABCA, either shareholders or directors may
make, amend or repeal bylaws (subject to any restrictions under the articles,
bylaws or any unanimous shareholder agreement), but any such action of the
directors with respect to the bylaws are subject to later confirmation by
resolution passed by a majority of the votes cast by the shareholders entitled
to vote on that resolution. Under the DGCL, after a corporation has received any
payment for any of its stock, the shareholders entitled to vote thereon, and
where authorized by the certificate of incorporation, the directors may adopt,
amend or repeal the bylaws. The Surviving Corporation Charter authorizes the
Board of Directors of the Surviving Corporation to adopt, amend or repeal the
Surviving Corporation Bylaws.
Removal of Director. Directors generally may be removed under the ABCA by
ordinary resolution, meaning a resolution passed by a majority of the votes cast
by the shareholders who voted in respect of that resolution. Directors generally
may be removed, with or without cause, under the DGCL by holders of a majority
of shares then entitled to vote at an election of directors. Directors of an
ABCA corporation may be removed at any time without cause; directors of a
Delaware corporation may be removed without cause unless the board is
classified, in which case directors may be removed for cause only, unless the
certificate of incorporation provides otherwise. The Surviving Corporation
Bylaws will provide that any director may be removed, either with or without
cause, by the affirmative vote of the holders of record of a majority of the
issued and outstanding stock entitled to vote thereon.
Quorum of Shareholders. A quorum for a shareholder meeting under the ABCA
consists of the holders of a majority of shares entitled to vote present in
person or represented by proxy at the meeting unless the bylaws provide
otherwise. Under the DGCL, a quorum consists of a majority of shares entitled to
vote present in person or represented by proxy unless the certificate of
incorporation or bylaws provide otherwise, but in no event may a quorum consist
of less than one-third of shares entitled to vote at the meeting. The Surviving
Corporation Bylaws will state that in the absence of a quorum, the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote may adjourn the meeting to another date and time.
Notice and Call of Shareholder Meetings. Under the ABCA, shareholder
meetings may be called by the board of directors, who must call a meeting when
so requisitioned by holders of not less than 5% of the issued shares that carry
the right to vote, on not less than 21 days and not more than 50 days notice.
Under the DGCL, unless the certificate of incorporation or bylaws authorize
additional persons, only the board of directors may call a special shareholders'
meeting. Under the DGCL, written notice of any meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder entitled to vote at such meeting (provided that a minimum of 20
days notice is required for a merger). Under the Surviving Corporation Bylaws,
special meetings of the shareholders may be called by the Chairman of the Board
of Directors, the President of the Surviving Corporation, the Board of Directors
or by the holder(s) of at least 10% of the outstanding Continued Common Stock
entitled to vote at such meeting, unless otherwise prescribed by statute.
Shareholder Consent in Lieu of Meeting. Under the ABCA, shareholder actions
without a meeting may be taken by resolution in writing signed by all of the
shareholders entitled to vote. Under the DGCL, shareholders may act by written
consent without a meeting if holders of outstanding stock, having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which all shares entitled to vote thereon were present and voting,
execute a written consent providing for such action unless otherwise provided in
the corporation's certificate of incorporation.
Appraisal Rights. The DGCL does not grant appraisal rights in a merger or
consolidation to holders of stock which is, either (a) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., (the "NASD") or (b) held of record by more than 2,000 shareholders,
provided that such holders receive shares of stock of the corporation surviving
the merger or consolidation which is either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the NASD or held of record by more than 2,000 shareholders.
The ABCA does not contain any similar exemption from its provisions relating to
dissenters' rights of appraisal for amalgamation. Notwithstanding the foregoing,
appraisal rights are available under the DGCL for sales of all or substantially
all of the corporation's assets, any merger or consolidation in which the
corporation is a constituent corporation, or for amendments to its certificate
of incorporation if the certificate of incorporation so provides.
Shareholders are entitled to dissent and appraisal rights under the ABCA in
connection with any sale of substantially all the assets of a corporation
outside the ordinary course of business, for amendments to its articles of
incorporation such as those affecting share issuance, transferability or
ownership of shares of the class held by a dissenting shareholder, or amendments
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<PAGE>
to its articles of incorporation to add, change or remove any restriction on the
business of the corporation, or relating to amalgamation, or continuance. Also,
the ABCA provides rights of appraisal to shareholders of a class of shares
entitled to vote on proposals to amend the articles of incorporation to vary the
number of authorized shares of the class, effect a reclassification or
cancellation of shares of the class, affect restrictions, right or privileges
attached to such shares, create a new class of shares, or constrain the issue or
transfer of ownership of such shares.
Shareholder Register. A Delaware corporation's stock list showing the
names, addresses and the number of shares registered in the name of each
shareholder may be inspected by shareholders of record for any purpose germane
to a shareholder's meeting. Under the ABCA, shareholders and creditors, where
the corporation is a distributing corporation, may inspect the list of
shareholders.
Dividends and Distribution. The DGCL and ABCA treat dividends similarly.
The DGCL permits a corporation, unless otherwise restricted by the certificate
of incorporation, to declare and pay dividends out of surplus or, if there is no
surplus, out of the net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year (provided that the amount of capital
of the corporation is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets). In addition, the DGCL generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation and the
capital of the corporation is not impaired.
Under the ABCA, a corporation may not declare or pay a dividend or redeem
or repurchase its shares if the corporation is, or would after the payment be,
unable to pay its liabilities as they become due, or if the realizable value of
the corporation's assets would thereby be less than the aggregate of its
liabilities and share capital of all classes.
Director Qualifications and Number. Under the ABCA, directors generally
must not transact business at a meeting of directors unless a majority of
directors present are resident Canadians. In addition, a majority of the
directors of a corporation must be resident Canadians. The DGCL has no
comparable requirement. The DGCL provides that the number of directors shall be
fixed by, or in the manner provided in, the bylaws unless the certificate of
incorporation fixes the number of directors. The articles of incorporation of an
ABCA corporation must specify the number or a range for number of directors
(minimum and maximum), and reductions in size within that range can only be
effected by the shareholders. The Surviving Corporation Charter will be silent
as to the number of directors. The Surviving Corporation Bylaws provide that the
Board of Directors may fix the number of directors to a number not less than
three.
Director Liability. The DGCL permits the certificate of incorporation of a
Delaware corporation (as does the Surviving Corporation Charter) to contain a
provision limiting the personal liability of a director to the shareholders or
the corporation for monetary damages for breach of fiduciary duty, except (i)
for any breach of a directors' duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of laws, (iii) for paying a
dividend or approving a stock repurchase in violation of statutory limitations,
or (iv) for any transaction from which a director derived an improper personal
benefit. Such a provision does not affect a director's liability under U.S.
federal securities laws. The Surviving Corporation Charter will contain such a
provision.
Under the ABCA, directors of a corporation who vote for or consent to a
resolution authorizing the issue of a share for consideration other than money
are jointly and severally liable to the corporation to make good any amount by
which the consideration received is less than the fair equivalent of the money
that the corporation would have received if the share had been issued for money.
Directors of a corporation who authorize an improper purchase, redemption or
other acquisition of shares, authorize improper payments of dividends,
commissions, financial assistance, indemnities or other improper payments to a
shareholder are jointly and severally liable to restore to the corporation any
amounts so distributed. In addition, directors of a corporation may be jointly
and severally liable to employees for certain wages and salaries payable to each
employee for services performed for the corporation. The ABCA has no provision
limiting directors' liability as does the DGCL.
The liability limitations will be included in the Surviving Corporation
Charter in order to enhance the ability of the corporation to attract and retain
highly qualified people to serve as outside directors, and not in response to
any resignation, threat of resignation or refusal to serve by a director or
potential director of the Surviving Corporation. Furthermore, although the
effect of this provision of the DGCL on the insurance market generally will be
determined in the future based on the insurance industry experience, the Board
of Directors believes that the inclusion of this provision in the Surviving
Corporation Charter should help to make directors' liability insurance available
to the Surviving Corporation in the future. To the extent that such provision
would eliminate litigation for which the Surviving Corporation would otherwise
be obligated to indemnify directors for defense or other costs, the Surviving
Corporation would avoid director indemnification expense.
There has been no recent litigation involving the Board of Directors of the
Company or ETC-Texas or any of its members which might have been effected had
such a limitation of liability provision been in effect. Further, to the best
knowledge of the Company or ETC-Texas, there is no litigation pending or
threatened against any director of either corporation which would be effected by
such provision of the Surviving Corporation Charter.
Indemnification of Officers and Directors. Both the DGCL and the ABCA
authorize a corporation to indemnify its directors, officers, employees and
agents against all reasonable expenses (including legal fees) and, provided that
such individual
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(the "indemnitee") acted in good faith and for a purpose which he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, in the case of a criminal proceeding, had reasonable grounds to
believe his or her conduct was lawful. The DGCL authorizes a corporation to
indemnify its directors, officers, employees and agents against all reasonable
expenses (including legal fees) in connection with a lawsuit by or in the right
of the corporation to procure a judgment in its favor if such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be paid as
to any claim, issue or matter as to which such person has been adjudged liable
to the corporation unless it is determined by the court making such adjudication
of liability that, despite such finding, such person is fairly and reasonably
entitled for such expenses deemed proper. The DGCL contemplates that the
determination of whether the indemnitee is entitled to indemnification is to be
made in the specific case by a majority vote of the directors who are not
parties to such action, even though less than a quorum, by independent legal
counsel in a written opinion or by the shareholders, unless otherwise determined
by a court of competent jurisdiction, whereas the ABCA contemplates a
determination exclusively by a court. The Surviving Corporation Bylaws provide
for indemnification of directors, officers, employees or agents of the Surviving
Corporation as described above.
Under the DGCL and the ABCA, there is a right of mandatory indemnification
to the extent that an indemnitee is successful on the merits or otherwise in
defense of any action, suit or proceeding or any claim, issue or matter therein.
The DGCL allows for the advance payment of an indemnitee's expenses prior to the
final disposition of an action (as do the Surviving Corporation Bylaws),
provided that the indemnitee, if an officer or director of the corporation,
undertakes to repay any such amount advanced if it is later determined that the
indemnitee is not entitled to indemnification with regard to the action for
which his or her expenses were advanced, whereas the ABCA does not expressly
contemplate such an advance payment.
The DGCL and the ABCA permit a corporation to maintain insurance on behalf
of an indemnitee against any liability asserted against such indemnitee by
reason of his or her having been a director or officer, whether or not the
corporation would have the power to indemnify him or her against such
liabilities under the applicable provisions of the respective act. The ABCA
limits this in that insurance is not available where the liability relates to a
director's failure to act honestly and in good faith with a view to the best
interests of the corporation. In addition, the DGCL provides that the
indemnification rights provided by the provisions described above are not
exclusive of any rights to indemnification or advancement of expenses to which
such indemnitee may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise, but the ABCA does not contemplate such
arrangements. The Surviving Corporation Bylaws will match the provisions of the
DGCL.
Oppression Relief and Equitable Remedies. The ABCA creates a cause of
action for "oppression" and "unfairness" with respect to security holders,
creditors, directors and officers, and vests the courts with broad remedial
powers in connection therewith; the DGCL contains no comparable provision, and
the scope of the equitable powers of the DGCL as defined by existing case law is
less certain than the scope of the powers in Canada.
Certain differences between the powers granted to corporations under the
DGCL and the powers granted under the ABCA may make a Delaware corporation
somewhat less vulnerable than a Canadian corporation to hostile takeover
attempts. These differences include the absence of power of shareholders to call
special meetings unless expressly granted as discussed above, the power of the
directors to ascribe attributes to a series of preferred stock authorized by the
certificate of incorporation which give the series a priority over another
series within the class, and the restrictions on business combinations discussed
below. On the other hand, because of such provisions as the power of
shareholders to take action without a meeting by less than unanimous consent,
the DGCL may, under such circumstances, facilitate a hostile takeover attempt.
Business Combinations. The DGCL has a business combination statute which
provides that any person who acquires 15% or more of a corporation's voting
stock (thereby becoming an "interested shareholder") may not engage in certain
"business combinations" with the target corporation for a period of three years
following the date the person became an interested shareholder, unless (1) the
board of directors of the corporation has approved, prior to the date such
person acquires 15% or more of the voting stock, either the business combination
or the transaction that resulted in the person becoming an interested
shareholder, (2) upon consummation of the transaction that resulted in the
person becoming an interested shareholder, that person owns at least 85% of the
corporations' voting stock outstanding at the time the transaction is commenced
(excluding shares owned by persons who are both directors and officers and
shares owned by employee stock plans in which participants do not have the right
to determine confidentially whether shares will be tendered in a tender or
exchange offer), or (3) the business combination is approved by the board of
directors and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding voting stock not owned by the interested
shareholder.
For the purpose of determining whether a person is the "owner" of 15% or
more of a corporation's voting stock for these purposes, ownership is defined
broadly to include the right, directly or indirectly, to acquire the stock or to
control the voting or disposition of the stock. A "business combination" is also
defined broadly to include (1) merger and sales or other dispositions of 10% or
more of the assets of a corporation with or to an interested shareholder, (2)
certain transactions resulting in the issuance or transfer to the interested
shareholder of any stock of the corporation or its subsidiaries, (3) certain
transactions which would result in increasing the proportionate share of the
stock of a corporation or its subsidiaries owned by the interested shareholder,
and (4) receipt by the interested shareholder of the benefit (except
proportionately as a shareholder) or any loans, advances, guarantees, pledges or
other financial benefits.
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These restrictions placed on interested shareholders do not apply under
certain circumstances, including, but not limited to, the following: (1) if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by the relevant section of the DGCL, or
(2) if the corporation, by action of its shareholders, adopts an amendment to
its bylaws or certificate of incorporation expressly electing not to be governed
by such section, provided that such an amendment is approved by the affirmative
vote of not less than a majority of the outstanding shares entitled to vote and
that such an amendment will not be effective until 12 months after its adoption
and will not apply to any business combination with a person who became an
interested shareholder at or prior to such adoption. Pursuant to the Surviving
Corporation Charter, however, the Surviving Corporation has elected not to be
governed by Section 203 of the DGCL.
Approval Under Business Corporations Act. Under the ABCA, a proposed
continuance is subject to approval by the Company's shareholders and the
Registrar of Corporations (the "Registrar"). The Company expects to be able to
satisfy the requirements of the Registrar regarding discontinuance/export.
Certain Income Tax Consequences of the Continuance
Canadian Tax Consequences. The following is a general summary of the
principal Canadian federal income tax consequences of the Continuance upon
shareholders of the Company who are residents of Canada and to whom shares of
the Company constitute capital property for the purposes of the Income Tax Act
(Canada) (the "ITA").
This summary is based upon the current provisions of the ITA, the
regulations thereunder in force on the date hereof (the "Regulations"), any
proposed amendments to the ITA or Regulations (the "Proposed Amendments")
previously announced by the Federal Minister of Finance and counsel's
understanding of the current administrative and assessing policies of Revenue
Canada, Taxation. This description is not exhaustive of all possible Canadian
federal income tax consequences and does not take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action other
than the Proposed Amendments, nor does it take into account provincial or
foreign tax considerations which may differ significantly from those discussed
herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY SHAREHOLDER OF THE
COMPANY. ACCORDINGLY, SHAREHOLDERS OF THE COMPANY SHOULD CONSULT THEIR OWN TAX
ADVISERS FOR ADVICE WITH RESPECT TO THE CANADIAN INCOME TAX CONSEQUENCES TO THEM
OF THE PROPOSED CONTINUANCE, THE EXERCISE OF DISSENT RIGHTS AND THE PROPOSED
MERGER.
Nature of the Shares of the Company Held by Canadian Shareholders. The
shares of Company Common Stock will generally constitute capital property to a
holder thereof, unless such shareholder is a trader or dealer in securities or
is engaged in an adventure in the nature of trade with respect to such shares.
Certain shareholders residing in Canada whose shares might not otherwise qualify
as capital property may be entitled to obtain such qualification until the time
of the Continuance by making the irrevocable election permitted by subsection
39(4) of the ITA. Any individual contemplating making a subsequent 39(4)
election should first consult his tax advisors as the making of such election
will affect the income tax treatment of his disposition of other Canadian
securities.
Canadian Shareholder Consequences of the Continuance. The Continuance of
the Company into Delaware will not constitute a taxable event for its Canadian
shareholders. Canadian shareholders of the Company will continue to hold their
shares of the Company following the Continuance at the same adjusted cost base
as before the Continuance.
Dividends, if any, paid by the Company to shareholders residing in Canada
following the Continuance will be treated differently under the ITA than
dividends paid by the Company to those shareholders prior to the Continuance. A
Canadian shareholder who is an individual will be required to include the gross
amount of any dividends received from the Company when computing his income for
the year of such receipt. Under the Canada/United States Income Tax Convention
(1980) (the "Treaty"), the rate of U.S. withholding tax which may be levied on
such individuals is limited to 15% of the gross amount of the dividends. The
shareholder will not be entitled to claim the federal dividend tax credit in
respect of such dividends. A foreign tax credit will be available under the ITA
to the Canadian shareholder to the extent of the lesser of:
(i) withholding taxes paid and not deducted in computing income (up to a
maximum of 15% of certain foreign income from property); and
(ii) the Canadian taxes otherwise payable in respect of that foreign
income.
Alternatively, an individual shareholder can claim the foreign withholding
taxes paid as a deduction when computing his income for tax purposes. If the
withholding taxes paid exceed 15% of the shareholder's foreign income from
property, such excess may be deducted in computing net income.
Dividends paid to a Canadian shareholder which is a corporation that owns
less than 10% of the voting stock in the Company after the Continuance will, in
accordance with the Treaty, also be subject to a U.S. withholding tax of 15%.
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A foreign tax credit may be claimed by a Canadian corporate shareholder to
the extent of the lesser of the foreign tax paid and not deducted in computing
income and the Canadian federal tax otherwise payable in respect of the
shareholder's non-business income derived from the United States. Alternatively,
the corporate shareholder may elect to deduct all or any portion of the foreign
tax paid when computing its income under the ITA. If and to the extent that such
a deduction is claimed, an equivalent reduction must be made in respect of the
foreign tax that is eligible for a foreign tax credit.
If the Canadian shareholder is a corporation that owns 10% or more of the
voting stock of the Company after the Continuance, the rate of U.S. tax that can
be levied is restricted under the Treaty to 7% of the dividend for 1995, 6% for
1996 and 5% thereafter. The gross amount of such dividends must be included when
calculating the net income of the shareholder. However, under certain
circumstances, the shareholder may be allowed to deduct the dividends in the
calculation of its taxable income. If the shareholder has no other foreign
non-business income, the withholding tax previously paid will not be
recoverable.
Canadian Shareholders Dissenting to the Continuance. The consequences under
the ITA to a shareholder who dissents, in the manner described herein, to the
proposed Continuance and whose shares are purchased by the Company are discussed
below.
The receipt by a dissenting shareholder of a cash payment from the Company
equal to the fair value of his Company Common Stock will generally be treated as
a dividend to a holder of such shares to the extent that such payment exceeds
the paid-up capital of the subject shares. The balance of the fair value paid
(i.e., the amount equal to the paid-up capital of the subject shares) will be
treated as proceeds of disposition of such shares for the purposes of
calculating the shareholder's capital gain or loss. Consequently, such
dissenting shareholder would realize a capital gain (capital loss) to the extent
that the proceeds of disposition he receives for the shares exceed (are exceeded
by) the shareholder's adjusted cost base thereof. Notwithstanding the foregoing,
if the dissenting recipient shareholder is a corporation resident in Canada, the
full amount of the redemption proceeds may be treated under the ITA as proceeds
of disposition with the result that no dividend would be deemed to have been
paid to the corporate shareholder and any gain or loss realized by it upon the
shares' disposition will be determined by reference to the full amount of the
redemption proceeds paid by the Company.
Any capital loss arising on the exercise of dissent rights by a corporate
shareholder of the Company will be reduced by the amount of dividends received
or deemed to have been received, including any deemed dividend arising from the
exercise of dissent rights, on the subject shares where the period of ownership
of such shares was less than 365 days or where the corporate holder (together
with persons with whom it did not deal at arm's length) held more than 5% of the
issued shares of any class of the Company at the time the dividends were
received or deemed to have been received.
Any dividend deemed received after the Continuance by a Canadian resident
taxpayer as a result of a dissent proceeding will not be eligible for the
dividend tax credit provided under the ITA. Such dividends will be subject to
the same tax consequences as actual dividends discussed under the previous
heading.
Company Consequences of the Continuance. Once the Continuance is effected
under the DGCL, the Company will be deemed, for the purposes of the ITA, to have
been incorporated in Delaware. Accordingly, following the Continuance, the
Company will cease to be a resident of Canada for the purposes of the ITA and,
thus, will only be taxable in Canada to the extent it carries on business in
Canada through a permanent establishment or realizes a gain from the sale of
taxable Canadian property which is not otherwise exempt from Canadian tax by
virtue of certain relieving provisions in the Treaty.
The "corporate emigration" rules under the ITA will apply upon the
continuation and domestication of the Company into Delaware. Accordingly, the
Company will be deemed to have had a taxation year ending immediately prior to
it being continued and domesticated into Delaware. In addition, each property
owned by the Company immediately before the deemed year end will be deemed to
have been disposed by it for proceeds of disposition equal to that property's
fair market value. Any gains or losses derived by the Company from its deemed
disposition of property will be taken into account when determining the amount
of the Company's taxable income for the fiscal period which ends immediately
before the continuation and domestication into Delaware. Any available
non-capital loss carry forwards of the Company from previous years can be used
to offset the amount of any taxable income calculated in respect of the fiscal
period of the Company which will be deemed to have ended immediately before the
Continuance.
The Company will also be required to pay a special branch tax equal to 7%
(6% if the Continuance occurs in 1996 and 5% if it occurs thereafter) of the
amount by which the fair market value of the Company's assets (calculated
immediately before the Continuance) exceeds the aggregate of its liabilities,
including its liabilities owing under the ITA except for the special branch tax,
and the paid-up capital of its issued and outstanding shares at the time of the
Continuance.
Interest Expenses. Interest incurred on money borrowed to purchase shares
of Company Common Stock will continue to be deductible by the shareholder after
the Continuance. Interest will remain deductible only as long as the shareholder
continues to own the shares or uses the borrowed funds to earn income from a
business or property.
United States Federal Income Tax Consequences. Provided that no greater
than 1% of the shareholders of the Company exercise their right to dissent to
the Continuance, and as such have their shares of Company Common Stock redeemed,
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the Continuance will constitute a reorganization within the meaning of Section
368(a) of the Code. No gain or loss will be recognized by the Company due to the
Continuance. No gain or loss will be recognized by reason of the Continuance by
the U.S. shareholders of the Company upon their conversion of Company Common
Stock into Continued Common Stock.
In addition, cash received as a result of the exercise of appraisal rights
by a U.S. shareholder who dissents from the Continuance and who is subject to
federal income tax (the "Dissenting Holder") will be treated as received in
redemption of the Dissenting Holders' Company Common Stock, and generally will
recognize gain or loss, measured by the difference between the cash received and
the Dissenting Holder's basis in his or her Company Common Stock and gain or
loss will be a capital gain or loss if the Dissenting Holder holds his or her
stock as a capital asset.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES
NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE CONTINUANCE. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INCOME TAX ACT
(CANADA) AND THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING IS SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. EACH COMPANY SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE CONTINUANCE AND THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
THE MEETINGS
Date, Time and Place
The Company. The Meeting will be held on _______________, 1996, at the
offices of Beaumont Church, Barristers and Solicitors, 2200 AGT Tower, 411 --
1st Street S.E., Calgary, Alberta, Canada T2G 5E7, commencing at _______ p.m.
local time.
ETC-Texas. The ETC-Texas Meeting will be held on _______________, 1996, at
5025 Arapaho Road, Suite 515, Dallas, Texas 75248, commencing at _______ p.m.
local time.
Purposes of the Meetings
The Company. The purpose of the Meeting is to consider and vote upon (i)
the election of directors nominated by management; (ii) the appointment of
auditors to serve until the next annual meeting of the Company (or the Surviving
Corporation); (iii) a proposal to approve the Continuance; (iv) a proposal to
approve and adopt the Merger Agreement, the terms of which require the issuance
and reservation for issuance of up to 10,954,146 shares of Continued Common
Stock, (v) a proposal to change the name of the Company to Electronic
Transmission Corporation, and (vi) such other matters as may properly be brought
before the Meeting.
ETC-Texas. The purpose of the ETC-Texas Meeting is to consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement, (ii) the election
of directors to serve on the Board of Directors of the Surviving Corporation,
and (iii) such other matters as may properly be brought before the ETC-Texas
Meeting.
Record Date and Outstanding Shares
Only holders of record of Company Common Stock at the close of business on
the Record Date are entitled to notice of, and to vote at, the Meeting. Only
holders of record of ETC-Texas Common Stock at the close of business on the
ETC-Texas Record Date are entitled to notice of, and to vote at, the ETC-Texas
Meeting.
On the Record Date, there were approximately 147 holders of record of the
2,007,145 shares of Company Common Stock then issued and outstanding. Each share
of Company Common Stock entitles the holder thereof to one vote on each matter
submitted for shareholder approval. See "Beneficial Ownership of Securities" for
information regarding persons known to the management of the Company to be the
beneficial owners of more than 5% of the outstanding Company Common Stock. A
complete list of registered shareholders entitled to notice of, and to vote at,
the Meeting will be available for examination at the offices of Beaumont Church,
Barristers and Solicitors, 2200 AGT Tower, 411 -- 1st Street S.E., Calgary,
Alberta, Canada T2G 5E7, during normal business hours by any shareholder, for
any purpose germane to the Meeting for a period of 10 days prior thereto.
On the ETC-Texas Record Date, there were approximately 150 holders of
record of the 7,157,601 shares of ETC-Texas Common Stock then issued and
outstanding. Each share of ETC-Texas Common Stock entitles the holder thereof to
one vote on each matter submitted for shareholder approval. See "Beneficial
Ownership of Securities" for information regarding persons known to the
management of ETC-Texas to be the beneficial owners of more than 5% of the
outstanding ETC-Texas Common Stock. A complete list of shareholders entitled to
notice of, and to vote at, the ETC-Texas Meeting will
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be available for examination at the offices of ETC-Texas in Dallas, Texas during
normal business hours by any ETC-Texas shareholder, for any purpose germane to
the ETC-Texas Meeting for a period of 10 days prior thereto.
Voting and Revocation of Proxies
All properly executed proxies that are not revoked will be voted at the
Meeting and the ETC-Texas Meeting, as applicable, in accordance with the
instructions contained therein. If a holder of Company Common Stock executes and
returns a proxy and does not specify otherwise, the shares represented by such
proxy will be voted "for" approval of the appointment of the designated
auditors, approval of the Continuance, approval and adoption of the Merger
Agreement, approval of the changing of the Company's name to Electronic
Transmission Corporation, and election of a new Board of Directors in accordance
with the recommendation of the Board of Directors of the Company. If a holder of
ETC-Texas Common Stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "for" approval and
adoption of the Merger Agreement and the election of those individuals nominated
to serve as directors of the Surviving Corporation in accordance with the
recommendation of the Board of Directors of ETC-Texas. A shareholder of the
Company or a shareholder of ETC-Texas who has executed and returned a proxy may
revoke it at any time before it is voted at the appropriate meeting by (i)
executing and returning a proxy bearing a later date, (ii) filing written notice
of such revocation with the Secretary of the Company or ETC-Texas, as
appropriate, stating that the proxy is revoked, or (iii) attending the
appropriate meeting and voting in person.
Vote Required
The Company. The Company's current Bylaws provide that the presence at the
Meeting, in person or by proxy, of the holders of 5% of the outstanding shares
of Company Common Stock entitled to vote thereat will constitute a quorum for
the transaction of business. On the Record Date, there were 2,007,145 shares of
Company Common Stock outstanding and entitled to vote at the Meeting. Approval
of the Continuance, the Merger and the name change requires the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the votes cast on each
proposal.
ETC-Texas. The presence at the ETC-Texas Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of ETC-Texas Common Stock
entitled to vote thereat will constitute a quorum for the transaction of
business, and approval and adoption of the Merger Agreement requires the
affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the issued and
outstanding ETC-Texas Common Stock entitled to vote thereon. On the ETC-Texas
Record Date, there were 7,157,601 shares of ETC-Texas Common Stock outstanding
and entitled to vote at the ETC-Texas Meeting. In determining whether the Merger
Agreement has received the requisite number of affirmative votes, abstentions
will have the same effect as a vote against the Merger Agreement.
Solicitation of Proxies
In addition to solicitation by mail, the directors, officers, employees and
agents of each of the Company and ETC-Texas may solicit proxies from their
respective shareholders by personal interview, telephone, telegram or otherwise.
The Company and ETC-Texas will each bear the costs of the solicitation of
proxies from their respective shareholders. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries who hold of
record voting securities of the Company and ETC-Texas for the forwarding of
solicitation materials to the beneficial owners thereof. The Company and
ETC-Texas will reimburse such brokers, custodians, nominees and fiduciaries for
the reasonable out-of-pocket expenses incurred by them in connection therewith.
Other Matters
At the date of this Proxy Statement/Prospectus, the Boards of Directors of
the Company and ETC-Texas do not know of any business to be presented at their
respective meetings other than as set forth in the notices accompanying this
Proxy Statement/Prospectus. If any other matters should properly come before the
respective meetings, it is intended that the shares represented by proxies will
be voted with respect to such matters in accordance with the judgment of the
persons voting such proxies.
ELECTION OF COMPANY DIRECTORS
The Articles of Incorporation, as amended, of the Company provide that the
Board of Directors shall consist of a minimum of three and a maximum of seven
directors with the actual number of directors to be determined from time to time
by the Board of Directors. All the directors are to be elected annually and each
shall hold office until the close of the next annual meeting of the shareholders
or until he or she ceases to be a director by operation of law or until his or
her resignation becomes effective. At the Meeting, it is proposed that a Board
of Directors comprised of three members be elected. All three nominees are
currently members of the Board of Directors of the Company, and include L. Cade
Havard, a Director since 1992, Edward Bollinger, a Director since November 1994,
and Katherine L. MacDonald, a Director since March 1996. Edward Bollinger, an
analyst at ESSO Resources Ltd. from 1953 to 1986 and an independent consultant
since 1986, and Katherine L. MacDonald, President and Managing Director of
Dimark Capital Corp., a finance and investment company, intend to resign upon
the completion of the Merger. See "Management" and "Beneficial Ownership of
Securities."
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Under the terms of the Merger Agreement, the existing Board of Directors of
ETC-Texas would become the Board of Directors of the Surviving Corporation.
Accordingly, it is proposed that a Board of Directors comprised of six members
be elected at the Meeting to take office upon completion of the Merger, which
include L. Cade Havard, Elaine Boze, Timothy P. Powell, Michael Eckstein, David
O. Hannah and Rick L. Snyder. See "Management."
APPOINTMENT OF AUDITORS
At the Meeting, the shareholders of the Company will be called upon to
appoint auditors to serve until the close of the next annual meeting of the
Company and to authorize the directors to fix the remuneration of the auditors
so appointed. Hans P. Cremers, Chartered Accountant, of Calgary, Alberta (the
"Former Auditor"), served as auditor for the fiscal years ended December 31,
1991 to and including December 31, 1995 and has assisted the Company's
accountants in preparing the financial disclosure contained in this Proxy
Statement/Prospectus.
As the Registration Statement, of which this Proxy Statement/Prospectus is
a part, is being filed with the Commission to register the number of shares of
Continued Common Stock noted herein, Simonton, Kutac & Barnidge, L.L.P. (the
"Successor Auditor") has been authorized by the Board of Directors of the
Company to audit the books and records of the Company for the fiscal years ended
December 31, 1994 and 1995 and to prepare financial statements for these periods
in accordance with generally accepted accounting principles recognized by the
Commission for the purpose of including such financial statements in the
Registration Statement. Because the Company will become domiciled in the United
States upon completion of the Continuance and the Merger, and because the
financial disclosure contained in this Proxy Statement/Prospectus had to be
prepared in accordance with United States, rather than Canadian, generally
accepted accounting principles, management recommends that the shareholders vote
for the appointment of the Successor Auditor to serve as auditors until the
close of the next annual meeting of the shareholders of the Company. The
recommendation of the Company's Board of Directors is not the result of any
disagreement with the Former Auditor on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures.
Furthermore, the Former Auditor's Report on the financial statements of the
Company for the preceding two fiscal years did not contain any adverse opinion,
nor was it modified for uncertainty, audit scope or accounting principles.
In accordance with National Policy Number 31 under Canadian law, the
Company will deliver a Notice of Change of Auditor to the ASC, the Former
Auditor and the Successor Auditor. Letters of response have been received by the
Company from both the Former and the Successor Auditors.
COMPANY NAME CHANGE
If the shareholders of the Company and the shareholders of ETC-Texas
approve the Merger, then it is proposed that the Company will change its name
from ETC Transaction Corporation to Electronic Transmission Corporation. At the
Meeting, the shareholders will be asked to consider and, if thought fit, pass a
special resolution approving this name change which will become effective
concurrent with the completion of the Continuance and the Merger.
THE MERGER
General Description of the Merger
The Merger Agreement provides that, at the Effective Time, ETC-Texas will
merge with and into the Company with the Company becoming the Surviving
Corporation, and each outstanding share of ETC-Texas Common Stock will be
converted into 1.25 shares of Continued Common Stock. No fractional shares of
Continued Common Stock shall be issued in the Merger. In lieu thereof, all
fractional shares of Continued Common Stock that a holder of ETC-Texas Common
Stock would otherwise be entitled to receive as a result of the Merger shall be
automatically converted into the right to receive one full share of Continued
Common Stock. The Merger is conditioned upon the approval of the Continuance by
the shareholders of the Company.
Based on the number of shares of ETC-Texas Common Stock outstanding as of
the ETC-Texas Record Date, 8,947,001 shares of Continued Common Stock will be
issuable pursuant to the Merger Agreement representing approximately 82% of the
total Continued Common Stock to be outstanding after such issuance (based on the
number of shares of Company Common Stock outstanding as of the Record Date).
The Company's Reasons for the Merger; Recommendation of the Company's Board of
Directors
The Merger is the result of the Company's efforts to obtain value for the
Company's Common Stock. The Company has no tangible assets or cash flow.
However, it possesses a shareholder base which makes it an attractive merger
candidate to a privately-held corporation seeking to become a public company.
ETC-Texas represents a provider of services in the burgeoning health care
industry, and the Company believes that ETC-Texas has an excellent opportunity
for growth given the nature of the electronic claims management and processing
services which ETC-Texas provides. As a result of the Continuance and the
Merger, the Company can take steps necessary to be listed on a U.S. securities
exchange for trading of the Continued
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Common Stock. Trading on a U.S. securities exchange may provide a greater value
to the shares of the Company's securities currently owned by the shareholders.
Management of the Company also believes that there are other benefits to be
realized from a combination of the companies which are not susceptible of
quantification. Among them are (i) the potential to increase business through
the marketing of a publicly-traded entity and (ii) reduced capital costs by
being relieved from complying with the laws of both the United States and Canada
relating to tax, securities, accounting and internal operations issues.
The Board of Directors of the Company believes that the Exchange Ratio and
the other terms of the Merger Agreement are fair to, and in the best interests
of, the Company and its shareholders. In reaching its conclusion, the Company's
Board of Directors considered (i) the matters set forth above, (ii) the judgment
and advice of ETC-Texas' management, (iii) the prior financial performance and
future operating prospects of ETC-Texas, (iv) the financial flexibility offered
by the combination, (v) detailed financial information, including historical
financial information for each company and pro forma combined financial
statements reflecting effectuation of the Merger, (vi) the results of the due
diligence review of the business and operations of ETC-Texas, (vii) the
complementary nature of other resources of each company, (viii) the terms of the
Merger Agreement, and (ix) the probability of achieving expected results.
ETC-Texas' Reasons for the Merger; Recommendation of ETC-Texas' Board of
Directors
The Board of Directors of ETC-Texas has concluded that the Merger is fair
to and in the best interests of the shareholders of ETC-Texas, and has approved
the Merger Agreement as well as recommended that the shareholders of ETC-Texas
approve and adopt the Merger Agreement.
As part of its review, the ETC-Texas Board of Directors considered, among
other things, information presented by ETC-Texas' management, including
information relating to the advantages of being a publicly-traded company and
the viability of a merger with the Company in order to attain such an end. The
ETC-Texas Board of Directors considered information concerning the operating and
financial history of the Company and any liabilities, contingent or otherwise.
The ETC-Texas Board of Directors also considered the unique strategic
opportunities the Merger would provide for ETC-Texas to expand the types of
services it can offer given the credibility afforded publicly-traded entities.
The ETC-Texas Board of Directors also considered the ability of the combined
entity to raise additional debt and equity capital on a favorable basis and the
possibility of achieving specific savings by reducing duplicative administrative
costs. In addition, the ETC-Texas Board of Directors considered the prospects of
ETC-Texas on both a stand-alone and combined basis, and the likelihood of
obtaining by other means the strategic advantages offered by the Merger. The
ETC-Texas Board of Directors also reviewed in detail the terms of the Merger
Agreement.
The ETC-Texas Board of Directors also considered the relative prospects for
growth and growth in shareholder values, in its present form and as a
publicly-traded entity, the relative prospects for raising capital in current
industry conditions as a stand-alone entity and as part of a larger
organization, and the non-taxable nature of the transaction to ETC-Texas
shareholders and the advantageous effects on the combined enterprise as treating
the transaction as a "pooling of interests" for accounting purposes.
In analyzing the proposed Merger, the ETC-Texas Board of Directors
evaluated the factors and considerations described above and consulted with its
financial and legal advisors. The ETC-Texas Board of Directors did not view any
one factor as determinative and did not assign particular weight to any one
factor. Based on the information presented to the directors, the members of the
Board of ETC-Texas unanimously approved the Merger Agreement and recommended
that the shareholders of ETC-Texas vote FOR the adoption and approval of the
Merger Agreement. Prior to reaching its conclusion as to the fairness of the
Merger, the Board of Directors of ETC-Texas also considered the matters
described under "-- Interests of Certain Persons in the Merger."
Interests of Certain Persons in the Merger
In considering the recommendations of the Company's and ETC-Texas' Boards
of Directors, respectively, with respect to the Merger, both the Company and
ETC-Texas shareholders should be aware that Mr. L. Cade Havard, the Chairman and
Chief Executive Officer of the Company and the Chairman, President and Chief
Executive Officer of ETC-Texas, beneficially owns or controls 79,500 shares of
Company Common Stock and 3,097,668 shares of ETC-Texas Common Stock at May 31,
1996. To the knowledge of both the Company and ETC-Texas, no other executive
officer or director of the Company owns any shares of ETC-Texas Common Stock and
no other executive officer or director of ETC-Texas owns any shares of Company
Common Stock. See "Certain Transactions."
Employment Arrangements
At the Effective Time, the Employment Agreements between ETC-Texas and L.
Cade Havard, Elaine Boze, Ann C. McDearmon, Louann C. Smith and Timothy P.
Powell, respectively, will be assigned to and assumed by the Surviving
Corporation. See "Management -- Employment Agreements."
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Certain Federal Income Tax Consequences
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of Company Common Stock and ETC-Texas
Common Stock and is based upon current provisions of the Code, existing
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. No attempt has been made to comment on all
federal income tax consequences of the Merger that may be relevant to particular
holders, including holders that are subject to special tax rules such as dealers
in securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. HOLDERS OF
ETC-TEXAS COMMON STOCK ARE ADVISED AND EXPECTED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN
TAX LAWS.
No ruling from the Internal Revenue Service ("IRS") has been or will be
requested in connection with the Merger. The Merger will be treated for federal
income tax purposes as a reorganization with the meaning of Section 368(a) of
the Code. The Company and ETC-Texas will each be a party to the reorganization
within the meaning of Section 368(b) of the Code, and the Company and ETC-Texas
will not recognize any gain or loss as a result of the Merger. An opinion
regarding the federal income tax consequences of the Merger upon the
shareholders of ETC-Texas has been issued by Looper, Reed, Mark & McGraw
Incorporated, a copy of which is attached hereto as Appendix "E".
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following federal income tax consequences will occur:
(a) no gain or loss will be recognized by the Company or ETC-Texas in
connection with the Merger;
(b) except for cash consideration received in lieu of fractional shares,
no gain or loss will be recognized by a holder of ETC-Texas Common
Stock upon the exchange of all of such holders shares of ETC-Texas
Common Stock solely for Continued Common Stock in the Merger;
(c) the aggregate basis of the Continued Common Stock received by a
ETC-Texas shareholder in the Merger (including any fractional share
deemed received) will be the same as the aggregate basis of the shares
of ETC-Texas Common Stock surrendered in exchange therefor;
(d) the holding period of the Continued Common Stock received by an
ETC-Texas shareholder in the Merger will include the holding period of
the shares of ETC-Texas Common Stock surrendered in exchange therefor,
provided that such shares of ETC-Texas Common Stock are held as
capital assets at the Effective Time; and
(e) if applicable, a shareholder of ETC-Texas who receives cash in lieu of
a fractional share will recognize gain or loss equal to the
difference, if any, between such shareholder's basis in the fractional
share (as described in paragraph (c) above) and the amount of cash
received. Such gain or loss may be classified as either a capital gain
or loss if the ETC-Texas Common Stock is held by such shareholder as a
capital asset at the Effective Time or as a dividend, depending upon
the shareholder's particular circumstance.
Accounting Treatment
The Merger is expected to be accounted for using the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the combining
companies have been merged from inception, and the historical financial
statements for periods prior to consummation of the Merger are restated as
though the companies had been combined from inception. See "Summary -- Selected
Pro Forma Financial Information."
Rights of Dissenting Shareholders
The Company Shareholders. Each of the Company's shareholders is entitled to
dissent and be paid the fair value of such shareholder's shares if the
shareholder objects to the Merger and the Merger becomes effective. The
shareholder may dissent only with respect to all of the shares held by the
shareholder on behalf of any one beneficial owner and registered in the
shareholder's name. A shareholder is not entitled to dissent from the resolution
with respect to any shares beneficially owned by one owner if the shareholder
votes any shares beneficially owned by that owner in favor of the resolution
that is adopted. In order to dissent, a shareholder must send to the Company,
c/o Beaumont Church, Barristers and Solicitors, 2200 AGT Tower, 411 -- 1st
Street S.E., Calgary, Alberta, Canada T2G 5E7, on or before the date of the
Meeting, a written objection (an "Objection Notice") to the Merger in respect of
which the shareholder proposes to dissent. A vote against the Merger or an
abstention in respect thereof does not constitute an Objection Notice, but a
shareholder need not vote his shares against the Merger in order to dissent in
respect of the Merger. Similarly, the revocation of a proxy conferring authority
on the proxy holder to vote in favor of the Merger does not constitute an
Objection Notice in respect of the Merger, but any such proxy granted by a
shareholder who intends to dissent should be validly revoked. Within 10 days
following the date of the Meeting,
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the Company will deliver to each shareholder who has filed an Objection Notice
in respect of the resolution passed at the Meeting, at the address specified for
such purpose in the Objection Notice, a notice stating the Merger has been
adopted.
After the Merger has been approved, an application may be made to the Court
by the Company or by any dissenting shareholder to fix the fair value of the
shares in the capital stock of the Company held by the dissenting shareholder.
If an application is made to the Court, the Company shall, unless the Court
otherwise orders, send to each dissenting shareholder the Offer to Purchase to
pay him an amount considered by the Board of Directors of the Company to be the
fair value of such shares as of the close of business on the day before the
Meeting accompanied by a statement showing how the fair value was determined.
Every offer to purchase shall be on the same terms.
A dissenting shareholder may make an agreement with the Company for the
purchase of his shares by the Company in the amount of the Company's Offer to
Purchase or otherwise at any time before the Court fixes the fair value of the
shares. If a settlement cannot be reached, the parties will proceed to court.
All dissenting shareholders whose shares have not been purchased by the Company
will be joined as parties to the application and will be bound by the decision
of the Court. The Court order will fix the fair value of the shares of all
dissenting shareholders who are parties to the application, give judgment in
that amount against the Company in favor of each of the dissenting shareholders
and fix the time within which the Company must pay the amount to the dissenting
shareholders.
On the earlier of: (a) the Company being continued into Delaware, (b) the
Company and the dissenting shareholder entering into a settlement agreement, or
(c) the pronouncement of a Court order giving judgment against the Company for
the fair value of the shares of the dissenting shareholder, a dissenting
shareholder ceases to have any rights as a shareholder other than the right to
be paid the fair value of his shares. The Company will not make a payment to a
dissenting shareholder if there are reasonable grounds for believing that: (a)
the Company is or would after the payment be unable to pay its liabilities as
they become due or (b) the realizable value of the Company's assets would
thereby be less than the aggregate of its liabilities. If either of these tests
cannot be met, the Company shall within 10 days of the Court order or reaching
its settlement with a dissenting shareholder send a notice to each dissenting
shareholder that the Company cannot lawfully make the payment for the shares.
Once this notice is received, a dissenting shareholder may, by written notice,
delivered to the Company within 30 days after receiving the Company's notice,
withdraw his Objection Notice, in which case the dissenting shareholder is
returned his full rights as a shareholder. If the dissenting shareholder does
not withdraw his Objection Notice, he retains his status as a claimant against
the Company to be paid as soon as the Company is lawfully able to do so or, in
liquidation, to be ranked subordinate to the rights of the creditors but in
priority to its shareholders.
The foregoing is only a summary of the rights of dissenting shareholders
and is qualified in its entirety by the provisions of Section 184 of the ABCA, a
copy of which is attached as Appendix "F". Any shareholder desiring to exercise
a right of dissent should seek legal advice and its failure to comply strictly
with the provisions of that section may prejudice that right. The right of
shareholders to dissent is not exclusive of any other rights available to
shareholders generally, such as rights in respect of a corporate directors'
duties of good faith and care under the ABCA, or otherwise.
ETC-Texas Shareholders. Any shareholder of record of ETC-Texas may exercise
dissenters' rights in connection with the Merger by properly complying with the
requirements of Articles 5.11, 5.12 and 5.13 of the TBCA. By exercising
dissenters' rights, any such shareholder would have the "fair value" of his
ETC-Texas Common Stock determined by a court and paid to him in cash.
The following is a summary of the statutory procedures that a shareholder
of a Texas corporation must follow in order to exercise his dissenters' rights
under Texas law. This summary is not complete and is qualified in its entirety
by reference to Articles 5.11, 5.12 and 5.13 of the TBCA, the text of which is
set forth in full in Appendix "G" to this Proxy Statement/Prospectus.
The TBCA provides that each shareholder of a Texas corporation has the
right to dissent from certain transactions, including the merger of a
corporation requiring the special authorization of the shareholders. Any
shareholder of a Texas corporation who objects to a merger of the corporation
may exercise the rights and remedies of a dissenting shareholder under Articles
5.11, 5.12 and 5.13 of the TBCA. Any shareholder desiring to exercise his right
of dissent must file a written objection to the merger with the corporation,
prior to the date of the meeting of shareholders called to consider the merger.
The written objection must state that the shareholder's right to dissent will be
exercised if the merger becomes effective and give the address to which notice
of the effectiveness of the merger should be delivered or mailed. Neither a
proxy nor a vote against the merger are sufficient to constitute a written
objection as required under the statute.
Any written objection or notice required of any dissenting shareholder
under Articles 5.11 through 5.13 of the TBCA should be sent to Electronic
Transmission Corporation, Attention: Secretary, 5025 Arapaho Road, Suite 515,
Dallas, Texas 75248.
The corporation must deliver or mail notice of the effectiveness of the
merger to each dissenting shareholder that has not voted in favor of the merger
within 10 days of the effectiveness of the merger. Any dissenting shareholder
that has not voted in favor of the merger may then make a written demand on the
surviving corporation (which in such case would be ETC Transaction Corporation)
for the payment of the fair value of his shares within 10 days of the delivery
or mailing of the notice
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by the corporation. Such demand must state the number and class of the shares of
stock owned by the dissenting shareholder and the dissenting shareholder's
estimate of the fair value of his shares as of the day immediately prior to the
meeting, excluding any increase or decrease in value of the shares in
anticipation of the proposed merger. Any shareholder failing to make such a
demand within the 10-day period will lose the right to dissent and will be bound
by the terms of the merger. In order to preserve his dissenters' rights, a
dissenting shareholder must also submit his stock certificates to the surviving
corporation for the appropriate notation within 20 days of making a demand for
payment.
Any shareholder who has properly demanded payment for his shares of stock
will not have any rights as a shareholder, except the right to receive payment
for his shares and the right to claim that the merger and the related
transactions were fraudulent.
Within 20 days of receipt of the demand for payment, the surviving
corporation must deliver or mail to the dissenting shareholder written notice
that either (i) the corporation agrees to pay the amount of the shareholder's
demand within 90 days after the effectiveness of the merger upon receipt of the
dissenting shareholder's duly endorsed share certificates or (ii) the
corporation offers to pay its own estimate of the fair value of the shares
within 90 days after the effectiveness of the merger upon receipt of the
dissenting shareholder's duly endorsed share certificates and upon receipt of
notice within 60 days after such date that the dissenting shareholder agrees to
accept the surviving corporation's estimate. If the dissenting shareholder and
the surviving corporation agree upon the value of the dissenting shareholder's
shares within 60 days after effectiveness of the merger, the corporation shall
pay the amount of the agreed value to the dissenting shareholder upon receipt of
the dissenting shareholder's duly endorsed share certificates within 90 days of
the effectiveness of the merger. Upon payment of the agreed value, the
dissenting shareholder will cease to have any interest in such shares.
If the dissenting shareholder and the corporation do not agree upon the
value of the dissenting shareholder's shares within 60 days after the
effectiveness of the merger, then either the dissenting shareholder or the
surviving corporation may, within 60 days after the expiration of such 60-day
period, file a claim in a court of competent jurisdiction in the county in Texas
in which the principal office of the corporation is located (in such case,
Dallas County), seeking a determination of the fair value of the shares. The
corporation shall file with the court a list of all shareholders who have
demanded payment for their shares with whom an agreement as to value has not
been reached upon receipt of such a claim filed by a dissenting shareholder or
upon the filing of such a claim by the corporation. The clerk of the court will
give notice of the hearing of any such claim to the corporation and to all of
the dissenting shareholders on the list provided by the corporation. All
dissenting shareholders notified in this manner will be bound by the final
judgment of the court as to the value of their shares.
In considering such a claim, the court will determine which of the
dissenting shareholders have complied with the provisions of the TBCA and are
entitled to the payment of the fair value of their shares and will appoint one
or more qualified appraisers to assist in the determination of the fair value of
the shares upon such investigation as the appraisers consider proper. Any
valuation techniques or methods may be employed which are generally acceptable
to the financial community. The appraisers will also allow the dissenting
shareholders and the corporation to submit to them evidence as to the fair value
of the shares.
Upon receipt of the appraisers' report, the court will determine the fair
value of the shares of the dissenting shareholders and will direct the payment
to the dissenting shareholders of the amount of the fair value of their shares,
with interest to the date of the judgment, by the corporation, upon receipt of
the dissenting shareholder's share certificates. Upon payment of the judgment,
the dissenting shareholders will cease to have any interest in the corporation.
The court will allow the appraisers a reasonable fee as court costs, and all
court costs will be allocated between the parties in such manner as the court
determines to be fair and equitable.
Under Texas law, "fair value" of shares for purposes of the exercise of
dissenters' rights is defined as the value of the shares as of the day before
the vote is taken authorizing the merger, excluding any increase or decrease in
value of the shares in anticipation of the proposed merger. Such "fair value" is
determined in the first instance by appraisers appointed by the court, who are
directed to make such determination "upon such investigation as to them may seem
proper." Any valuation techniques or methods may be employed which are generally
acceptable to the financial community.
Any dissenting shareholder may withdraw his demand at any time before
receiving payment for his shares or before a claim has been filed seeking
determination of the fair value of his shares. No such dissenting shareholder
may withdraw his demand after payment has been made or, unless the surviving
corporation consents to the withdrawal, where a claim has been filed.
Shareholders of ETC-Texas considering appraisal rights should consider that
the payment which they eventually receive in exchange for their shares in a
dissenters' rights proceeding under Texas law could be less than, equal to, or
greater than the eventual market value of the consideration they would receive
as a result of the consummation of the Merger.
An ETC-Texas shareholder who exercises his appraisal rights and receives
cash from ETC-Texas, or the Surviving Corporation, in exchange for his shares of
ETC-Texas Common Stock will recognize taxable gain or loss in an amount equal to
the difference between (a) the sum of cash received from ETC-Texas and (b) the
basis of the common stock so exchanged. Any such gain or loss recognized would
be long-term capital gain or loss if the shares of ETC-Texas Common Stock
constitute
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capital assets in the hands of the dissenting ETC-Texas shareholder and have
been held by such shareholder for more than one year at the Closing Date, as
defined in the Merger Agreement.
ETC-TEXAS SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER WITH
THE COMPANY ARE URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
Stock Exchange Listing
Following the Continuance and the Merger, if approved, the Surviving
Corporation may make application to have the Continued Common Stock listed on
the Nasdaq SmallCap Market. No assurance can be given that the application for
listing on the Nasdaq SmallCap Market or any other national or regional
exchange, if made, will be accepted. See "Risk Factors -- No Public Market;
Possible Volatility of Stock Price -- Risks of Low-Priced Stock."
U.S. Federal Securities Law Consequences
All Continued Common Stock received by ETC-Texas shareholders in the Merger
will be freely transferable, except that shares of Continued Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of the Company or ETC-Texas prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Securities Act (or Rule 144 or 144A in the case of
such persons who become affiliates of ETC-Texas) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of the Company or
ETC-Texas generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal shareholders of such
party or persons who hold restricted shares.
Canadian Securities Law Consequences
Shares of Continued Common Stock held by Canadian residents are subject to
any applicable resale restrictions imposed by the securities laws of the
province in which the shareholder is a resident. The Company is not aware of any
present provincial resale restrictions on the issued shares of the Company other
than the Cease Trade Order of the ASC which will be revoked upon the declaration
by the Commission of the effectiveness of the Registration Statement, of which
this Proxy Statement/Prospectus is a part. See "The Companies -- Business
Information Concerning the Company." Alberta securities law provides that shares
issued upon conclusion of a merger such as the Merger being contemplated will be
issued to Alberta residents free of any additional resale restrictions, unless
such issuance is to a "control person," as defined in The Alberta Securities
Act. The Company believes that the securities laws of the other provinces of
Canada are substantially similar to those of Alberta.
CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, a copy of which is
attached as Appendix "A" to this Proxy Statement/Prospectus and is incorporated
herein by reference.
Effective Time of the Merger
The Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to effecting the Merger, the parties
shall cause the Merger to be consummated by filing a Certificate of Merger with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with, the relevant provisions of the DGCL, and
Articles of Merger with the Secretary of State of the State of Texas, in such
form as required by, and executed in accordance with, the relevant provisions of
the TBCA. It is anticipated that, if the Merger Agreement is approved and
adopted at each of the meetings and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur on the date of the meetings
or as soon thereafter as practicable.
Manner and Basis of Converting Shares
At the Effective Time, each outstanding share of ETC-Texas Common Stock
will be converted into 1.25 shares of Continued Common Stock.
As soon as practicable following the Effective Time, the Surviving
Corporation will mail to each record holder of ETC-Texas Common Stock
immediately prior to the Effective Time, a letter of transmittal and other
information advising such holder of the consummation of the Merger and for use
in exchanging ETC-Texas Common Stock certificates for certificates representing
Continued Common Stock. Letters of transmittal will also be available following
the Effective Time at the offices of the Surviving Corporation in Dallas, Texas.
After the Effective Time, there will be no further registration of transfers on
the stock transfer books of ETC-Texas of shares of ETC-Texas Common Stock that
were outstanding immediately prior to the Effective Time. Share certificates
should not be surrendered for exchange by shareholders of ETC-Texas prior to the
Effective Time and the receipt of a letter of transmittal.
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No fractional shares of Continued Common Stock shall be issued in the
Merger. In lieu thereof, all fractional shares of Continued Common Stock that a
holder of ETC-Texas Common Stock would otherwise be entitled to receive as a
result of the Merger shall be automatically converted into the right to receive
one full share of Continued Common Stock.
Until surrendered and exchanged, each certificate previously evidencing
ETC-Texas Common Stock shall represent solely the right to receive Continued
Common Stock. Unless and until any such certificates shall be so surrendered and
exchange, no dividends or other distributions payable to the holders of record
of Continued Common Stock as of any time after the Effective Time shall be paid
to the holders of such certificates previously evidencing ETC-Texas Common
Stock; provided, however, that upon any such surrender and exchange of such
certificates, there shall be paid to the record holders of the certificates
issued and exchange therefor (i) the amount, without interest thereon, of
dividends and other distributions, if any, with a record date after the
Effective Time theretofore paid with respect to such whole shares of Continued
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions, if any, with a record date after the Effective Time but
prior to surrender and a payment date occurring after surrender, payable with
respect to such whole shares of Continued Common Stock.
Conditions to the Merger
The respective obligations of the Company and ETC-Texas to consummate the
Merger are subject to the satisfaction of the following conditions, any or all
of which may be waived in writing by ETC-Texas and the Company, in whole or in
part, to the extent permitted by applicable law: (a) the Registration Statement
registering the Continued Common Stock to be issued pursuant to the Merger
Agreement shall have been declared effective by the Commission under the
Securities Act, no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose shall have been initiated by the Commission; (b) the Merger Agreement
and the Merger shall have been approved and adopted by the requisite vote of the
shareholders of the Company and ETC-Texas, and the issuance of the Continued
Common Stock in the Merger shall have been approved by the requisite vote of the
shareholders of the Company; (c) the Continuance shall have been approved by the
requisite vote of the shareholders of the Company; (d) no governmental entity or
federal or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; and (e) there shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger by any governmental entity in
connection with the grant of a regulatory approval necessary to the continuing
operation of the business or future prospects of ETC-Texas, that imposes any
condition or restriction upon the Company or the business or operations of
ETC-Texas that, individually or when taken together with all such conditions or
restrictions would be materially adverse to the financial condition, results of
operations, business or prospects of ETC-Texas or the Company.
The obligation of the Company to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by the Company, in whole or in part:
(a) each of the representations and warranties of ETC-Texas contained in the
Merger Agreement shall be true and correct in all material respects as of the
Effective Time as though made as of the Effective Time; and (b) ETC-Texas shall
have performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
it on or prior to the Effective Time.
The obligation of ETC-Texas to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by ETC-Texas, in whole or in part: (a)
each of the representations and warranties of the Company contained in the
Merger Agreement shall be true and correct in all material respects as of the
Effective Time as though made as of the Effective Time; and (b) the Company
shall have performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied with
by then on or prior to the Effective Time.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
Company and ETC-Texas relating to, among other things, (i) the organization and
similar corporate matters of each, (ii) the capitalization of each, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, and the absence of conflicts, violations and
defaults under their respective charters and bylaws and certain other agreements
and documents, (iv) compliance with applicable laws, (v) the documents and
reports filed by them with the Commission and the accuracy of the information
contained therein, (vi) the absence of certain changes and events, (vii)
litigation, (viii) employee benefit and labor matters, (ix) taxes and matters
relating to a tax-free reorganization, (x) certain matters relating to "pooling
of interests" accounting, (xii) certain business practices, (xiii) the vote
required to approve the Merger Agreement, (xiv) brokers, and (xv) the accuracy
of certain information provided.
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Certain Covenants; Conduct of Business Prior to the Merger
Each of the Company and ETC-Texas has agreed that, prior to the Effective
Time, unless expressly contemplated by the Merger Agreement or otherwise
consented to in writing by the other, it will (a) operate its business in the
usual and ordinary course consistent with past practices; (b) use all reasonable
efforts to preserve substantially intact its business organization, maintain its
material rights and franchises, retain the services of its respective officers
and key employees and maintain its relationships with its material customers and
suppliers; (c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain supplies
and inventories in quantities consistent with its customary business practice;
and (d) use all reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained.
Each of the Company and ETC-Texas has agreed that, prior to the Effective
Time, unless expressly contemplated by the Merger Agreement or otherwise
consented to in writing by the other, it will not do, and will not permit any of
its subsidiaries to do, any of the following: (a)(i) increase the compensation
payable to or to become payable to any director or executive officer, subject to
certain exceptions; (ii) grant any severance or termination pay to, or enter
into or amend any employment or severance agreement with, any director, officer
or employee, subject to certain exceptions; (iii) establish, adopt or enter into
any employee benefit plan or arrangement; or (iv) amend, or take any other
actions with respect to, any benefit plans, subject to certain exceptions; (b)
declare or pay any dividend on, or make any other distribution in respect of,
outstanding shares of capital stock, with certain exceptions; (c)(i) except for
certain matters and subject to certain exceptions, redeem, purchase or otherwise
acquire any shares of its or any of its subsidiaries' capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
or its subsidiaries' capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its or its subsidiaries' capital stock or
any such securities or obligations; or (ii) effect any reorganization or
recapitalization, subject to certain exceptions; (d)(i) issue, sell, grant,
award, deliver or limit the voting rights of any class of its or its
subsidiaries' capital stock, any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire
any such shares; (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; (iii) take any action to accelerate the
vesting of options; (e) acquire or agree to acquire any business or other
entity, or otherwise acquire or agree to acquire any assets of any other person;
(f) sell or otherwise dispose of any of its material assets or any material
assets of any of its subsidiaries, with certain exceptions; (g) propose to adopt
certain amendments to its charter or bylaws; (h) change any of its significant
accounting policies or take certain actions with respect to taxes; (i) incur any
obligation for borrowed money or purchase money indebtedness, with certain
exceptions; or (j) agree in writing or otherwise to do any of the foregoing.
Certain Post-Merger Matters
Once the Merger is consummated, ETC-Texas will cease to exist as a
corporation, and the Surviving Corporation will succeed to all of the assets,
rights and obligations of ETC-Texas. Pursuant to the Merger Agreement, the
Surviving Corporation Charter and the Surviving Corporation Bylaws will be the
certificate of incorporation and bylaws of the Surviving Corporation until
amended as provided therein and pursuant to the DGCL and the name of the
Surviving Corporation will be changed to Electronic Transmission Corporation.
The obligation of ETC-Texas under the Note will be forgiven upon the
consummation of the Merger. See "The Companies -- Business Information
Concerning the Company" and "Certain Transactions."
Termination or Amendment of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the Merger by
the shareholders of the Company and ETC-Texas: (a) by mutual consent of the
Company and ETC-Texas; (b) by the Company, upon a breach of any material
representation, warranty, covenant or agreement on the part of ETC-Texas set
forth in the Merger Agreement, or if any representation or warranty of ETC-Texas
shall have become untrue, in either case such that the Company's conditions to
effecting the Merger would not be satisfied, subject to a cure period under
certain circumstances (a "Terminating ETC-Texas Breach"); (c) by ETC-Texas, upon
a breach of any material representation, warranty, covenant or agreement on the
part of the Company set forth in the Merger Agreement, or if any representation
or warranty of the Company shall have become untrue, in either case such that
ETC-Texas' conditions to effecting the Merger would not be satisfied, subject to
a cure period under certain circumstances (a "Terminating Company Breach"); (d)
by either the Company or ETC-Texas, if there shall be any order, ruling or
decree which is final and nonappealable preventing the consummation of the
Merger, subject to a limited exception; or (e) by either the Company or
ETC-Texas, if the Merger Agreement and the Merger shall fail to receive the
requisite vote for approval and adoption by the shareholders of ETC-Texas at the
ETC-Texas Meeting and by the shareholders of the Company at the Meeting.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall become void, there shall be no liability on the part of the
Company or ETC-Texas to any other party and all rights and obligations of the
parties thereto shall cease, except that no party will be relieved from its
obligations with respect to any breach of the Merger Agreement.
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that after approval of the Merger by the
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shareholders of ETC-Texas, no amendment may be made that would reduce the amount
or change the type of consideration into which each share of ETC-Texas Common
Stock shall be converted pursuant to the Merger Agreement upon consummation of
the Merger. At any time prior to the Effective Time, any party to the Merger
Agreement may (a) extend the time for the performance of any of the obligations
or other acts of the other party thereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained therein or in any
document delivered pursuant thereto, and (c) waive compliance by the other party
with any of the agreements or conditions contained therein.
COMPARISON OF SHAREHOLDERS RIGHTS
Preemptive Rights; Cumulative Voting
Neither Delaware nor Texas corporation law require shareholders to have
preemptive rights or the right of cumulative voting. Shareholders of ETC-Texas
do not now have preemptive rights or the right of cumulative voting. Since the
Surviving Corporation Charter denies such rights, the ETC-Texas shareholders
will not have such rights as shareholders of the Surviving Corporation.
Voting Rights
Under Texas law, shareholders have the right to vote on all mergers to
which the corporation is a party (except for the merger into the surviving
corporation if subsidiaries are owned 90% or more by the surviving corporation
for which a shareholder vote is not required under Texas law). In certain
circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such transactions. Unless the articles of
incorporation provide otherwise, approval of the holders of at least sixty-six
and two-thirds percent (66-2/3%) of all outstanding shares entitled to vote is
required by Texas law to approve a merger, while under Delaware approval by the
holders of a majority of all outstanding shares is required to approve a merger,
unless the certificate of incorporation provides otherwise. The Surviving
Corporation Charter does not provide otherwise. Unless the articles of
incorporation provide otherwise, the approval of the shareholders of the
surviving corporation of the merger is not required under Texas law if (1) the
corporation is a sole surviving corporation in the merger; (2) there is no
amendment to the corporation's articles of corporation; (3) each shareholder
holds the same number shares after the merger as before, with identical
designation, preferences, limitations and relative rights; (4) the voting power
of the shares outstanding after the merger plus the voting power of the shares
issuable as a result of the merger (taking into account convertible securities
and warrants, options or other rights to purchase securities issued pursuant to
the merger) does not exceed the voting power of the shares outstanding prior to
the merger by more than 20%; (5) the number of participating shares (that is,
shares whose holders are entitled to participate without limitation in dividends
or other distributions) outstanding after the merger plus the participating
shares issuable as a result of the merger (taking into account convertible
securities and warrants, option or other rights to purchase securities issued
pursuant to the merger) does not exceed the number of participating shares
outstanding prior to the merger by more than 20%; and (6) the board of directors
of the surviving corporation adopts a resolution approving the plan of merger.
Under Delaware law, unless a certificate of incorporation provides
otherwise, shareholders of the surviving corporation in the merger have no right
to vote, except under limited circumstances, on the acquisition by merger
directly into the surviving corporation in cases where (1) the agreement of
merger does not amend in any respect the certificate of incorporation of such
corporation, (2) each share of stock of such corporation outstanding immediately
prior to the effective date is to be an identical outstanding or treasury share
of the corporation after the effective date of the merger, and (3) the
authorized unissued shares of the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such corporation outstanding immediately prior to the
effective date of the merger. The Surviving Corporation Charter does not alter
the statutory rules described above.
Sale, Lease or Disposition of Property
The sale, lease, exchange or other disposition (not including any pledge,
mortgage, deeds of trust or trust indenture, unless otherwise provided in the
articles of incorporation) of all, or substantially all, the property and assets
of a Texas corporation if not made in the usual and regular course of its
business, requires the approval of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding shares of the corporation. A
Delaware corporation may sell, lease or exchange all or substantially all of its
property and assets when and as authorized by a majority of the outstanding
stock of the corporation entitled to vote thereon, unless the certificate of
incorporation provides to the contrary. The Surviving Corporation Charter does
not so provide.
Appraisal Rights
Shareholders of Texas corporations have appraisal rights in the event of a
merger (except for the limited classes of mergers for which no shareholder vote
is required under Texas law and as set forth hereunder), consolidation or sale,
lease, exchange or other disposition of all, or substantially all, of the
property and assets of the corporation. Notwithstanding the foregoing, a
shareholder of a Texas corporation has no appraisal rights with respect to any
plan of merger in which there is a single surviving or new domestic or foreign
corporation, or from any plan of exchange, if (1) the shares held by the
shareholder
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are part of a class of shares of which are listed on a national securities
exchange, or held of record by not less than 2,000 holders, on the record date
for the plan of merger or the plan of exchange, and (2) the shareholder is not
required by the terms of the plan of merger or exchange to accept for his shares
any consideration other than (a) shares of a corporation that, immediately after
the merger or exchange, will be part of a class or series of shares which are
(i) listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, or (ii) held of record by not less than 2,000
holders, and (b) cash in lieu of fractional shares otherwise entitled to be
received. The appraisal rights of a shareholder of a Texas corporation are
summarized herein under "The Merger -- Rights of Dissenting Shareholders."
Shareholders of a Delaware corporation have no appraisal rights in the
event of a merger or consolidation of the corporation if the stock of the
Delaware corporation is listed on a national securities exchange or such stock
is held of record by more than 2,000 shareholders, or in the case of a merger in
which the Delaware corporation is the surviving corporation, if: (1) the
agreement of merger does not amend the certificate of incorporation of the
surviving corporation, (2) each share or stock of the surviving corporation
outstanding immediately prior to the effective date of the merger is to an
identical outstanding share of the surviving corporation after the effective
date of the merger, and (3) the increase in the outstanding shares is a result
of the merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger. Even if appraisal rights would not
otherwise be available under Delaware law in the cases described in the
preceding sentence, shareholders would have appraisal rights nevertheless if
they were required by the terms of the agreement of merger or consolidation to
accept for their stock anything other than the shares of stock of either the
surviving corporation or of any other corporation whose shares will be either
listed on a national securities exchange or held of record by more than 2,000
shareholders, or cash in lieu of fractional shares, or a combination of said
shares in cash. Otherwise, shareholders of a Delaware corporation have appraisal
rights in consolidations and mergers. Under Delaware law, any corporation may
provide to its certificate of incorporation that appraisal rights will also be
available as a result of an amendment to its certificate or incorporation or the
sale of all or substantially all of the assets of the corporation. No such
provisions are in the Surviving Corporation Charter.
Shareholder Action; Election of Directors; Voting
Under Texas law, any action to be taken by shareholders may be taken
without a meeting, without prior notice and without a vote if all shareholders
entitled to vote on the matter consent to the action in writing. If a
corporation's articles of incorporation so provide, shareholder action may be
taken under Texas law by a consent signed by the holders of outstanding stock
having not less than the minimum number of votes would be necessary to authorize
or take such action at a meeting. Under Delaware law, unless a certificate of
incorporation provides otherwise, any action to be taken by shareholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the actions that are taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Surviving Corporation
Charter does alter the statutory rule as to action which may taken by written
consent of the shareholders by prohibiting same.
Under Texas law, any vacancy occurring in the board of directors may be
filled by the shareholders or by the affirmative vote of a majority of the
remaining directors. A directorship to be filled by reason of an increase in the
number of directors may be filled by the shareholders or by the board of
directors for a term of office continuing only until the next election of one or
more directors by the shareholders, provided that the board of directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders. Under Delaware law, unless a
certificate of incorporation or bylaws provide otherwise, vacancy and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office. The
Surviving Corporation Charter does not provide otherwise.
Under Texas law, holders of not less than 10% of all the shares entitled to
vote have the right to call a special shareholders' meeting, unless the articles
of incorporation provide for a number of shares greater than or less than 10%,
in which event, special meetings of the shareholders may be called by holders of
at least the percentage of shares so specified in the articles of incorporation,
but in no event may the articles of incorporation provide for a number of shares
greater than 50% is required to call a special shareholders' meeting. Delaware
law provides that special meetings of shareholders may be called by the board of
directors or such other persons as are authorized in the certificate of
incorporation of bylaws. The Surviving Corporation Bylaws provide for the call
of a special shareholders' meeting by the Board of Directors, the Chairman of
the Board of Directors, the President of the Company, or by the holders of at
least 10% of the outstanding Continued Common Stock entitled to vote at such
meeting.
Business Combination; Takeovers
Under Section 203 of the DGCL, unless a corporation expressly elects to
have such provision not apply, no person who has acquired 15% of a Delaware
corporation's voting stock (with certain exceptions) may enter into a business
combination with the corporation for three years after acquiring 15% ownership,
unless the board of directors has approved the transaction or exempted the
person before he reached the 15% threshold or unless one of two exemptions is
satisfied: (i) upon consummation of the transaction resulting in such person
reaching the 15% threshold he owned at least 85% of the corporation's
outstanding voting stock (excluding shares owned by certain corporate insiders
in employee stock plans), or (ii) the business combination is approved by the
corporation's board of directors and authorized the holders of at least
two-thirds of the outstanding voting
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stock (excluding that owned by the acquiring person). The Surviving Corporation
expressly elected to opt out of the provisions of Section 203 of the DGCL. No
similar statute currently exists under Texas law.
DESCRIPTION OF COMPANY CAPITAL STOCK
General
The Company's authorized capital consists of two classes of shares, one
consisting of an unlimited number of Class A Common Stock, no par value (the
"Company Common Stock"), and an unlimited number of Class B Redeemable Preferred
Stock, no par value (the "Preferred Stock"). As of May 31, 1996, there were
2,007,145 shares of Company Common Stock outstanding and no shares of Preferred
Stock outstanding. As of such date, there were approximately 147 holders of
record of the Company Common Stock, plus a larger number of unregistered
shareholders whose shares were held in brokerage accounts.
Company Common Stock
The holders of Company Common Stock are entitled to one vote for each share
in all matters submitted to a vote of shareholders. The holders of Company
Common Stock do not have cumulative voting rights for the election of directors.
The holders of Company Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Company's Board of Directors out of
legally available funds. In the event of liquidation, dissolution or winding up
of the Company, the holders of the Company Common stock are entitled to share
ratably in all assets of the Company remaining after provision for payment of
liabilities in satisfaction of the liquidation preference of any shares of
Preferred Stock that may be outstanding. The holders of Company Common Stock
have no preemptive, subscription, redemptive or conversion rights. The
outstanding shares are fully paid and non-assessable. The rights, preferences
and privileges of the holders of Company Common Stock may be subject to those of
holders of Preferred Stock, if such securities should ever be issued. See
"--Preferred Stock".
Preferred Stock
The Board of Directors of the Company is authorized, without further
shareholder action, to issue any of the undesignated shares of Preferred Stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, redemption rights and
terms, including sinking fund provisions, and certain other rights and
preferences of such shares of the Preferred Stock.
DESCRIPTION OF ETC-TEXAS CAPITAL STOCK
General
ETC-Texas' authorized capital consists of 8,000,000 shares of common stock,
no par value (the "ETC-Texas Common Stock"), and 2,000,000 shares of preferred
stock, no par value (the "ETC-Texas Preferred Stock"). As of May 31, 1996, there
were 7,157,601 shares of ETC-Texas Common Stock outstanding and no shares of
ETC-Texas Preferred Stock outstanding. As of such date, there were approximately
150 holders of record of ETC-Texas Common Stock.
ETC-Texas Common Stock
The holders of ETC-Texas Common Stock are entitled to one vote for each
share in all matters submitted to a vote of shareholders. The holders of
ETC-Texas Common Stock do not have cumulative voting rights for the election of
directors. The holders of ETC-Texas Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by ETC-Texas' Board of Directors out
of legally available funds. In the event of liquidation, dissolution or winding
up of ETC-Texas, the holders of ETC-Texas Common stock are entitled to share
ratably in all assets of ETC-Texas remaining after provision for payment of
liabilities in satisfaction of the liquidation preference of any shares of
ETC-Texas Preferred Stock (as defined below) that may be outstanding. The
holders of ETC-Texas Common Stock have no preemptive, subscription, redemptive
or conversion rights. The outstanding shares are fully paid and non-assessable.
The rights, preferences and privileges of the holders of ETC-Texas Common Stock
may be subject to those of holders of ETC-Texas Preferred Stock, if such
securities should ever be issued. See "ETC-Texas Preferred Stock."
ETC-Texas Preferred Stock
The Board of Directors of ETC-Texas is authorized, without further
shareholder action, to issue any of the undesignated shares of ETC-Texas
Preferred Stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms, including sinking fund provisions, and certain other rights
and preferences of such shares of ETC-Texas Preferred Stock.
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DESCRIPTION OF SURVIVING CORPORATION CAPITAL STOCK
General
The Surviving Corporation's authorized capital will consist of 15,000,000
shares of common stock, $0.001 par value (the "Continued Common Stock"), and
2,000,000 shares of preferred stock, $1.00 par value (the "Surviving Corporation
Preferred Stock").
Continued Common Stock
The holders of Continued Common Stock will be entitled to one vote for each
share in all matters submitted to a vote of shareholders. The holders of
Continued Common Stock will not have cumulative voting rights for the election
directors. The holders of Continued Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Surviving Corporation's Board
of Directors out of legally available funds. In the event of liquidation,
dissolution or winding up of the Surviving Corporation, the holders of Continued
Common Stock are entitled to share ratably in all assets of the Surviving
Corporation remaining after provision for payment of liabilities in satisfaction
of the liquidation preference of any shares of Surviving Corporation Preferred
Stock that may be issued and outstanding. The holders of Continued Common Stock
shall have no preemptive, subscription, redemptive or conversion rights. The
rights, preferences and privileges of the holders of Continued Common Stock may
be subject to those of holders of Surviving Corporation Preferred Stock, if such
securities should ever be issued. See "Surviving Corporation Preferred Stock."
Surviving Corporation Preferred Stock
The Board of Directors of the Surviving Corporation shall be authorized,
without further shareholder action, to issue any of the undesignated shares of
Surviving Corporation Preferred Stock in one or more series and to fix the
voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences of such shares of the
preferred stock.
Certain Provisions of the Surviving Corporation Charter
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its shareholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors exercise
an informed business judgment based on material information reasonably available
to them. Absent the limitations authorized by such provisions, directors are
accountable to corporations and their shareholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Although Section 102 of the DGCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. Pursuant to such provisions, the Surviving Corporation
Charter limits the personal liability of the Surviving Corporation's directors,
in their capacity as directors (but not in their capacity as officers) to the
Surviving Corporation or its shareholders to the fullest extent permitted by the
DGCL. Specifically, a Surviving Corporation director will not be personally
liable to the Surviving Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for (i) any breach of the
director's duty of loyalty to the Surviving Corporation or its shareholders, (i)
acts or omissions not in good faith or which involve intentional misconduct and
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions, and (iv) any transaction from
which the director derived an improper personal benefit.
The inclusion of this provision may have the effect of reducing the
likelihood of derivative litigation against directors and discourage or deter
shareholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Surviving Corporation and its shareholders.
However, the inclusion of this provision together with the provision which
requires the Surviving Corporation to indemnify its officers and directors
against certain liabilities, is intended to enable the Surviving Corporation to
attract qualified persons to serve as directors who might otherwise be reluctant
to do so.
Transfer Agent
The Transfer Agent for the Continued Common Stock shall be Securities
Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248,
(214) 248-1922.
EXPERTS
The financial statements and financial statement schedules for fiscal years
ended December 31, 1995 and 1994 for the Company and for the fiscal years ended
December 31, 1995 and 1994 for ETC-Texas, to the extent of and for the periods
indicated in the reports, have been audited by Simonton, Kutac & Barnidge,
L.L.P., independent public accountants, and have been incorporated by reference
herein and in the Registration Statement in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
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LEGAL MATTERS
The validity of the shares of Company Common Stock to be issued as a result
of the Continuance and the Merger has been passed upon for the Company by
Beaumont Church, Barristers and Solicitors, Calgary, Alberta, Canada. The
validity of the shares of Continued Common Stock to be issued as a result of the
Continuance and upon consummation of the Merger has also been passed upon for
the Company by Looper, Reed, Mark & McGraw Incorporated, Dallas, Texas. Looper,
Reed, Mark & McGraw Incorporated has also issued an opinion regarding certain
tax matters related to the Merger.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C., a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended, with respect to the Common Stock of the
Company which may be distributed to Company shareholders in connection with this
Proxy Statement/Prospectus. This Proxy Statement/Prospectus, filed as part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement, as permitted by the Rules and Regulations of the
Securities and Exchange Commission. For further information with respect to the
Company and the Registration Statement and to the Exhibits filed as a part
thereof (Registration Statement No. __________________), which may be inspected
at the office of the Securities and Exchange Commission without charge, or
copies thereof may be obtained therefrom upon payment of a fee prescribed by the
Securities and Exchange Commission.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
Delaware corporation has the power, under specified circumstances, to indemnify
its directors, officers, employees and agents in connection with threatened,
pending or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in right of the
corporation), brought against them by reason of the fact that they were or are
such directors, officers, employees or agents, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in any
such action, suit or proceeding. Article Tenth of the Certificate of
Incorporation of the Surviving Corporation together with Article VI of its
Bylaws provide for indemnification of each person who is or was made a party to
any actual or threatened civil, criminal, administrative or investigative
action, suit or proceeding because such person is or was an officer or director
of the Surviving Corporation or is a person who is or was serving at the request
of the Surviving Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service relating to employee benefit plans, to the fullest
extent permitted by the DGCL as it existed at the time the indemnification
provisions of the Surviving Corporation's Certificate of Incorporation and the
Bylaws were adopted or as may be thereafter amended. Article VI of the Surviving
Corporation's Bylaws and Article Tenth of its Certificate of Incorporation
expressly provide that they are not the exclusive methods of indemnification.
Article VI of the Bylaws and Article Tenth of the Certification of
Incorporation also provide that the Surviving Corporation may maintain
insurance, at its own expense, to protect itself and any director, officer,
employee or agent of the Surviving Corporation or of another entity against any
expense, liability or loss, regardless of whether the Surviving Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director' duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock), or (iv) for any transaction from which the director derived an
improper personal benefit. Article Eleventh of the Surviving Corporation's
Certificate of Incorporation contains such a provision.
Item 21. Exhibits and Financial Schedules
A. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
2.1 Agreement and Plan of Merger dated as of May 1, 1996, by and among the
Registrant and Electronic Transmission Corporation.
3.1 Articles of Incorporation of the Registrant, dated September 5, 1986.
3.2 Articles of Amendment to the Articles of Incorporation of the
Registrant, dated March 26, 1996.
3.3 Bylaws of the Registrant, dated September 5, 1986.
3.4 Form of Certificate of Incorporation of the Registrant, as continued
and domesticated into the State of Delaware
3.5 Form of Bylaws of the Registrant, as continued and domesticated into
the State of Delaware.
4.1 Specimen of Continued Common Stock Certificate.
5.1 Opinion of Looper, Reed, Mark & McGraw Incorporated regarding the
legality of the securities being registered.
5.2 Opinion of Beaumont Church, Barristers and Solicitors, regarding the
legality of the securities being registered.
8.1 Opinion of Looper, Reed, Mark & McGraw Incorporated regarding tax
matters.
9.1 Voting Trust Agreement, dated January 26, 1995, between Sterling
National Corporation and holders of Sterling Options.
II-1
<PAGE>
10.1 Bill of Sale, dated effective January 1, 1995, by and between
Electronic Transmission Corporation and Sterling National Corporation.
10.2 Agreement for Processing Medical Claims on a Temporary Basis, dated
effective March 5, 1996, by and between Electronic Transmission
Corporation and Wal-Mart.
10.3 Equipment Lease and Stock Option Agreement, effective April 23, 1996,
by and between Electronic Transmission Corporation and Ironwood
Leasing Limited.
10.4 Letter Agreement, dated June 20, 1996, between Electronic Transmission
Corporation and Ironwood Leasing Limited.
10.5 Promissory Note, dated June 1, 1996, in the principal amount of
$779,575.50, executed in favor of the Registrant by Electronic
Transmission Corporation.
10.6 Staff Leasing Services Agreement, dated effective December 15, 1995,
by and between Network Employers Group, Inc. and Electronic
Transmission Corporation.
10.7 Employment and Settlement Agreement, dated January 2, 1995, between
Electronic Transmission Corporation and L. Cade Havard.
10.8 Employment and Settlement Agreement, dated December 4, 1995, between
Electronic Transmission Corporation and Elaine Boze.
10.9 Employment and Settlement Agreement, dated March 1, 1995, between
Electronic Transmission Corporation and Timothy P. Powell.
10.10Employment Agreement, dated May 1, 1996, between Electronic
Transmission Corporation and Ann C. McDearmon.
10.11Employment Agreement, dated April 1, 1996, between Electronic
Transmission Corporation and Louann Smith.
10.12Settlement and Employment Agreement, dated May 1, 1996, between
Electronic Transmission Corporation and Roy W. Mers.
10.13Office Lease, dated January 5, 1995, by and between Natron Limited
Partnership and Electronic Transmission Corporation, including
amendments thereto.
16.1 Form of Notice of Change of Auditor.
16.2 Letter of Hans P. Cremers, Chartered Accountant, dated June 24, 1996.
16.3 Letter of Simonton, Kutac & Barnidge, L.L.P., dated June 24, 1996.
23.1 Consent of Looper, Reed, Mark & McGraw Incorporated (set forth in
Exhibit 5.1).
23.2 Consent of Beaumont Church, Barristers and Solicitors (set forth in
Exhibit 5.2).
23.3 Consent of Simonton, Kutac & Barnidge, L.L.P. as to the financial
statements of the Registrant.
23.4 Consent of Simonton, Kutac & Barnidge, L.L.P. as to the financial
statements of Electronic Transmission Corporation.
24.1 Power of Attorney. (See page II-4 of the Registration Statement).
27.1 Financial Data Schedule
99.1 Form of Proxy for the Registrant.
99.2 Form of Proxy for Electronic Transmission Corporation.
B. Financial Statement Schedules:
Not applicable.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
II-2
<PAGE>
(i) To include any prospectus required in Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering;
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request; and
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the Registration
Statement when it became effective.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 20 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 28th day of June, 1996.
ETC TRANSACTION CORPORATION
(Registrant)
By:/s/ L. Cade Havard
L. Cade Havard, Chief
Executive Officer
POWER OF ATTORNEY
We, the below signed directors and officers of ETC Transaction Corporation,
do hereby constitute and appoint L. Cade Havard, with full power of substitution
our true and lawful attorney and agent, to do any and all acts and things in our
names in the capacities indicated which L. Cade Havard may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in connection with this Registration Statement, including
specifically, but not limited to, the power and authority to sign for us, or any
of us in our names in the capacities indicated and any and all amendments
(including post-effective amendments) to this Registration Statement; and we do
hereby ratify and confirm all that L. Cade Havard shall do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chief Executive Officer,
/s/L. Cade Harvard Chairman of the Board June 28, 1996
L. Cade Havard of Directors and
Principal Financial and
Accounting Officer
/s/Edward Bollinger Director June 28, 1996
Edward Bollinger
/s/Katherine L. MacDonald Director June 28, 1996
Katherine L. MacDonald
II-4
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The Company
Independent Auditors' Report.................................................F-2
Balance Sheets as of December 31, 1995 and 1994..............................F-3
Statements of Operations and Accumulated Deficit for
the years ended December 31, 1995 and 1994..............................F-4
Statements of Cash Flows for the years ended
December 31, 1995 and 1994..............................................F-5
Notes to the Financial Statements............................................F-6
ETC - Texas
Independent Auditors' Report................................................F-11
Balance Sheets as of December 31, 1995 and 1994.............................F-12
Statements of Operations for the years ended
December 31, 1995 and 1994.............................................F-13
Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1994.............................................F-14
Statements of Cash Flows for the years ended
December 31, 1995 and 1994.............................................F-16
Notes to the Financial Statements...........................................F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
April 3, 1996
To the Board of Directors and Shareholders of
Solo Petroleums Ltd.
We have audited the balance sheets of Solo Petroleums Ltd. as of December 31,
1995 and 1994 and the statements of operations and accumulated deficit and
statement of cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solo Petroleums Ltd. as of
December 31, 1995 and 1994 and the results of its operations and cash flows for
the years then ended in accordance with generally accepted accounting
principles.
As described in Note 2, the accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has been
inactive since 1992 and has accumulated a deficit of $1,057,297 as well as a
working capital deficiency of $980,930. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Unless the Company
obtains additional financing, it will not be able to meet its obligations as
they come due and it will be unable to execute its long-term business plan. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
F-2
<PAGE>
SOLO PETROLEUMS LTD.
BALANCE SHEETS
(Stated in U.S. Dollars)
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 143 $ 140
---------------- ---------------
Total current assets $ 143 $ 140
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 110,845 $ 110,481
Due to shareholder 201,111 201,111
Loan payable 23,647 23,201
Accrued debenture interest payable 40,470 339,668
Short term debentures 605,000 605,000
---------------- ---------------
Total current liabilities 981,073 1,279,461
---------------- ---------------
Stockholders' equity:
Preferred stock, no par value, unlimited shares
authorized; no shares issued and outstanding -- --
Common stock, no par value, unlimited shares
authorized; 3,250,000 shares issued and
outstanding 87,567 87,567
Accumulated deficit (1,068,497) (1,366,888)
---------------- ---------------
(980,930) (1,279,321)
-------- ----------
$ 143 $ 140
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SOLO PETROLEUM LTD
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Expenses:
Interest on debentures $ 93,375 $ 121,000
Other expense (income) 807 (1,189)
---------------- ---------------
Total expenses 94,182 119,811
---------------- ---------------
Loss before extraordinary items (94,182) (119,811)
Extraordinary item:
Gain on forgiveness of interest 392,573 --
---------------- ---------------
Net income (loss) 298,391 (119,811)
Accumulated deficit, beginning of year (1,366,888) (1,247,077)
---------------- ---------------
Accumulated deficit, end of year $ (1,068,497) $ (1,366,888)
================ ===============
Earnings (loss) per share:
Primary $ 0.09 $ (0.04)
================ ===============
Fully diluted $ 0.06 $ (0.04)
================ ===============
Weighted average number of shares outstanding:
Primary $ 3,250,000 $ 3,250,000
================ ===============
Fully diluted $ 4,821,784 $ 3,250,000
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SOLO PETROLEUM LTD
STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ 298,391 $ (119,811)
Adjustments to reconcile net loss to
net cash used in operating activities:
Non-cash change in working capital (298,388) 119,807
---------------- ---------------
Net cash provided by operating activities 3 (4)
Cash, beginning of year 140 144
---------------- ---------------
Cash, end of year $ 143 $ 140
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SOLO PETROLEUMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
(Stated in U.S. Dollars)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND
History -- The Company has been inactive since 1992 and is currently in the
process of re-organizing its affairs. The Company is subject to a "Cease Trade
Order" issued by the Alberta Securities Commission for failing to file annual
audited financial statements for the year ended December 31, 1991 and the first
quarter interim unaudited statements for the period ended March 31, 1992 and
further that Solo failed to concurrently send the foregoing financial statements
to each holder of its securities.
The Company's common shares were automatically removed from the Alberta Stock
Exchange (the "ASE") on January 12, 1993, due to trading in its securities being
suspended for six months. The Company has no intention to apply to relist on the
ASE.
The following is a summary of the Company's proposed activities in connection
with the reorganization of its affairs:
(i) Common share capital to be consolidated on a 1 for 5 basis;
(ii) Change its name to "ETC Transaction Corporation";
(iii)Settle $552,500 of convertible debenture debt by the issuance of
552,500 post consolidated shares;
(iv) Settle $83,816 of trade creditor debt and $201,111 of shareholder debt
by the issuance of 284,927 post consolidated shares;
(v) Continue out of the Province of Alberta and into the State of
Delaware;
(vi) Complete a merger with Electronic Transmission Corporation ("ETC"), a
Texas, USA based private company. The merger would become effective in
consideration of Solo issuing 1.25 post consolidated shares of common
stock for each issued and outstanding shares of common stock in ETC.
As of April 3, 1996, ETC had 6,545,935 shares issued and outstanding
and accordingly, the merger would result in the issuance of 8,182,419
shares of Solo common stock. The merger would be accounted for using
the pooling of interest method.
F-6
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND
(Continued)
(vii)Solo and ETC file concurrently with the United States Securities and
Exchange Commission (the "SEC") a S-4 Registration Statement for the
purpose of registering the Common Shares to be issued and outstanding
in Solo, after giving effect to the preceding transactions and merger.
On January 8, 1996 Solo filed with the ASC and sent to its security holders its
annual audited financial statements for the years ending December 31, 1991 to
and including 1994 and its interim unaudited quarterly financial statements for
the periods ending March 31, 1995, June 30, 1995 and September 30, 1995.
On March 12, 1996, in accordance with an order from the Court of Queen's Bench
of Alberta allowing Solo to hold its 1990 through 1994 annual meetings in 1996,
Solo held a special and annual meeting of its shareholders at which time items
(i), (iii) and (iv) were voted on and approved.
On March 21, 1996 the ASC varied its Cease Trade Order for the purpose of
completing the merger of Solo and ETC and items (iii) and (iv), the ASC also
ordered that its Cease Trade Order would be revoked forty-eight (48) hours after
delivery of the ASC of:
(i) verification that the SEC has declared effective the Registration
Statement on S-4;
(ii) confirmation by Solo of the issuance of a press release setting out
the material terms of the merger with ETC and the continuance of Solo
out of the Province of Alberta into the State of Delaware.
On March 26, 1996, the Company underwent a name change to "ETC Transaction
Corporation."
F-7
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND
(Continued)
On April 1, 1996, the Company issued 552,500 post consolidated common shares in
the Company to Debenture Holders representing $552,500 of debt in full and final
settlement of all obligations under the debentures. In addition, the Company
issued 83,816 post consolidated shares of common stock to Trade Creditors in
full and final settlement of all obligations under $83,816 debt. $26,500 of this
debt was owed to a former officer of the Company. The Company also issued
201,111 post consolidated shares of common stock to shareholders in full and
final settlement of all obligations under $201,111 debt. $160,215 of this debt
was owed to the Chairman of the Board/President of the Company and $40,896 was
owed to companies directly controlled by the Chairman of the Board/President of
the Company.
The proposed merger of Solo and ETC is subject to the approval of the
shareholders of Solo and ETC and possible other regulatory authorities, which
has not been obtained as of April 3, 1996.
Earnings (Loss) Per Share -- Primary earnings (loss) per share is based upon the
weighted average number of shares outstanding during the year (1995 - 3,250,000
shares; 1994 - 3,250,000 shares). Fully diluted earnings per share is calculated
on the weighted average number of shares that would have been outstanding during
the year had the trade creditor debt outstanding at year end that is to be
converted into common shares at the settlement date (1995 - 4,821,784 shares).
In 1994, common stock equivalents were excluded the calculation of earnings per
share as such inclusion would have an anti-dilutive effect; therefore, fully
diluted earnings per share is considered to be the same as primary earnings per
share.
NOTE 2 - GOING CONCERN AND CONTINUED OPERATIONS
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern. Accordingly, they
do not reflect adjustments that would be necessary should the Company be unable
to continue as a going concern and therefore be required to realize its assets
and liquidate its liabilities and commitments in other than the normal course of
business and at amounts different from those in the accompanying financial
statements.
F-8
<PAGE>
NOTE 2 - GOING CONCERN AND CONTINUED OPERATIONS (Continued)
Because of the accumulated deficit of $1,068,497 and a working capital
deficiency of $980,930 as of December 31, 1995, the Company's ability to
continue as a going concern is dependent upon its ability to obtain adequate
financing and/or complete its proposed merger. It is not possible to predict
whether financing efforts will be successful or if the Company will attain
profitable levels of operation.
NOTE 3 - CONVERTIBLE SHORT-TERM DEBENTURES
During 1991 and 1992, the Company issued $500,000 and $105,000, respectively,
for a total of $605,000 in short-term convertible debentures. These were due 180
days from issuance bearing an interest rate of 20%. The debentures provided for
the holder to receive ten common shares of common stock for each one U.S. dollar
of debenture.
During 1995, debenture holders formally agreed to forgive all accrued interest
on the debentures and convert the debentures into 552,500 post consolidated
shares of common stock in settlement of all obligations under the $552,500 of
outstanding debt. The accrued interest was charged to income in 1995 as an
extraordinary item for early extinguishment of debt. On April 1, 1996, the
Company converted the $552,500 of debentures into 552,500 common shares of the
Company.
NOTE 4 - RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1995 and 1994, is accounts payable
to previous officers totaling $26,500.
Amounts due to shareholders are for prior services rendered and working capital
infusions.
F-9
<PAGE>
NOTE 5 - INCOME TAXES
The Company has Canadian net operating loss carryforwards for Canadian tax
purposes totaling $255,000 Cdn that are available to offset its future Canadian
income tax liability. The net Canadian loss carryforwards expire as follows:
1996 $ 41,000 Cdn
1997 214,000 Cdn
----------------
$ 255,000 Cdn
The Company has U.S. net operating loss carryfowards for U.S. tax purposes
totaling $769,000 that are available to offset its future U.S. income tax
liability. The net U.S. operating loss carryforwards expire as follows:
2006 $ 170,000
2007 362,000
2008 117,000
2009 120,000
----------------
$ 769,000
Realization of the benefit of these net operating loss carryforwards appears
uncertain, accordingly, a valuation allowance of $127,500 Canadian and U.S. has
been recorded against the deferred tax asset resulting from the net operating
loss carryforwards. There are no other significant temporary differences for
financial and income tax reporting purposes at December 31, 1995 or 1994.
NOTE 6 -SUBSEQUENT EVENT
On May 15, 1996, the Company sold 519,717 shares in a private placement offering
of common stock to raise working capital to fund its post-merger business plan.
The private placement issued common stock at a price of $1.50 per share and
raised $779,575 in capital. Upon completion of the offering, the capital was
advanced to ETC for use as working capital.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
April 30, 1996
To the Board of Directors and Shareholders
of Electronic Transmission Corporation:
We have audited the accompanying balance sheets of Electronic Transmission
Corporation (a development stage enterprise), as of December 31, 1995 and 1994
and the related statements of operations, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electronic Transmission
Corporation as of December 31, 1995 and 1994, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
As described in Note 2, the accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
experienced a net loss of $1,093,329 and has not generated any significant
revenue since its inception. Additionally, the Company's current assets exceeded
its current liabilities by $53,346 at December 31, 1995. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Unless the Company obtains additional financing, it will not be able to meet its
obligations as they come due and it will be unable to execute its long-term
business plan. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/S/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
F-11
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash $ 114,885 $ 1,000
Accounts receivable 7,059 --
Employee advances 5,734 --
Advances to shareholder 82,744 --
Prepaid expense 9,204 --
-------------- --------------
Total current assets 219,626 1,000
-------------- --------------
Office furniture and equipment 169,521 --
Less: accumulated depreciation (32,173) --
-------------- --------------
Office furniture and equipment, net 137,348 --
-------------- --------------
Total Assets $ 356,974 $ 1,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 56,340 $ --
Interest payable 809 --
Accrued payroll and payroll taxes 109,131 --
-------------- --------------
Total current liabilities 166,280 --
-------------- --------------
Stockholders' Equity:
Preferred stock, no par value; 2,000,000 shares
authorized; no shares issued and outstanding
as of December 31, 1995 and 1994 -- --
Common stock, no par value; 8,000,000 shares
authorized; 6,158,210 and 1,000 shares issued
and outstanding as of December 31, 1995 and
1994, respectively 1,494,023 1,000
Deficit accumulated during the development stage (1,303,329) --
-------------- --------------
Total Stockholders' Equity 190,694 1,000
-------------- --------------
Total Liabilities And Stockholders' Equity $ 356,974 $ 1,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Years ended December 31, 1995 and 1994 and Period
from December 22, 1994 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
Period from
December 22,
Years Ended 1994 to
December 31, December 31
------------ -----------
1995 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service revenues, earned during development stage $ 66,612 $ -- $ 66,612
Costs and expenses:
Direct costs, incurred during development stage 40,764 -- 40,764
Start up costs 939,347 -- 939,347
Research and development 179,830 -- 179,830
------------- ------------- ----------------
Total costs and expenses 1,159,941 -- 1,159,941
------------- ------------- ----------------
Loss before income taxes (1,093,329) -- (1,093,329)
Income tax provision -- -- --
------------- ------------- ----------------
Net loss $ (1,093,329) $ -- $ (1,093,329)
============= ============= ================
Loss per common share:
Primary and full-diluted $ (0.24) $ --
============= =============
Weighted average common shares outstanding:
Primary and full-diluted 4,523,146 53
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
Period from December 22, 1994 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
$ Per Development
Shares Share Amount Stage Total
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Balance at December 22,1994
(date of inception) -- $ -- $ -- $ -- $ --
Issuance of shares for cash 1,000 1.0000 1,000 -- 1,000
----------- ------- ---------- ------------- ---------------
Balance at December 31, 1994 1,000 $ 1,000 $ -- $ 1,000
Issuance of shares for business 3,965,100 0.0052 20,751 -- 20,751
Dividend paid -- -- (210,000) (210,000)
Issuance of shares for cash 79,000 0.0040 316 -- 316
Issuance of shares for cash
to related party 50,000 0.0040 200 -- 200
Issuance of shares for cash 268,449 0.0373 10,000 -- 10,000
Issuance of shares for cash 20,000 0.0500 1,000 -- 1,000
Issuance of shares for cash
to related party 4,800 0.0600 288 -- 288
Issuance of shares for cash 258,288 0.1192 30,793 -- 30,793
Issuance of shares for cash 271,430 0.2210 60,000 -- 60,000
Issuance of shares for cash 16,000 0.3125 5,000 -- 5,000
Issuance of shares for cash 5,200 0.3846 2,000 -- 2,000
Issuance of shares for cash 120,212 0.6322 76,000 -- 76,000
Issuance of shares for cash 26,667 0.7500 20,000 -- 20,000
Issuance of shares for cash 58,824 0.8500 50,000 -- 50,000
Issuance of shares for cash
to related party 50,000 0.8640 43,200 -- 43,200
Issuance of shares for cash 202,000 1.0000 202,000 -- 202,000
Issuance of shares for cash 582,040 1.2500 727,550 -- 727,550
Issuance of shares for cash
to related party 55,200 1.2500 69,000 -- 69,000
Issuance of shares for cash 3,000 1.5000 4,500 -- 4,500
Issuance of shares for cash 5,000 2.5000 12,500 -- 12,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Period from December 22, 1994 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------ During the
$ Per Development
Shares Share Amount Stage Total
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Issuance of shares for services
to related party 4,000 1.0000 4,000 -- 4,000
Issuance of shares for furniture
and equipment 16,000 2.1200 33,925 -- 33,925
Issuance of shares on conversion
of convertible debentures 96,000 1.2500 120,000 -- 120,000
Net loss -- -- (1,093,329) (1,093,329)
----------- ---------- ------------- ------------
Balance at December 31, 1995 6,158,210 $1,494,023 $ (1,303,329) $ 190,694
=========== ========== ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994 and Period
from December 22, 1994 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
Period from
December 22,
Years Ended 1994 to
December 31, December 31
------------ -----------
1995 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,093,329) $ -- $ (1,093,329)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Non-cash issuance of common stock for
services rendered 4,000 -- 4,000
Depreciation and amortization 32,173 -- 32,173
Increase in accounts receivable - trade (7,059) -- (7,059)
Increase in employee advances (5,734) -- (5,734)
Increase in advances to shareholder (82,744) -- (82,744)
Increase in prepaid expense (9,204) -- (9,204)
Increase in accounts payable 56,340 -- 56,340
Increase in interest payable 809 -- 809
Increase in accrued payroll and payroll taxes 109,131 -- 109,131
------------- ------------- ----------------
Net Cash Used in Operating Activities (995,617) -- (995,617)
Cash Flows From Investing Activities:
Purchase of office furniture and equipment (114,845) -- (114,845)
-------------- ------------- ----------------
Net Cash Used in Investing Activities (114,845) -- (114,845)
------------- ------------- ----------------
Cash Flows by Financing Activities:
Issuance of convertible debentures 120,000 -- 120,000
Dividend paid (210,000) -- (210,000)
Issuance of common stock for cash 1,314,347 1,000 1,315,347
--------- ------------- ----------------
Net Cash Provided by Financing Activities 1,224,347 1,000 1,225,347
------------- ------------- ----------------
Increase in Cash 113,885 1,000 114,885
Cash, beginning of period 1,000 -- --
------------- ------------- ----------------
Cash, end of period $ 114,885 $ 1,000 $ 114,885
============= ============= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND
Electronic Transmission Corporation ("ETC") is currently in the development
stage as it has had no significant revenue. ETC is developing its business plan
to provide electronic transaction processing services to the health care market.
The principal service being developed is the electronic capture and transfer of
medical claims for on-line eligibility, verification and adjudication between
health care providers, self-insured organizations, third party administrators
and other managed care organizations.
Background -- ETC was incorporated on December 22, 1994 as a Texas corporation
to transact any business authorized under the general corporation law of the
State of Texas. On April 19, 1995, the Company entered into an agreement to
purchase the rights to the technology and business of electronically editing and
transmitting medical claims from providers to payment organizations (the
Purchased Business) from Sterling National Corporation by issuing 3,965,100
shares and a cash payment of $210,000. Sterling National Corporation is a
company wholly owned and controlled by the Chairman of the Board and C.E.O. of
ETC. The transaction was accounted for using the purchase method as follows:
Assets Acquired:
Accounts receivable $ 5,630
Computer hardware 1,403
Computer software 13,718
-----------------
Total tangible assets 20,751
Consideration Paid:
Cash $ 210,000
3,965,100 shares 20,751
-----------------
Total Consideration 230,751
-----------------
Dividend paid to shareholder $ 210,000
=================
Treatment of the excess cash consideration paid for the acquired business is
accounted for as a deemed dividend in accordance with generally accepted
accounting principles. Goodwill was not recorded since this transaction was
consummated with a related party and this treatment would have constituted a
step-up in basis.
Cash Equivalents -- For purposes of the statement of cash flows, the Company
considers any short-term cash investment with a maturity of three months or less
to be a cash equivalent.
Accounts receivable -- The Company's trade receivables arise from sales in the
normal course of business. ETC uses the allowance method to account for
uncollectible accounts and management feels that all accounts are collectible
and no allowance is necessary at December 31, 1995.
F-17
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND (Continued)
Office Furniture and Equipment -- Office furniture, computer equipment and
office equipment, and software are stated at cost. Maintenance and repairs are
charged to operating expense. Costs of significant improvements and renewals are
capitalized. Depreciation is provided on the straight-line basis over the
following useful lives:
Useful
Lives
-----
Office furniture 5 years
Computer and office equipment 3 years
Computer software 3 years
Periodically, the Company evaluates whether changes have occurred that would
require revision of the remaining estimated useful lives of the equipment or
rendered the value of the equipment not recoverable. The recoverability is
evaluated by estimating the future cash flows expected to result from use of the
asset and its eventual disposition. Equipment as of December 31, 1995, is not
considered to be impaired.
Start-Up Costs -- Start-up costs incurred during the period of developing ETC's
business plan are expensed as incurred in accordance with generally accepted
accounting principles.
Research and Development -- Research and development costs incurred are expensed
as incurred in accordance with generally accepted accounting principles.
Income Taxes -- ETC utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Loss Per Share -- Loss per common share was calculated by dividing the Company's
net loss by the weighted average common shares outstanding. Common stock
equivalents were excluded from the calculation as such inclusion would have had
an anti-dilutive effect; therefore, fully diluted earnings per share is
considered to be the same as primary earnings per share. Loss per common share
assuming full dilution was calculated in the same manner as described in the
preceding paragraph, except that those shares that were issued in connection
with debt conversions were assumed to be outstanding for the entire period.
F-18
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND (Continued)
Use of Estimates and Assumptions -- Management uses estimates and assumptions in
preparing its financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. Actual
results could vary from the estimates that were used.
New Accounting Standards -- In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" (SFAS 123), was
issued. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to either be included as
compensation expense in the income statement or the pro forma effect on net
income and earnings per share of such compensation expense to be disclosed in
the footnotes to the Company's financial statements commencing with the
Company's 1996 fiscal year. ETC adopted SFAS 123 on January 1, 1996.
Implementation of SFAS 123 is not expected to materially impact the Company's
financial statements.
NOTE 2 - GOING CONCERN AND CONTINUED OPERATIONS
The financial statements have been prepared on the assumption that the Company
will continue as a going concern. The financial statements do not include any
adjustments to reflect the possible effects on the recoverability and
classification of assets or classification of liabilities which may result from
the inability of the Company to continue as a going concern. ETC sustained a net
operating loss of approximately $1,093,329 during the year ended December 31,
1995 and has accumulated losses and dividends of approximately $1,303,329 since
its inception, December 22, 1994. Cash used by operating activities and
dividends for the same periods aggregated approximately $995,617. Additionally,
at December 31, 1995, ETC's current assets exceeded its current liabilities by
$53,346. ETC's continued existence depends upon the success of management's
efforts to raise sufficient capital to execute its business plan. There can be
no degree of assurance given that the Company will be successful in completing
additional financing transactions or execute its business plan to the extent
that it will be profitable.
NOTE 3 - OFFICE FURNITURE AND EQUIPMENT
The following is a summary of office furniture and equipment:
Furniture $ 43,056
Computer & Office Equipment 68,752
Computer Software 57,713
-----------------
169,521
Less: accumulated depreciation (32,173)
-----------------
$ 137,348
=================
Depreciation expense is $32,173 and $0 for 1995 and 1994, respectively.
F-19
<PAGE>
NOTE 4 - CONVERTIBLE DEBENTURES
At various times throughout 1995 the Company issued convertible debentures
amounting to $120,000 in total. These debentures bore interest at 12% per annum
and were convertible into common shares at the option of the holder at a
conversion rate of one common share per $1.25 of debenture being converted.
As of December 31, 1995 all debenture holders had exercised their options and
converted their debentures into a total of 96,000 common shares.
NOTE 5 - INCOME TAXES
ETC has net operating loss carryforwards totalling $1,093,000 that are available
to offset its future income tax liability. The net operating loss carryforwards
expire in the year 2010. The realization of the benefits from these net
operating loss carryforwards appears uncertain due to going concern questions
and the possible effects of the Solo merger discussed in Note 8. Accordingly, a
valuation allowance of $372,000 has been recorded in 1995 against the deferred
tax asset resulting from the net operating loss carryforward. There are no other
significant temporary differences for financial and income tax reporting
purposes at December 31, 1995 or 1994.
NOTE 6 - STOCK OPTIONS
During 1995 ETC entered into an employment contract with its C.E.O. and Chairman
of the Board under which certain stock options were granted at an exercise price
of $0.001 per share and are exercisable as follows:
Number of
Shares
Upon consummation of merger 100,000
January 1, 1996 100,000
January 1, 1997 100,000
January 1, 1998 100,000
-----------------
400,000
=================
The shares will be recorded in the books of ETC upon issuance at an amount equal
to the fair market value at the time of issuance. The difference between the
proceeds received on exercise and the fair market value of the shares at time of
issuance will be accounted for as an addition to Paid in Capital and will be
charged to operations as an expense.
F-20
<PAGE>
NOTE 6 - STOCK OPTIONS (Continued)
Under various other employment contracts the Company has offered certain stock
options which were granted at an exercise price of $0.001 per share to certain
employees of the Company that vest at various dates as set out below:
Number of
Shares
------
1996 146,666
1997 51,667
1998 46,667
1999 30,000
-------
275,000
=======
Upon issuance, the shares will be recorded in the books of ETC at an amount
equal to the fair market value at time of issuance. The difference between the
proceeds received on the exercise date and the fair market value of the shares
at time of issuance will be accounted for as an addition to Paid in Capital and
will be charged to operations as an expense.
NOTE 7 - COMMITMENTS
On January 5, 1995 ETC entered into a long term lease for office premises
expiring February 28, 2000. Future minimum lease payments under the terms of the
lease are as follows:
1996 $ 55,533
1997 58,647
1998 61,761
1999 64,876
2000 10,899
-----------------
$ 251,716
=================
Rent expense is $49,988 and $0 for 1995 and 1994, respectively.
On April 19, 1995, ETC entered into an agreement with Texas Administrators,
Inc., a Texas corporation ("TAI") being in the business of acting as a third
party administrator (a "TPA") for medical claims. The agreement called for TAI
to assign the rights to third party administrator accounts for a total purchase
price of $75,000, representing 1.15 times one year's contracted revenue. Of the
purchase price, $35,000 was paid to TAI subsequent to year end. Additionally,
ten (10) monthly payments of $4,000 commencing June 10, 1995, are payable to TAI
under an executed promissory note.
F-21
<PAGE>
NOTE 7 - COMMITMENTS (Continued)
The agreement called for ETC to enter into consulting agreements with each of
the 3 key employees/ sole shareholders of TAI. The consulting agreements called
for each of the individuals to assist ETC in retaining and servicing the
assigned accounts and to seek out new third party administrator accounts for
which the individuals would be paid commissions. The consulting agreements were
for a period of one year commencing April 30, 1995. The Company intended to use
TAI's third party administrator accounts as a basis to test ETC's electronic
processing work flow system for processing self-insured medical claims.
On June 1, 1995 ETC terminated the agreement for breach of contract as the
medical claims accounts assigned were not in full force and effect. As of
December 31, 1995, ETC has received $26,232 as third party administrator fees
from accounts assigned by TAI. ETC does not expect to be successful in
recovering the $35,000 paid to TAI for the accounts and accordingly the amount
has been expensed in 1995 as research and development third party administrator
fees. It is management's expectation that TAI will not challenge the termination
of the contract and ETC is seeking court protection releasing it from any
obligations to TAI under the contract.
On April 22, 1995 ETC also purchased office furniture from TAI having an
estimated value of $33,925, with the issuance of 16,000 common shares of ETC to
TAI.
In December 1995, the Company entered into an agreement with a marketing firm to
assist in obtaining and servicing customers. A member of the marketing firm is a
member of the Board of Directors. Compensation for services rendered to the
Company will be paid through November 1997 on a monthly basis equal to 15% of
the gross realized revenue from new accounts obtained on behalf of the Company
by the firm. In return, the Company has agreed to market the services offered by
the marketing representative and will be paid monthly over the same term an
amount equal to 10% of the gross realized revenue from new accounts obtained on
behalf of the firm by the Company.
The Company has actively sold shares in private placement common stock offerings
to raise working capital to fund its development and operations. Certain groups
of these shareholders who purchased common stock prior to the proposed merger
may have the right to rescind these stock purchases based upon the federal and
state laws governing the sale of securities. This may occur due to the Company
registering with the Securities and Exchange Commission and becoming a
publicly-held entity upon completion of the merger. It can not be predicted if
any of these shareholders will exercise their right of rescission; therefore,
the potential economic impact of this uncertainty cannot be reasonably
estimated.
The Company has an employee agreement with a shareholder and former officer of
the company which expires on August 1, 1996. The shareholder will assist the
Company in obtaining financing as deemed necessary and will be paid a commission
for any financing obtained during his tenure.
F-22
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS
In January 1996, the Company entered into a consulting agreement with a director
in which the director will perform services for the benefit of the Company for a
period of two years ending January 1998. The director has the option to purchase
100,000 shares of post-merger Solo common stock from SNC in compensation for his
services.
Between January 1, 1996 and March 31, 1996, ETC made the following additional
common share issuances:
<TABLE>
<CAPTION>
# of $ per
Shares Share Amount
------ ----- ------
<S> <C> <C> <C>
Issuance of shares for cash 333,100 $ 1.25 $ 416,375
Issuance of shares for cash 3,000 1.00 3,000
Issuance of shares for cash 40,000 0.50 20,000
------------- ------------- --------------
376,100 439,375
Issuance of shares for services 10,625 1.25 13,281
------------- --------------
Total shares issued 386,725 $ 452,656
============= ==============
</TABLE>
Proposed Merger -- As of March 31, 1996, ETC is negotiating a merger with Solo
Petroleum Ltd. ("Solo"), an Alberta, Canada based Reporting Issuer. Solo is
presently inactive and is attempting to reorganize its affairs. The merger would
be effected by Solo issuing 1.25 shares for each issued and outstanding common
share in ETC. As of March 31, 1996, ETC has 6,544,935 shares issued and
outstanding and accordingly, the merger would result in the issuance of
8,181,169 shares in Solo for all of the issued and outstanding common shares of
Electronic Transmission Corporation. The merger would be accounted for using the
pooling of interest method.
Solo is subject to a "Cease Trade Order" issued by the Alberta Securities
Commission for failing to file annual audited financial statements for the year
ended December 31, 1991, and first quarter interim unaudited financial
statements for the period ended March 31, 1992 and further that Solo failed to
concurrently send the foregoing financial statements to each holder of its
securities.
Solo's common shares were automatically removed from The Alberta Stock Exchange
(the "ASE") on January 12, 1993, as trading in its securities had been suspended
for six months. Solo has no intention to apply to relist on the ASE.
The following is a summary of Solo's proposed activities in connection with the
reorganization of its affairs.
(i) Common share capital to be consolidated on a 1 for 5 basis;
(ii) Solo to change its name to ETC Transaction Corporation;
(iii)Settle $552,500 of convertible debenture debt by the issuance of
552,500 post consolidation shares;
F-23
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS (Continued)
(iv) Settle $83,816 of trade creditor debt and $201,111 of shareholder debt
by the issuance of 284,927 post consolidation shares;
(v) Solo to continue out of the Province of Alberta and into the State of
Delaware;
(vi) Solo and ETC to file concurrently with the United States Securities
and Exchange Commission (the "SEC") an S-4 Registration Statement for
the purpose of registering the Common Shares to be issued and
outstanding in Solo, after giving effect to the preceding
transactions.
On January 8, 1996, Solo filed with the ASC and sent to its security holders its
annual audited financial statements for the years ending December 31, 1991, to
and including 1994, and its interim unaudited quarterly financial statements for
the periods ending March 31, 1995, June 30, 1995 and September 30, 1995.
On March 12, 1996, in accordance with an order from the Court of Queen's Bench
of Alberta allowing Solo to hold its 1990 through 1994 annual meetings in 1996,
Solo held a special and annual general meeting of its shareholders at which time
items (i), (ii) and (v) were voted and approved.
On March 21, 1996, The Alberta Securities Commission varied its Cease Trade
Order for the purposes of completing the merger of Solo and ETC and items (iii)
and (iv). The Alberta Securities Commission also ordered that its Cease Trade
Order would be revoked forty-eight (48) hours after delivery to the ASC of:
(i) verification that the SEC has declared effective the Registration
Statement on S-4.
(ii) confirmation by Solo of the issuance of a press release setting out
the material terms of the acquisition of ETC and the continuance of
Solo out of Alberta and into the State of Delaware.
On March 26, 1996 Solo underwent its name change to "ETC Transaction
Corporation".
On April 1, 1996, Solo consolidated its common shares on a 1 for 5 basis,
thereby reducing its common shares issued and outstanding from 3,250,000 to
650,000 before accounting for the additional common share issuances noted below.
In addition, Solo issued 552,500 post consolidated shares to debenture holders
in settlement of debt and 83,816 post consolidated shares to trade creditors and
201,111 post consolidated shares to shareholders in settlement of debt.
As of December 31, 1995, after the aforementioned debt settlements, Solo has
$143,646 in current liabilities and no tangible assets. Subject to the
consummation of the merger, ETC would become obligated to extinguish these
obligations. As Solo has no tangible assets or means to raise adequate funding
to transact its reorganization, ETC has agreed to fund the reorganization. For
the year ended December 31, 1995 ETC funded $23,281 in such expenditures, all of
which has been expensed by ETC in 1995.
F-24
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS (Continued)
The proposed merger is subject to approval by the shareholders of ETC and Solo
and certain other regulatory authorities.
In April 1996, The Company entered into an equipment lease agreement and stock
option agreement with a leasing company which will effectively be recorded as
capital lease by the Company. The agreement is for a term of five years and
allows the Company to lease certain equipment for amounts specified in the
agreement. Rental payments will be due on the first of each month for thirty
months beginning the month following delivery of the equipment. As of May 1996,
monthly payments required under the lease agreement amounted to $3,441 expiring
in 1998. The Company has agreed to escrow all accounts received which are
derived from the use of this equipment, less third party costs, until any class
of securities of ETC, or any company with which ETC merges, is registered under
the Securities Exchange Act of 1934 or otherwise becomes publicly traded, or the
funds in escrow equal the total purchase price of the equipment as stated in the
agreement.
At any time during the term of the agreement, the leasing company has the right
to 1) sell to ETC any or all of the equipment in exchange for the number of
shares of ETC common stock, or stock of any company with which ETC merges, that
is equal to the purchase of the equipment divided by $1.25 per share or 2)
purchase, at $1.25 per share, the number of shares of ETC stock, or stock of the
merged company, equal to the purchase price of the equipment divided by 1.25,
and give ETC the option to purchase the equipment at the end of the lease for
$1.00; provided, that if ETC issues, agrees to issue or grants an option to
purchase ETC stock to any other person for a price less than $1.25 per share,
the price payable to the leasing company will be reduced to such lower price.
Under the agreement with the leasing company, ETC has obtained a $500,000 line
of credit from the leasing company to be used as working capital. ETC may draw
from this line up to 80% of its accounts receivable that are under 65 days due.
To secure this line of credit, ETC will pledge shares of its common stock on a
two for one basis (i.e., two dollars trade value of its stock for every one
dollar drawn from the line of credit). ETC will pay a loan origination fee,
beginning three months after ETC merges with a public company, in an amount to
10% of the leasing company's exposure under this agreement including the amount
spent to purchase equipment and the amount drawn on the line of credit. This fee
will be a cumulative amount calculated each quarter.
The leasing company agreement contains certain restrictive covenants which
restrict the Company from issuing securities between the date of the agreement
and the completion of the proposed merger and covenants which require the
Company to escrow accounts received which are derived by use of the leased
equipment. The Company is in violation of this agreement and has obtained a
waiver from the leasing company releasing the Company of any claims under this
covenant violation.
F-25
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS (Continued)
The Company has issued stock options to certain individuals for the right to
purchase shares of post-merger common stock at a price of $1 per one thousand
shares in compensation for assistance and services rendered. The stock options
are exercisable at various dates and replace stock options dated prior to year
ended December 31, 1995. The total number of outstanding stock options under
agreements amounted to 558,000 as of June 1, 1996.
In April 1996, the Company made an agreement with a large national self-insured
company to provide electronic transaction processing services for insurance
claims. The agreement allows for a 90-day trial period for processing claims and
the Company has been successful in providing the service at a fee of $1 per
claim. The parties are currently in negotiations for a two-year contract which
would utilize the Company's technology to electronically process the insurance
claims nationally. The Company is engaged in a marketing strategy of utilizing
the 90-day trial period with other organizations.
Effective June 1, 1996, the Company issued 220,000 stock warrants which expire
on June 15, 1997, and allow the holder of each warrant to purchase one share of
common stock at a price of $1.50 per share.
On May 15, 1996, the Company received a cash advance of $779,575 from Solo
Petroleums, Ltd. to be used as working capital to fund its post-merger business
plan. The capital for the Solo Petroleums, Ltd. cash advance was raised in a
private placement offering of Solo common stock.
NOTE 9 - RELATED PARTY TRANSACTIONS
Advances to Sterling National Corporation ("SNC"), a company wholly owned by the
Chairman of the Board and C.E.O. of ETC, and the company from which ETC acquired
its sole business from were fully repaid subsequent to December 31, 1995. During
the period January 1, 1996 through March 31, 1996 Sterling National has advanced
ETC $106,100 for working capital purposes.
The Company has an agreement to purchase equipment from Sterling National
Corporation, an organization which is wholly-owned by the Chairman and Chief
Executive Officer. The relationship exists due to Sterling National Corporation
having a purchase contract with an equipment wholesaler which allows Sterling
National Corporation to purchase equipment at a significant discount. Since the
Company is able to purchase the equipment from SNC at the discounted price, the
Company intends to utilize this relationship for capital expenditures as deemed
necessary in the future.
F-26
<PAGE>
NOTE 10 - CASH FLOW SUPPLEMENTAL INFORMATION
The following is a schedule of required supplemental cash flow information:
1995 1994
--------------- --------------
Interest paid $ 6,424 $ --
=============== ==============
Income taxes paid $ -- $ --
=============== ==============
F-27
<PAGE>
APPENDIX A
<PAGE>
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
by and between
ELECTRONIC TRANSMISSION CORPORATION,
a Texas corporation
and
ETC TRANSACTION CORPORATION,
an Alberta, Canada corporation
May 1, 1996
<PAGE>
ARTICLE/SECTION PAGE
- --------------- ----
RECITALS .................................................................. 1
ARTICLE 1 THE MERGER......................................................... 1
1.1 The Merger....................................................... 1
1.2 Closing ........................................................ 1
1.3 Effective Time of the Merger..................................... 2
1.4 Articles of Incorporation and Bylaws............................. 2
1.5 Directors and Officers of the Surviving Corporation.............. 2
ARTICLE 2 CONVERSION OF SHARES............................................... 2
2.1 Conversion of Company Common Stock............................... 2
2.2 Stock Certificates............................................... 3
2.3 Fractional Shares................................................ 3
2.4 Dissenting Shares................................................ 3
ARTICLE 3 REPRESENTATION AND WARRANTIES OF TRANSACTION CORP.................. 4
3.1 Organizations.................................................... 4
3.2 Capitalization................................................... 4
3.3 Certain Corporate Matters........................................ 4
3.4 Authority Relative to this Agreement............................. 4
3.5 Consents and Approvals; No Violations............................ 4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ETC-TEXAS........................ 5
4.1 Organization..................................................... 5
4.2 Capitalization and Ownership of ETC-Texas........................ 5
4.3 Certain Corporate Matters........................................ 6
4.4 Subsidiaries..................................................... 6
4.5 Authority Relative to this Agreement............................. 6
4.6 Consents and Approvals; No Violations............................ 6
4.7 Reports ........................................................ 7
4.8 Financial Statements............................................. 7
4.9 Events Subsequent to Financial Statements........................ 7
4.10 Undisclosed Liabilities.......................................... 8
4.11 Tax Returns and Audits........................................... 8
4.12 Real Property.................................................... 9
4.13 Books and Records................................................ 9
4.14 Questionable Payments............................................ 9
4.15 Environmental Matters............................................ 9
4.16 Intellectual Property............................................ 10
4.17 Insurance........................................................ 10
4.18 Contracts........................................................ 10
4.19 Litigation....................................................... 11
4.20 Employees........................................................ 11
4.21 Employee Benefit Plans........................................... 11
4.22 Legal Compliance................................................. 11
4.23 Broker's Fees.................................................... 11
4.24 Disclosure....................................................... 11
ARTICLE 5 CONDUCT OF BUSINESS PENDING THE CLOSING............................ 12
5.1 Conduct of Business by ETC-Texas Pending the Closing............. 12
5.2 Other Actions.................................................... 13
ARTICLE 6 ADDITIONAL AGREEMENTS.............................................. 13
6.1 Access and Information........................................... 13
6.2 Registration Statement .......................................... 14
6.3 Meetings of Shareholders......................................... 14
6.4 Press Releases................................................... 14
6.5 Reimbursement of Transaction Corp................................ 14
ARTICLE 7 CONDITIONS TO CLOSING.............................................. 15
7.1 Conditions to Obligations of Each Party to Effect the Closing.... 15
i
<PAGE>
7.2 Additional Conditions to Transaction Corp.'s Obligations......... 15
7.3 Additional Conditions to ETC-Texas' Obligations.................. 17
ARTICLE 8 REMEDIES........................................................... 18
8.1 Indemnification by ETC-Texas..................................... 18
8.2 Indemnification by Transaction Corp.............................. 18
8.3 Conditions of Indemnification.................................... 18
8.4 Waiver ........................................................ 19
8.5 Remedies Not Exclusive........................................... 20
ARTICLE 9 TERMINATION........................................................ 20
9.1 Termination by Mutual Consent.................................... 20
9.2 Termination by Any Party......................................... 20
9.3 Effect of Termination and Abandonment............................ 20
ARTICLE 10 GENERAL PROVISIONS................................................ 20
10.1 Notices ......................................................... 20
10.2 Interpretation.................................................... 21
10.3 Severability...................................................... 21
10.4 Miscellaneous..................................................... 21
10.5 Separate Counsel.................................................. 21
10.6 Governing Law..................................................... 21
10.7 Counterparts...................................................... 22
ii
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 1,
1996, is made and entered into by and between ETC Transaction Corporation, an
Alberta, Canada corporation ("Transaction Corp.") f/k/a Solo Petroleums, Ltd.
("Solo") and Electronic Transmission Corporation, a Texas corporation
("ETC-Texas").
RECITALS
WHEREAS, the Board of Directors of Transaction Corp. has adopted
resolutions approving and adopting the continuance and domestication of
Transaction Corp. into a Delaware corporation (the "Continuance") for the
purposes of merging with ETC-Texas (the "Merger");
WHEREAS, the Board of Directors of ETC-Texas has adopted resolutions
approving and adopting the Merger;
WHEREAS, the Merger is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3 hereof), ETC-Texas shall be
merged with and into Transaction Corp. and the separate corporate existence
of ETC-Texas shall thereupon cease. Transaction Corp. (sometimes
hereinafter referred to as the "Surviving Corporation") shall be the
surviving corporation in the Merger. The Merger shall have the effects set
forth in the applicable provisions of the Delaware General Corporation Law
(the "DGCL") and the Texas Business Corporation Act (the "TBCA").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at a
time and place to be mutually agreed upon by ETC-Texas and Transaction
Corp. as soon as the conditions set forth in Article 7 have been satisfied
or waived or as soon as practicable thereafter. Such date is herein
referred to as the "Closing Date."
1.3 Effective Time of the Merger. If all of the conditions to the Merger set
forth in Article 7 shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article 9, the parties hereto shall cause Articles of Merger (the "Articles
of Merger") that meet the requirements of the applicable provisions of the
DGCL and the TBCA, respectively, to be properly executed and filed with the
Secretary of State of the States of Delaware and Texas, respectively, on
the Closing Date. The Merger shall be effective at the time of acceptance
of the filing of the Articles of Merger with the Secretary of State of the
States of Delaware and Texas in accordance with the DGCL and the TBCA,
respectively, or at such later time which the parties hereto shall have
agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
1.4 Certificate of Incorporation and Bylaws. In continuing and domesticating
into Delaware, Transaction Corp. shall file a Certificate of Incorporation
and Bylaws with the Secretary of State of the State of Delaware and such
Certificate of Incorporation and Bylaws of Transaction Corp. shall become
the Certificate of Incorporation and Bylaws of Transaction Corp. and of the
Surviving Corporation, subject always to the right of the Surviving
Corporation to amend its Articles of Incorporation and Bylaws in accordance
with the laws of the State of Delaware and the provisions of the
Certificate of Incorporation and Bylaws.
1.5 Directors and Officers of the Surviving Corporation. The directors and
officers of ETC-Texas immediately prior to the Effective Time shall be the
initial directors and officers of the Surviving Corporation and shall hold
such positions from the Effective Time until their respective successors
are duly elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation or as
otherwise provided by law.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion of Company Common Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Transaction Corp. or ETC-Texas
or any holder of capital stock of any of them:
AGREEMENT AND PLAN OF MERGER - Page 1
<PAGE>
(a) Subject to the limitations contained herein, each share of common
stock of ETC-Texas, no par value (the "ETC-Texas Common Stock"),
issued and outstanding immediately prior to the Effective Time shall
be automatically converted into the right to receive one and
one-fourth of a share of common stock of Transaction Corp. no par
value (the "Transaction Corp. Common Stock").
(b) All shares of ETC-Texas Common Stock shall be cancelled and cease to
be outstanding and each holder of a certificate representing ETC-Texas
Common Stock shall thereafter cease to have any rights with respect
thereto except as set forth in this Article 2.
2.2 Stock Certificates. At or following the Effective Time, each holder of an
outstanding certificate or certificates representing ETC-Texas Common Stock
shall surrender the same to Transaction Corp. and Transaction Corp. shall,
in exchange therefor, cause to be issued to the holder of such
certificate(s) a new certificate representing shares of Transaction Corp.
Common Stock in accordance with this Article 2, less any amount required to
be withheld under applicable federal, state or local tax requirements, and
the surrendered certificate(s) shall be cancelled. Until so surrendered and
exchanged, each such certificate shall represent solely the right to
receive shares of Transaction Corp. Common Stock in accordance with this
Article 2, without interest and less any tax withholding.
2.3 Fractional Shares. No fractional shares of Transaction Corp. Common Stock
shall be issued in the Merger. In lieu thereof, all fractional shares of
Transaction Corp. Common Stock that a holder of ETC-Texas Common Stock
would otherwise be entitled to receive as a result of the Merger shall be
automatically converted into the right to receive one full share of
Transaction Corp. Common Stock.
2.4 Dissenting Shares. Each share of ETC-Texas Common Stock issued and
outstanding immediately prior to the Effective Time not voted in favor of
the Merger, the holder of which has given written notice of the exercise of
dissenter's rights as required by the TBCA is herein called a "Dissenting
Share." Dissenting Shares shall not be converted into or represent the
right to receive shares of Transaction Corp. Common Stock pursuant to this
Article 2 and shall be entitled only to such rights as are available to
such holder pursuant to the TBCA, unless the holder thereof shall have
withdrawn or forfeited his dissenter's rights. Each holder of Dissenting
Shares shall be entitled to receive the value of such Dissenting Shares
held by him in accordance with the applicable provisions of the TBCA.
Transaction Corp. will promptly pay to any holder of Dissenting Shares such
amount as such holder shall be entitled to receive in accordance with the
applicable provisions of the TBCA. If any holder of Dissenting Shares shall
effectively withdraw or forfeit his dissenter's rights under the TBCA, such
Dissenting Shares shall be converted into the right to receive shares of
Transaction Corp. Common Stock in accordance with this Article 2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TRANSACTION CORP.
Transaction Corp. hereby represents and warrants to ETC-Texas as follows:
3.1 Organization. Transaction Corp. has been duly incorporated, is validly
existing as a corporation and is in good standing under the laws of
Alberta, its province of incorporation, and has the requisite corporate
power to carry on its business as now conducted.
3.2 Capitalization. The authorized capital stock of Transaction Corp. consists
of an unlimited number of Class "A" Common Shares and an unlimited number
of Class "B" Preferred Shares in the capital stock of Transaction Corp. As
of the date of this Agreement, 1,487,428 Class "A" Common Shares of
Transaction Corp. are issued and outstanding. No Class "B" Preferred Shares
have been issued. All of the issued and outstanding shares of Transaction
Corp. Common Stock are validly issued, fully paid and nonassessable and
free of preemptive rights. All shares of Transaction Corp. Common Stock
issuable in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable.
3.3 Certain Corporate Matters. Transaction Corp. is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership of its properties, the employment of
its personnel or the conduct of its business requires it to be so
qualified, except where such failure would not have a material adverse
effect on Transaction Corp.'s financial condition, results of operations or
business. Transaction Corp. has full corporate power and authority and all
authorizations, licenses and permits necessary to carry on the business in
which it is engaged and to own and use the properties owned and used by it.
3.4 Authority Relative to this Agreement. Transaction Corp. has the requisite
corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement by Transaction Corp. and the consummation by Transaction Corp. of
the transactions contemplated hereby have been duly authorized by the Board
of Directors of Transaction Corp. and, subject to stockholder approval as
set forth in this Agreement, no other actions on the part of Transaction
Corp. are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Transaction Corp. and constitutes, subject to stockholder
approval as set forth in this Agreement, a valid and binding agreement of
Transaction Corp., enforceable against
AGREEMENT AND PLAN OF MERGER - Page 2
<PAGE>
Transaction Corp. in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally or by general principles of
equity.
3.5 Consents and Approvals; No Violations. Except for applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities or blue sky laws, and the filing and recordation of a
certificate of merger or the articles of merger as required by the DGCL and
the TBCA, no filing with, and no permit, authorization, consent or approval
of, any public body or authority is necessary for the consummation by
Transaction Corp. of the transactions contemplated by this Agreement.
Neither the execution or delivery of this Agreement by Transaction Corp.
nor the consummation by Transaction Corp. of the transactions contemplated
hereby, nor compliance by Transaction Corp. with any of the provisions
hereof, will (a) conflict with or result in any breach of any provisions of
the Certificate of Incorporation or Bylaws of Transaction Corp. (b) result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Transaction Corp. is a
party or by which it or its properties or assets may be bound or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Transaction Corp. or any of its properties or assets, except
in the case of clauses (b) and (c) for violations, breaches or defaults
which are not in the aggregate material to Transaction Corp. taken as a
whole.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
ETC-TEXAS
ETC-Texas hereby represents and warrants to Transaction Corp. as follows:
4.1 Organization. ETC-Texas is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, and
has the requisite corporate power to carry on its business as now
conducted.
4.2 Capitalization and Ownership of ETC-Texas. ETC-Texas' entire authorized
capital stock consists of 8,000,000 shares of ETC-Texas Common Stock, no
par value and 2,000,000 shares of ETC-Texas Preferred Stock, no par value.
All shares of ETC-Texas Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable and have not been issued in
violation of any pre-emptive rights. Except as set forth on Schedule 4.2
hereto, there are no outstanding or authorized options, rights, warrants,
calls, convertible securities, rights to subscribe, conversion rights or
other agreements or commitments to which ETC-Texas is a party or which is
binding upon ETC-Texas providing for the issuance by ETC-Texas or transfer
by ETC-Texas of additional shares of its capital stock and ETC-Texas has
not reserved any shares of its capital stock for issuance, nor are there
any outstanding stock option rights, phantom equity or similar rights,
contracts, arrangements or commitments based upon the book value, income or
other attribute of ETC-Texas.
4.3 Certain Corporate Matters. ETC-Texas is duly licensed or qualified to do
business and is in good standing as a foreign corporation in every
jurisdiction in which the character of ETC-Texas' properties or nature of
ETC-Texas' business requires it to be so licensed or qualified other than
such jurisdictions in which the failure to be so licensed or qualified does
not, or insofar as can reasonably be foreseen, in the future will not, have
a material adverse effect on its financial condition, results of operations
or business. ETC-Texas has full corporate power and authority and all
authorizations, licenses and permits necessary to carry on the business in
which it is engaged or in which it proposes presently to engage and to own
and use the properties owned and used by it. ETC-Texas has delivered to
Transaction Corp. true, accurate and complete copies of its Articles of
Incorporation and Bylaws, which reflect all amendments made thereto at any
time prior to the date of this Agreement. The records of meetings of the
shareholders and Board of Directors of ETC-Texas are complete and correct
in all material respects. The stock records of ETC-Texas and the
shareholder lists of ETC-Texas that ETC-Texas has previously furnished to
Transaction Corp. are complete and correct in all material respects and
accurately reflect the record ownership and the beneficial ownership of all
the outstanding shares of ETC-Texas' capital stock and all other
outstanding securities issued by ETC-Texas. ETC-Texas is not in default
under or in violation of any provision of its Articles of Incorporation or
Bylaws in any material respect. ETC-Texas is not in default or in violation
of any restriction, lien, encumbrance, indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability by which it
is bound or to which any of its assets is subject.
4.4 Subsidiaries. ETC-Texas does not own, directly or indirectly, any of the
capital stock of any other corporation or any equity, profit sharing,
participation or other interest in any corporation, partnership, joint
venture or other entity.
4.5 Authority Relative to this Agreement. ETC-Texas has the requisite corporate
power and authority to enter into this Agreement and carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement by ETC-Texas and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
ETC-Texas and, subject to shareholder approval as set forth in this
Agreement, no other actions on the part of ETC-Texas are necessary to
authorize this Agreement or the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by ETC-Texas and
constitutes, subject to shareholder approval as set forth in this
Agreement, a valid and binding obligation of ETC-Texas, enforceable in
accordance with its terms, except as such enforcement may be limited by
AGREEMENT AND PLAN OF MERGER - Page 3
<PAGE>
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
4.6 Consents and Approvals; No Violations. Except for applicable requirements
of the Securities Act, the Exchange Act, state securities or blue sky laws,
and the filing and recordation of a certificate of merger or the articles
of merger as required by the DGCL and the TBCA, no filing with, and no
permit, authorization, consent or approval of, any public body or authority
is necessary for the consummation by ETC-Texas of the transactions
contemplated by this Agreement. Neither the execution or delivery of this
Agreement by ETC-Texas nor the consummation by ETC-Texas of the
transactions contemplated hereby, nor compliance by ETC-Texas with any of
the provisions hereof, will (a) conflict with or result in any breach of
any provisions of the Articles of Incorporation or Bylaws of ETC-Texas, (b)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which ETC-Texas is
a party or by which it or any of its properties or assets may be bound or
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to ETC-Texas, or any of its properties or assets,
except in the case of clauses (b) and (c) for violations, breaches or
defaults which are not in the aggregate material to ETC-Texas taken as a
whole.
4.7 Financial Statements. ETC-Texas has delivered to Transaction Corp. all
financial information requested by Transaction Corp. (the "Financial
Statements"). The Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods covered thereby and present fairly the financial
condition of ETC-Texas as of such dates and the results of its operations
and changes in cash flows for such periods.
4.8 Events Subsequent to Financial Statements. Since March 31, 1996, there has
not been:
(a) Any adverse change in the financial condition, results of operations
or business of ETC-Texas;
(b) Any sale, lease, transfer, license or assignment of any assets,
tangible or intangible, of ETC-Texas;
(c) Any damage, destruction or property loss, whether or not covered by
insurance, affecting adversely the properties or business of
ETC-Texas;
(d) Any declaration, setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of ETC-Texas
or any redemption, purchase or other acquisition of any such shares;
(e) Any subjection to any lien on any of the assets, tangible or
intangible, of ETC-Texas;
(f) Any incurrence of indebtedness or liability or assumption of
obligations by ETC-Texas;
(g) Any waiver or release by ETC-Texas of any right of any material value;
(h) Any increase in compensation or benefits to officers or directors of
ETC-Texas;
(i) Any change made or authorized in the Articles of Incorporation or
Bylaws of ETC-Texas;
(j) Except as set forth on Schedule 4.9 hereto, any issuance, transfer,
sale or other disposition by ETC-Texas of any shares of its capital
stock or other equity securities, or any grant of any options,
warrants or other rights to purchase or obtain (including upon
conversion or exercise) shares of its capital stock or other equity
securities;
(k) Any loan to or other transaction with any officer, director or
shareholder of ETC-Texas giving rise to any claim or right of
ETC-Texas against any such person or of such person against ETC-Texas;
or
(l) Any other transaction or commitment entered into other than in the
ordinary course of business by ETC-Texas.
4.9 Undisclosed Liabilities. ETC-Texas has no material liability or obligation
whatsoever, either accrued, absolute, contingent or otherwise.
4.10 Tax Returns and Audits. ETC-Texas has duly and timely filed or caused to be
filed all federal, foreign, state and local income, franchise, sales, value
added and property tax returns (the "Tax Returns") required to be filed by
it and has paid in full or fully reserved against in the Financial
Statements all taxes, interest, penalties, assessments and deficiencies due
or claimed to be due by it to foreign, federal, state or local taxing
authorities (including taxes on properties, income, franchises, licenses,
sales, use and payrolls). The income tax returns filed by ETC-Texas are not
being, to the knowledge of ETC-Texas, examined by the Internal Revenue
Service (the "IRS") or other applicable taxing authorities for any period.
All taxes or estimates thereof that are due as of December 31, 1995, or are
claimed or asserted by any taxing authority to be due as of such date, have
been (a) timely and appropriately paid so as to avoid penalties for
underpayment or (b) accrued for on the balance sheet as of
AGREEMENT AND PLAN OF MERGER - Page 4
<PAGE>
December 31, 1995, as contained in the Financial Statements. Except for
amounts not yet due and payable, all tax liabilities to which the
properties of ETC-Texas may be subject have been paid and discharged. The
provisions for income and other taxes payable reflected in the Financial
Statements make adequate provision for all then accrued and unpaid taxes of
ETC-Texas. There are no tax liens on any property of ETC-Texas, nor are
there any pending or threatened examinations or tax claims asserted.
ETC-Texas has not been granted any extensions of limitation periods
applicable to tax claims. Since December 31, 1996, except jurisdictions in
which ETC-Texas filed tax returns, no claim has been made by a taxing
authority that ETC-Texas is or may be subject to taxation by that
jurisdiction. All copies of Tax Returns delivered to Transaction Corp. by
ETC-Texas are true and correct, and any and all notices from foreign,
federal, state and local taxing authorities, tax examination reports and
statements of deficiencies assessed against or agreed to by ETC-Texas since
December 31, 1996 have been made available to Transaction Corp. ETC-Texas
is not a party to, or bound by, any tax indemnity, tax sharing or tax
allocation agreement. ETC-Texas is not a member of an "affiliated group,"
as defined in Section 1504(a) of the Code and is not the owner of any
interest in a partnership, joint venture, trust, limited liability company
or other entity or organization. All positions taken on federal Tax Returns
that could give rise to a penalty for substantial understatement pursuant
to Section 6662(d) of the Code have been disclosed on such Tax Returns.
ETC-Texas has not agreed to and is not required to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method. ETC-Texas has no application
pending with any taxing authority requesting permission for any changes in
any accounting method, and the IRS has not proposed any such adjustment or
change in accounting method. ETC-Texas is not subject to any limitation
under Section 382 or Section 383 of the Code.
4.11 Real Property. ETC-Texas does not own any real property. ETC-Texas does
lease the premises located at 5025 Arapaho Road, Suite 515, Dallas, Texas
75248 as its principal place of business.
4.12 Books and Records. The books and records of ETC-Texas fairly reflect the
transactions to which ETC-Texas is a party or by which its properties are
bound.
4.13 Questionable Payments. ETC-Texas nor any employee, agent or representative
of ETC-Texas has, directly or indirectly, made any bribes, kickbacks,
illegal payments or illegal political contributions using ETC-Texas funds
or made any payments from ETC-Texas' funds to governmental officials for
improper purposes or made any illegal payments from ETC-Texas' funds to
obtain or retain business.
4.14 Environmental Matters.
(a) Environmental Laws. ETC-Texas is not currently in violation of, or
subject to any existing, pending or threatened investigation or
inquiry by any governmental authority or to any remedial obligations
under, any laws or regulations pertaining to health or the environment
(hereinafter sometimes collectively called "Environmental Laws"),
including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601 et
seq.), as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("CERCLA"), and the regulations promulgated thereunder, (ii)
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. 6901 et
seq.), as amended by the Hazardous and Solid Waste Amendment of 1984
("RCRA"), and the regulations promulgated thereunder, (iii) any
statutes, rules or regulations, whether federal, state or local,
relating to asbestos or polychlorinated biphenyls, and (iv) the
provisions contained in any applicable state statutes, rules and
regulations. This representation and warranty would continue to be
true and correct following disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the assets and operations of ETC-Texas.
(b) Use of Assets. To the best knowledge of ETC-Texas, the assets of
ETC-Texas have never been used in a manner that would be in violation
of any of the Environmental Laws, including without limitation CERCLA,
RCRA and any applicable state statutes, rules or regulations.
(c) Permits. ETC-Texas has not obtained and is not required to obtain, and
ETC-Texas has no knowledge of any reason that Transaction Corp. will
be required to obtain, any permits, licenses or similar authorizations
to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment owned or leased by ETC-Texas by reason of any
Environmental Laws.
(d) Superfund List. To the best knowledge of ETC-Texas, none of the assets
owned or leased by ETC-Texas are on any federal or state "Superfund"
list or subject to any environmentally related liens.
4.15 Intellectual Property. Except as set forth on Schedule 4.15, there are no
patents and patent applications, trade names, trademark and service mark
registrations and applications for or registered trade dress rights, common
law trademarks and copyright registrations and applications owned by
ETC-Texas or which ETC-Texas is licensed to use.
4.16 Insurance. Except as disclosed on Schedule 4.16, ETC-Texas has no insurance
policies in effect.
AGREEMENT AND PLAN OF MERGER - Page 5
<PAGE>
4.17 Contracts. Except as disclosed on Schedule 4.17, ETC-Texas has no material
contracts, leases, arrangements and commitments (whether oral or written).
ETC-Texas is not a party to or bound by or affected by any contract, lease,
arrangement or commitment (whether oral or written) relating to: (a)
collective bargaining with, or any representation of any employees by, any
labor union or association; (b) the purchase or sale of real property; (c)
distribution, agency or construction; and (d) lending or advancing of
funds.
4.18 Litigation. ETC-Texas is not subject to any judgment or order of any court
or quasijudicial or administrative agency of any jurisdiction, domestic or
foreign, nor is there any charge, complaint, lawsuit or governmental
investigation pending or, to the best knowledge of ETC-Texas, threatened
against ETC-Texas. ETC-Texas is not a plaintiff in any action, domestic or
foreign, judicial or administrative. There are no existing actions, suits,
proceedings or investigations of ETC-Texas, and ETCTexas knows of no basis
for such actions, suits, proceedings or investigations. There are no
unsatisfied judgments, orders, decrees or stipulations affecting ETC-Texas
or to which ETC-Texas is a party.
4.19 Employees. ETC-Texas currently leases 30 persons. ETC-Texas has entered
into written employment agreements with certain officers and/or directors
of ETC-Texas as outlined on Schedule 4.19. ETC-Texas is not a party to or
bound by any collective bargaining agreement. There are no loans or other
obligations payable or owing by ETC-Texas to any shareholder, officer,
director or employee of ETC-Texas, nor are there any loans or debts payable
or owing by any of such persons to ETC-Texas or any guarantees by ETC-Texas
of any loan or obligation of any nature to which any such person is a
party.
4.20 Employee Benefit Plans. ETC-Texas has no (a) non-qualified deferred or
incentive compensation or retirement plans or arrangements, (b) qualified
retirement plans or arrangements, (c) other employee compensation,
severance or termination pay or welfare benefit plans, programs or
arrangements or (d) any related trusts, insurance contracts or other
funding arrangements maintained, established or contributed to by ETC-Texas
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended.
4.21 Legal Compliance. No claim has been filed against ETC-Texas alleging a
violation of any applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof. ETC-Texas holds all of the
material permits, licenses, certificates or other authorizations of
foreign, federal, state or local governmental agencies required for the
conduct of its business as presently conducted.
4.22 Broker's Fees. ETC-Texas nor anyone on its behalf has any liability to any
broker, finder, investment banker or agent, or has agreed to pay any
brokerage fees, finder's fees or commissions, or to reimburse any expenses
of any broker, finder, investment banker or agent in connection with the
Merger or any similar transaction.
4.23 Disclosure. The representations and warranties and statements of fact made
by ETC-Texas in this Agreement and in any Schedule hereto are, as
applicable, accurate, correct and complete and do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained herein or therein
not misleading.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by ETC-Texas Pending the Closing. ETC-Texas covenants
and agrees that prior to the Closing Date:
(a) ETC-Texas shall conduct its business and operations only in the usual
and ordinary course of business and consistent with past custom and
practice;
(b) ETC-Texas shall not directly or indirectly do any of the following:
(i) sell, pledge, dispose of or encumber any of its assets; (ii) amend
or propose to amend its Articles of Incorporation or Bylaws; (iii)
split, combine or reclassify any outstanding shares of its capital
stock, or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to shares
of its capital stock; (iv) redeem, purchase or acquire or offer to
acquire any shares of its capital stock or other securities; (v)
create any subsidiaries; (vi) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(c) ETC-Texas shall not (i) issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, any additional shares of, or any
options, warrants, conversion privileges or rights of any kind to
acquire any shares of, its capital stock; (ii) acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division or
the material assets thereof; (iii) incur any indebtedness for borrowed
money, issue any debt securities or guarantee any indebtedness to
others; or (iv) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
AGREEMENT AND PLAN OF MERGER - Page 6
<PAGE>
(d) ETC-Texas shall not enter into any employment, severance or similar
agreements or arrangements with, or grant any bonus, salary increase,
severance or termination pay to, any officers or directors;
(e) ETC-Texas shall not adopt any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment
or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee;
(f) Except as otherwise required by its Articles of Incorporation or
Bylaws, by this Agreement or by applicable law, ETC-Texas shall not
call any meeting of its shareholders;
(g) ETC-Texas shall (i) use their best efforts not to take any action
which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue at any
time prior to the Closing Date as if then made; and (ii) notify
Transaction Corp. of any emergency or other change in the normal
course of its business or in the operation of its properties and of
any tax audits, tax claims, governmental or third party complaints,
investigations or hearings (or communications indicating that the same
may be contemplated) if such emergency, change, audit, claim,
complaint, investigation or hearing would be material, individually or
in the aggregate, to the financial condition, results of operations or
business of ETC-Texas, or to the ability of any of the parties hereto
to consummate the transactions contemplated by this Agreement;
(h) ETC-Texas shall notify Transaction Corp. promptly of any material
adverse event or circumstance affecting ETCTexas (including the filing
of any material litigation against ETC-Texas or the existence of any
dispute with any person or entity which involves a reasonable
likelihood of such litigation being commenced); and
(i) ETC-Texas shall comply with all legal requirements and contractual
obligations applicable to its operations and business and pay all
applicable taxes.
5.2 Other Actions. Unless approved in writing by Transaction Corp., ETC-Texas
shall not take any action or permit any action to occur that might
reasonably be expected to result in any of the representations and
warranties of ETC-Texas contained in this Agreement becoming untrue after
the date hereof or any of the conditions to the Closing set forth in
Article 7 of this Agreement not being satisfied.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access and Information. Except for information relating to any claims any
party may have against the other, ETCTexas and Transaction Corp. shall each
afford to the other and to the other's financial advisors, legal counsel,
accountants, consultants and other representatives full access during
normal business hours throughout the period prior to the Effective Time to
all of its books, records, properties and personnel and, during such
period, each shall furnish promptly to the other (a) a copy of each report,
schedule and other document filed or received by it pursuant to the
requirements of federal or state securities laws, and (b) all other
information as such other party may reasonably request. Each party shall
hold in confidence all non-public information until such time as such
information is otherwise publicly available and, if this Agreement is
terminated, each party will upon written request deliver to the other all
documents, work papers and other material obtained by such party or on its
behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof.
6.2 Registration Statement. ETC-Texas and Transaction Corp. shall jointly
prepare and file with the SEC as soon as practicable a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities
Act with respect to all issued and outstanding Transaction Corp. Common
Stock as well as stock to be issued in the Merger. The Registration
Statement shall also serve as the proxy statement with the respect to the
meetings of the respective shareholders of ETC-Texas and Transaction Corp.
to approve the Merger and the transactions contemplated thereby. ETC-Texas
and Transaction Corp. shall use their reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as
practicable. ETC-Texas and Transaction Corp. shall use their reasonable
best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities or blue sky permits or approvals
required to carry out the transactions contemplated by the Registration
Statement. The Registration Statement, when declared effective by the SEC,
will not include an untrue statement of material fact or omit to state a
material fact which is required to be stated or that is necessary to make a
statement not misleading in light of the circumstances in which it is made.
6.3 Press Releases. ETC-Texas and Transaction Corp. shall consult with each
other as to the form and substance of any press release or other public
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby; provided, however, that nothing in this Section 6.3
shall be deemed to prohibit any party hereto from making any disclosure
that is required to fulfill such party's disclosure obligations imposed by
law, including, without limitation, federal, state or provincial securities
laws.
AGREEMENT AND PLAN OF MERGER - Page 7
<PAGE>
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject
to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) Transaction Corp. will have been continued and domesticated in the
State of Delaware;
(b) The Registration Statement shall have been deemed and declared
effective by the SEC, no stop order with respect thereto shall be in
effect and no proceedings for the purpose of suspending the
effectiveness of the Registration Statement shall have been issued by
the SEC;
(c) The Merger shall have been approved by the shareholders of ETC-Texas
and Transaction Corp., respectively, in accordance with the laws of
the State of Texas and the Province of Alberta, respectively; and
(d) No order shall have been entered and remain in effect in any action or
proceeding before any foreign, federal or state court or governmental
agency or other foreign, federal or state regulatory or administrative
agency or commission that would prevent or make illegal the
consummation of the transactions contemplated hereby.
7.2 Additional Conditions to Transaction Corp.'s Obligations. The obligations
of Transaction Corp. to effect the Closing are subject to the satisfaction
of the following additional conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 4 of this
Agreement will be true and correct in all material respects as of the
date hereof and at and as of the Closing Date as though then made;
(b) ETC-Texas shall have performed, in all material respects, each
obligation and agreement and complied with each covenant to be
performed and complied with by it under Articles 5 and 6 of this
Agreement prior to the Closing Date;
(c) All consents by governmental or regulatory agencies or otherwise that
are required for the consummation of the transactions contemplated
hereby or that are required for Transaction Corp. to own, operate or
control ETC-Texas or any portion of the assets of ETC-Texas to prevent
a breach of or a default under or a termination of any agreement
material to ETC-Texas to which ETC-Texas is a party or to which any
material portion of the assets of ETC-Texas is subject, will have been
obtained;
(d) No action or proceeding before any court or governmental body will be
pending or threatened wherein a judgment, decree or order would
prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded or which might
adversely affect the right of Transaction Corp. to own, operate or
control ETCTexas;
(e) Transaction Corp. and its financial and legal advisors shall have
completed a due diligence review of the business, operations and
financial statements of ETC-Texas, the results of which shall be
satisfactory to Transaction Corp. in its sole discretion; and
(f) At the Closing, ETC-Texas shall have delivered or caused to be
delivered to Transaction Corp. the following:
(i) a certificate executed on behalf of ETC-Texas stating that the
conditions set forth in Sections 7.2(a) through (d) of this
Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by ETC-Texas'
Board of Directors authorizing and approving the Merger and the
execution, delivery and performance of this Agreement;
(iii)certified copies of resolutions duly adopted by ETC-Texas'
shareholders authorizing and approving the Merger and the
execution, delivery and performance of this Agreement;
(iv) certificates of good standing or comparable certificates for
ETC-Texas from the jurisdiction of its incorporation and from
every jurisdiction where a failure to be qualified or licensed
would have a material adverse effect on its financial condition,
results of operations or business, dated not earlier than five
(5) days prior to the Closing Date;
(v) a copy of ETC-Texas' Articles of Incorporation certified as of a
recent date by the Secretary of State of the State of Texas;
(vi) an incumbency certificate of the officers of ETC-Texas; and
AGREEMENT AND PLAN OF MERGER - Page 8
<PAGE>
(vii)such other documents as Transaction Corp. may reasonably request
in connection with the transactions contemplated hereby.
7.3 Additional Conditions to ETC-Texas' Obligations. The obligations of
ETC-Texas to effect the Closing are subject to the satisfaction of the
following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 3 of this
Agreement will be true and correct in all material respects as of the
date hereof and at and as of the Closing Date as though then made;
(b) Transaction Corp. shall have performed, in all material respects, each
obligation and agreement and complied with each covenant required to
be performed and complied with by it under Article 6 of this Agreement
prior to the Closing Date;
(c) No action or proceeding before any court or governmental body will be
pending or threatened wherein a judgment, decree or order would
prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded;
(d) On the Closing Date, Transaction Corp. shall have delivered to
ETC-Texas the following:
(i) a certificate executed on behalf of Transaction Corp. stating
that the conditions set forth in Sections 7.3(a) through (c) of
this Agreement have been satisfied;
(ii) certified copies of resolutions duly adopted by Transaction
Corp.'s Board of Directors authorizing and approving the Merger
and the execution, delivery and performance of this Agreement;
(iii)certified copies of the resolutions duly adopted by the
shareholders of Transaction Corp. authorizing and approving the
Merger and the execution, delivery and performance this
Agreement;
(iv) a good standing certificate for Transaction Corp. from the
Secretary of State of the State of Delaware, dated not earlier
than five (5) days prior to the Closing Date;
(v) a copy of Transaction Corp.'s Certificate of Incorporation
certified by the Secretary of State of the State of Delaware;
(vi) an incumbency certificate of the officers of Transaction Corp.;
and
(vii)such other documents as ETC-Texas may reasonably request in
connection with the transactions contemplated hereby.
ARTICLE 8
REMEDIES
8.1 Indemnification by ETC-Texas. Subject to the terms and conditions of this
Article 8, ETC-Texas agrees to indemnify, defend and hold Transaction Corp.
and its directors, officers, agents, attorneys and affiliates harmless from
and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by any such person
or entity by reason of or resulting from a breach of any representation,
warranty or covenant of ETC-Texas contained in this Agreement.
8.2 Indemnification by Transaction Corp. Subject to the terms and conditions of
is Article 8, Transaction Corp. hereby agrees to indemnify, defend and hold
ETC-Texas and its directors, officers, agents, attorneys and affiliates
harmless from and against all Damages asserted against or incurred by any
such person or entity by reason of or resulting from a breach of any
representation, warranty or covenant of Transaction Corp. contained in this
Agreement.
8.3 Conditions of Indemnification. The respective obligations and liabilities
of ETC-Texas and Transaction Corp. (the "indemnifying party") to the other
(the "party to be indemnified") under Sections 8.1 and 8.2 with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice
of commencement of any action evidenced by service of process or other
legal pleading, the party to be indemnified shall give the
indemnifying party written notice thereof together with a copy of such
claim, process or other legal pleading, and the indemnifying party
shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense; provided
that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel
shall be paid by the party to be
AGREEMENT AND PLAN OF MERGER - Page 9
<PAGE>
indemnified unless (i) the indemnifying party has agreed to pay such
fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnifying
party and the party to be indemnified and the party to be indemnified
has been advised by counsel that there may be one or more legal
defenses available to it that are different from or additional to
those available to the indemnifying party (in which case, if the party
to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the
defense of such action on behalf of the party to be indemnified, it
being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of
attorneys at any time for the party to be indemnified, which firm
shall be designated in writing by the party to be indemnified).
(b) If the indemnifying party, by the 30th day after receipt of notice of
any such claim (or, if earlier, by the 10th day preceding the day on
which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does
not elect to defend against such claim, the party to be indemnified
will (upon further notice to the indemnifying party) have the right to
undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the indemnifying party and
at the indemnifying party's expense, subject to the right of the
indemnifying party to assume the defense of such claims at any time
prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not settle
any claim without the consent of the party to be indemnified unless
such settlement involves only the payment of money and the claimant
provides to the party to be indemnified a release from all liability
in respect of such claim. If the settlement of the claim involves more
than the payment of money, the indemnifying party shall not settle the
claim without the prior consent of the party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
8.4 Waiver. No waiver by any party of any default or breach by another party of
any representation, warranty, covenant or condition contained in this
Agreement shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty,
covenant or condition. No act, delay, omission or course of dealing on the
part of any party in exercising any right, power or remedy under this
Agreement or at law or in equity shall operate as a waiver thereof or
otherwise prejudice any of such party's rights, powers and remedies. All
remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue
other available remedies.
8.5 Remedies Not Exclusive. The remedies provided in this Article 8 shall not
be exclusive of any other rights or remedies available to one party against
the other, either at law or in equity.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of the parties hereto.
9.2 Termination by Any Party. This Agreement may be terminated and the Merger
may be abandoned by action of the Board of Directors of any party hereto if
a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to
this clause shall have used all reasonable efforts to remove such
injunction, order or decree.
9.3 Effect of Termination and Abandonment. In the event of termination of this
Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations
of the parties pursuant to Section 6.1.
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, sent
by telex, telecopy, facsimile or overnight courier, or mailed by registered
or certified mail
AGREEMENT AND PLAN OF MERGER - Page 10
<PAGE>
(postage prepaid and return receipt requested), to the party to whom the
same is so delivered, sent or mailed at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Transaction Corp.:
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Attn: L. Cade Havard
Phone: (214) 980-0900
Fax: (214) 980-0929
(b) if to ETC-Texas:
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Attn: L. Cade Havard
Phone: (214) 980-0900
Fax: (214) 980-0929
10.2 Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. References to Sections and Articles refer to sections
and articles of this Agreement unless otherwise stated.
10.3 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated and the parties shall
negotiate in good faith to modify this Agreement to preserve each party's
anticipated benefits under this Agreement.
10.4 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and
oral, among the parties with respect to the subject matter hereof; (b)
except as expressly set forth herein, is not intended to confer upon any
other person any rights or remedies hereunder and (c) shall not be assigned
by operation of law or otherwise.
10.5 Separate Counsel. Each party hereby expressly acknowledges that it has been
advised and urged to seek its own separate legal counsel for advice with
respect to this Agreement.
10.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
10.7 Counterparts. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ETC-TEXAS:
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
Name: L. Cade Havard
Its: Chief Executive Officer
TRANSACTION CORP.:
ETC TRANSACTION CORPORATION
By: /s/ L. Cade Havard
Name: L. Cade Havard
Its: Chief Executive Officer
AGREEMENT AND PLAN OF MERGER - Page 11
<PAGE>
APPENDIX B
<PAGE>
APPENDIX "B"
NOTICE OF CHANGE OF AUDITOR
TO: THE ALBERTA SECURITIES COMMISSION;
AND TO: HANS P. CREMERS, CHARTERED ACCOUNTANT
AND TO: SIMONTON, KUTAC & BARNIDGE, LLP, CERTIFIED PUBLIC ACCOUNTANTS
TAKE NOTICE THAT effective June 1, 1996, ETC Transaction Corporation (the
"Company") has appointed Simonton, Kutac & Barnidge, LLP, Certified Public
Accountants, (the "Successor Auditor") of Houston, Texas as auditor of the
Company for the fiscal year ending December 31, 1996. The former auditor, Hans
P. Cremers, Chartered Accountant (the "Former Auditor"), was not reappointed
after the expiry of his term of office in 1996 after he completed the Company's
December 31, 1995 annual audited financial statements. This notice is given
pursuant to National Policy No. 31.
There were no reservations in the Former Auditor's Report for the period
specified in paragraph 3.2 of National Policy No. 31.
The recommendation to appoint the Successor Auditor was considered and approved
by the Company's Board of Directors.
In the opinion of the Company, there were no reportable events occurring prior
to the termination of the Former Auditor in 1996.
DATED at Dallas, Texas this ______ day of June, 1996.
ETC TRANSACTION CORPORATION
per:
L. Cade Havard, President
<PAGE>
APPENDIX C
<PAGE>
APPENDIX "C"
CERTIFICATE OF DOMESTICATION
The undersigned, L. Cade Havard, Chief Executive Officer of ETC Transaction
Corporation, in accordance with the provisions of Section 388 of Title 8 of the
Delaware Code does hereby certify:
1. The corporation was first formed on September 5, 1986 in Calgary,
Alberta, Canada under the name Solo Petroleums Ltd.
2. The name of the corporation immediately prior to the filing of this
Certificate of Domestication was ETC Transaction Corporation.
3. The name of the corporation as set forth in its Certificate of
Incorporation is ETC Transaction Corporation.
4. The jurisdiction that constituted the seat, siege social, principal
place of business or central administration of the corporation
immediately prior to the filing of this Certificate of Domestication
was Calgary, Alberta, Canada.
IN WITNESS WHEREOF, I, being the Chief Executive Officer and being duly
authorized to sign this Certificate of Domestication on behalf of the
corporation have made, signed and sealed this Certificate of Domestication on
_____________, 1996.
ETC TRANSACTION CORPORATION
By:
L. Cade Havard, Chief Executive Officer
CERTIFICATE OF DOMESTICATION - SOLO
<PAGE>
APPENDIX D
<PAGE>
APPENDIX "D"
CERTIFICATE OF INCORPORATION
OF
ETC TRANSACTION CORPORATION
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the General Corporation
Law of the State of Delaware (the "DGCL"), do hereby adopt the following
Certificate of Incorporation for the Corporation:
FIRST: The name of this corporation is ETC Transaction Corporation.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, Delaware 19801, County of New Castle. The name of the registered
agent of the Corporation at such address is CT Corporation Systems.
THIRD: The purpose for which the Corporation is organized is to engage in
any and all lawful acts or activity for which corporations may be organized
under the DGCL. The Corporation will have perpetual existence.
FOURTH: The Corporation shall have authority to issue two classes of shares
to be designated respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Seventeen
Million (17,000,000) shares of which Fifteen Million (15,000,000) shall be
Common Stock and Two Million (2,000,000) shall be Preferred Stock. Each share of
Common Stock shall have a par value of $0.001, and each share of Preferred Stock
shall have a par value of $1.00.
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in one or more series, each of which shall have such
designation(s) or title(s) as may be fixed by the Board of Directors prior to
the issuance of any shares thereof. The Board of Directors is hereby authorized
to fix or alter the dividend rates, conversion rights, rights and terms of
redemption, including sinking fund provisions, the redemption price or prices,
voting rights and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them. The rights, powers, preferences,
limitations and restrictions, if any, accompanying such shares of Preferred
Stock shall be set forth by resolution of the Board of Directors providing for
the issue thereof prior to the issuance of any shares thereof, in accordance
with the applicable provisions of the DGCL. Each share of any series of
Preferred Stock shall be identical with all other shares of such series, except
as to the date from which dividends, if any, shall accrue.
FIFTH: The name of the incorporator is George L. Diamond, and the mailing
address of such incorporator is Looper, Reed, Mark & McGraw Incorporated, 1601
Elm Street, Suite 4100, Dallas, Texas 75201.
SIXTH: The number of directors constituting the initial board of directors
is six (6), and the names and addresses of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualified are as follows:
Name Address
- ---- -------
L. Cade Havard 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Elaine Boze 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Timothy P. Powell 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
CERTIFICATE OF INCORPORATION - Page 1
<PAGE>
Michael Eckstein 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
David O. Hannah 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Rick L. Snyder 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
SEVENTH: Directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power to adopt,
amend and repeal the bylaws of the Corporation.
NINTH: No contract or transaction between the Corporation and one or more
of its directors, officers or stockholders, or between the Corporation and any
person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers or stockholders are directors, officers or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article Tenth is in effect.
Any repeal or amendment of this Article Tenth shall be prospective only and
shall not limit the rights of any such director or officer or the obligations of
the Corporation with respect to any claim arising from or related to the
services of such director or officer in any of the foregoing capacities prior to
any such repeal or amendment to this Article Tenth. Such right shall include the
right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the DGCL, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under the
DGCL, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible shall
be a defense to the action or create a presumption that such indemnification or
advancement is not permissible. In the event of the death of any person having a
right of indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of stockholders or directors, agreement, or otherwise.
CERTIFICATE OF INCORPORATION - Page 2
<PAGE>
Without limiting the generality of the foregoing, to the extent permitted
by then applicable law, the grant of mandatory indemnification pursuant to this
Article Tenth shall extend to proceedings involving the negligence of such
person.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under Section 145 of the DGCL.
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper benefit. Any repeal or
amendment of this Article Eleventh by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation arising from an act or
omission occurring prior to the time of such repeal or amendment. In addition to
the circumstances in which a director of the Corporation is not personally
liable as set forth in the foregoing provisions of this Article Eleventh, a
director shall not be liable to the Corporation or its stockholders to such
further extent as permitted by any law hereafter enacted, including, without
limitation, any subsequent amendment to the DGCL.
TWELFTH: The Corporation prohibits the use of a written consent in lieu of
any meeting of the stockholders of the Corporation.
THIRTEENTH: Cumulative voting with respect to the election of directors is
expressly prohibited.
FOURTEENTH: The Corporation expressly elects not to be governed by Section
203 of the DGCL.
I, the undersigned, for the purpose of forming the Corporation under the
laws of the State of Delaware, do make, file and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and, accordingly, I do hereunto set my hand on
_______________, 1996.
GEORGE L. DIAMOND
CERTIFICATE OF INCORPORATION - Page 3
<PAGE>
APPENDIX E
<PAGE>
APPENDIX "E"
LOOPER, REED, MARK & McGRAW
INCORPORATED
ATTORNEYS
4100 THANKSGIVING TOWER
1601 ELM STREET HOUSTON OFFICE
DALLAS, TEXAS 75201 713-625-9100
214-654-4135 TELECOPY 713-625-9191
TELECOPY 214-953-1332
June 27, 1996
Electronic Transmission Corporation
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Re: Agreement and Plan of Merger between Electronic Transmission Corporation
("ETC- Texas") and ETC Transaction Corporation (the "Company")
Ladies and Gentlemen:
Our opinion has been requested on certain specific matters of U.S. Federal
Income Tax law with respect to Electronic Transmission Corporation, a Texas
corporation ("ETC-Texas") under the circumstances described below. This letter
is intended solely for the use of ETC-Texas, and accordingly, it is not intended
to be, and should not be, relied upon by any person, or entity other than
ETC-Texas.
We have acted as special counsel for ETC-Texas in connection with the
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
ETC-Texas will merge into ETC Transaction Corporation, a Delaware corporation
(the "Company"), which is proposed to be the continuation and domestication of
ETC Transaction Corporation, an Alberta, Canada corporation ("ETC-Canada"), all
as described in ETC-Canada's Form S-4 Registration Statement (the "Registration
Statement"). In such capacity, we have familiarized ourselves with the Merger
Agreement and the Registration Statement. The specific matters of federal income
tax law upon which you have requested our opinion are:
(i) that the Merger Agreement between ETC-Texas and the Company will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
(ii) that no gain or loss will be recognized by the Company or ETC-Texas as
a result of the Merger Agreement;
(iii) that the federal tax basis of ETC-Texas assets in the hands of the
Company will be the same as the federal tax basis of those assets in the hands
of ETC-Texas immediately prior to the Merger Agreement, and that the holding
period of the ETC-Texas assets in the hands of the Company will include the
period during which such assets were held by ETC- Texas;
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 2
(iv) that the shareholders of ETC-Texas will not recognize gain or loss
with respect to the their sole receipt of common stock of the Company ("Company
Common Stock") in exchange for their shares of common stock in ETC- Texas
("ETC-Texas Common Stock");
(v) that the federal tax basis and holding period for the shares of the
Company Common Stock received by ETC-Texas shareholders will be the same as the
federal tax basis and holding period for the ETC-Texas Common Stock exchanged
therefor, provided that, for purposes of the holding period, the ETC-Texas
Common Stock was held as a capital asset as of the Merger Agreement;
(vi) that a shareholder of ETC-Texas Common Stock who receives cash in lieu
of a fractional share of Company Common Stock will be treated as if he received
a fractional share of Company Common Stock pursuant to the Merger Agreement and
the Company then redeemed such fractional share for cash.
Other than the above specific requested tax opinions, no other opinions
have been requested and no other opinions are expressed or implied.
Our opinions are based upon the existence of the facts as set forth below,
which facts ETC-Texas has represented to us by its Certificate dated June 27,
1996 that we may assume for purposes of this opinion. We have no reason to
believe that any of these represented facts are not true and accurate or that
any assumed future events will not occur as contemplated. Further, we have no
reason to believe that we cannot rely upon ETC-Texas' statement relating these
facts and events. However, we have no knowledge or information regarding the
formation, operation, management or finances of ETC-Texas, ETC-Canada, or the
Company, other than as ETC-Texas has represented to us. To the extent the facts
of any actual situation are different from those relied upon, our opinion should
be disregarded as it might be different under the actual facts than as stated
below.
ETC-Texas has represented to us that for purposes of this opinion we may
assume the following:
(a) The accuracy of the matters contained in ETC-Canada's Form S-4
Registration Statement;
(b) ETC-Canada will continue and domesticate into the state of Delaware and
be succeeded by the Company (the "Continuation"). Substantially all of the
historic shareholders (i.e., more than 99%) of ETC-Canada will become
shareholders of the Company after the Continuation is complete.
(c) As of the effective time of the Merger Agreement (the "Effective Time")
and by virtue of the Continuation and the Merger Agreement, each share of
ETC-Texas Common Stock issued and outstanding immediately prior to the Effective
Time will be converted into 1.25 shares of validly issued, fully paid and
nonassessable shares of Company Common Stock. Therefore, former holders of
ETC-Texas Common Stock (except holders who exercise dissenters' rights of
appraisal) will hold Company Common Stock issued pursuant to the Merger
Agreement. No fractional shares of the Company will be issued pursuant to the
Merger Agreement. Holders of ETC-Texas Common Stock who would have otherwise
been entitled to fractional shares based on the exchange formula described above
will instead receive cash in lieu of fractional shares.
(d) The Company will continue the historic business of ETC-Texas, utilizing
the historic assets of ETC-Texas.
(e) There is no plan or intention on the part of holders of ETC-Texas
Common Stock to sell, exchange or otherwise dispose of a number of shares of the
Company Common Stock received pursuant to the Merger Agreement that would reduce
the ETC-Texas historic shareholders' ownership of the Company Common Stock to a
number of shares having a value, as of the Effective Time of the Merger
Agreement, of less than 50% of the value of all of the formerly outstanding
shares of ETC-Texas Common Stock as of the same date. For purposes of this
assumption, shares of ETC-Texas Common Stock exchanged for cash in lieu of
fractional shares will be treated as outstanding ETC-Texas Common Stock as of
the date of the Merger Agreement.
(f) ETC-Texas and the Company shall each pay their own expenses incurred in
connection with the transaction.
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 3
(g) The payment of cash to ETC-Texas shareholders in lieu of fractional
shares of the Company Common Stock is solely for the purpose of avoiding the
expense and inconvenience to the Company of issuing fractional shares and does
not represent separately bargained for consideration.
(h) The Company has no plan or intention to redeem or otherwise reacquire
any of its stock issued in the transaction.
(i) The number of shares of the Company Common Stock received by each
ETC-Texas stockholder in exchange for his or her ETC-Texas Common Stock was
determined in arms-length negotiations between the Company and ETC-Texas. The
merger of ETC-Texas into the Company has an identifiable business purpose, and
is not being undertaken for the purpose of tax avoidance.
Based upon our review of the Merger Agreement, the Registration Statement
and such other documents as we have deemed necessary, upon the assumptions set
forth above, and upon the representations made to us by ETC-Texas, we are of the
opinion that, assuming the Continuation and the merger and all other events
occur as contemplated in the Merger Agreement and the Registration Statement,
under the United States federal income tax laws in effect on the date hereof:
(1) The merger and acquisition by the Company of substantially all of the
assets of ETC-Texas in exchange for shares of Company Common Stock will
constitute a reorganization within the meaning of Section 368(a) of the Code.
The Company and ETC-Texas will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by the Company or ETC-Texas as a
result of the exchange of substantially all of the assets of ETC-Texas for
Company Common Stock.
(3) The federal tax basis of ETC-Texas assets in the hands of the Company
will be the same as the federal tax basis of those assets in the hands of
ETC-Texas immediately prior to the Effective Time of the Merger Agreement. The
holding period of the ETC-Texas assets in the hands of the Company will include
the period during which such assets were held by ETC- Texas.
(4) Shareholders of ETC-Texas Common Stock who receive solely shares of
Company Common Stock in exchange for their ETC-Texas Common Stock will not
recognize any gain or loss as a result of the Merger Agreement.
(5) The federal tax basis and holding period for the shares of the Company
Common Stock received by ETC- Texas shareholders will be the same as the federal
tax basis and holding period for the ETC-Texas Common Stock exchanged therefor,
provided that, for purposes of the holding period, the ETC-Texas Common Stock
was held as a capital asset at the Effective Time.
(6) A shareholder of ETC-Texas Common Stock who receives cash in lieu of a
fractional share of Company Common Stock will be treated as if he received a
fractional share of Company Common Stock pursuant to the Merger Agreement and
the Company then redeemed such fractional share for cash. The shareholder will
recognize gain equal to the difference, if any, between such shareholder's tax
basis in the fractional share and the amount of cash received. Such gain may be
classified as either capital in nature (if the ETC-Common Stock was held by such
shareholder as a capital asset), as ordinary income (if the stock was not held
as a capital asset), or as a dividend, which may produce ordinary income,
depending upon the shareholder's particular circumstances.
The discussion set forth above does not address the state, local or foreign
tax aspects of the Continuation or the Merger Agreement. The discussion is based
on currently existing provisions of the Code, existing and proposed treasury
regulations thereunder, and current administrative rulings and court decisions.
All of the foregoing is subject to change and any such change could affect the
continuing validity of the discussion. The opinion does not deal with the
specific circumstances of any particular ETC-Texas shareholder. EACH ETC-TEXAS
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISER AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER AGREEMENT TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 4
You have not asked for, and we do not express, any opinion concerning the
tax consequences of the Merger Agreement other than those expressly set forth
above. The foregoing opinion is qualified, and no opinion is expressed as to the
federal income tax consequences of the Continuation.
This opinion is provided to you only and, without our prior consent, may
not be relied upon, used, circulated, quoted or otherwise referred to in any
manner by any person, firm, governmental authority or entity whatsoever other
than reliance thereon by you. This opinion letter is limited to the matters
stated herein and no opinion is implied or may be inferred beyond the matters
expressly stated herein.
Notwithstanding the preceding paragraph, we hereby consent to the
references to our firm appearing in the Registration Statement and to the filing
of this opinion as an exhibit to the Registration Statement.
This opinion is rendered as of the date hereof based on the facts in
existence on the date hereof, and we undertake no, and hereby disclaim any,
obligation to advise you of any changes or any new developments, whether
material or not material, that may be brought to our attention at a later date.
Any change in the facts and assumptions stated above, upon which this opinion is
based, could modify the conclusion.
We express no opinion with respect to the effect of any laws other than the
federal income tax laws of the United States of America.
Very truly yours,
LOOPER, REED, MARK & McGRAW, INCORPORATED
By: /s/ Looper, Reed, Mark & McGraw
----------------------------------------------
<PAGE>
APPENDIX F
<PAGE>
APPENDIX "F"
DISSENTERS' RIGHTS UNDER
ALBERTA BUSINESS CORPORATIONS ACT
184(1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 or 168 to add, change or remove
any provisions restricting or constraining the issue or transfer of
shares of that class,
(b) amend its articles under section 167 or 168 to add, change or remove
any restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section 178
or 180.1,
(d) be continued under the laws of another jurisdiction under section 182,
or
(e) sell, lease or exchange all or substantially all its property under
section 183.
(2) A holder of shares of any class or series of shares entitled to subsection
(20), a shareholder entitled to vote under section 170, other than section
170(1)(a), may dissent if the corporation resolves to amend its articles in
a manner described in that section.
(3) In addition to any other right he may have, but subject to section (20), a
shareholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of
the shares held by him in respect of which he dissents, determined as of
the close of business on the last business day before the day on which the
resolution from which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect to
all the shares of a class held by him or on behalf of any one beneficial
owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written objection
to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution is to
be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a reasonable
time after he learns that the resolution.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2)
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation under
subsection (5)
to fix the fair value in accordance with subsection (3) of the shares of a
shareholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the
fair value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection (&)
shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within ten days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
-1-
<PAGE>
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair value
was determined.
(10) A dissenting shareholder may make an agreement with the corporation for the
purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before
the Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the costs
of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may give
directions for
(a) joining as parties all dissenting shareholders whose shares have not
been purchased by the corporation and for the representation of
dissenting shareholders who, in the opinion of the Court, are in need
of representation,
(b) the trial of issues and interlocutory matters, including pleadings and
examinations for discovery,
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection (3)
of all dissenting shareholders who are parties to the application,
(b) giving judgment in that amount against the corporation and in favor of
each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that amount to a
shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance of
the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in
the amount agreed to between the corporation and the shareholder or in the
amount of the judgment, as the case may be.
(15) Subsection 14(a) does not apply to a shareholder referred to in subsection
(5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
-2-
<PAGE>
(17) The Court may in its discretion allow a reasonable rate of interest on the
amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the corporation
as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay
dissenting shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favor of a dissenting
shareholder under subsection (13)(b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his full
rights as a shareholder, failing which he retains a status as a claimant
against the corporation, to be paid as soon as the corporation is lawfully
able to do so or, in a liquidation, to be ranked subordinate to the rights
of creditors of the corporation but in prior to its shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
-3-
<PAGE>
APPENDIX G
<PAGE>
APPENDIX "G"
DISSENTERS' RIGHTS UNDER
TEXAS BUSINESS CORPORATION ACT
Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this
Act and the shareholder holds shares of a class or series that
was entitled to vote thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless
otherwise provided in the articles of incorporation) of all, or
substantially all, the property and assets, with or without good
will, of a corporation requiring the special authorization of the
shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in
which the shares of the corporation of the class or series held
by the shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of
merger in which there is a single surviving or new domestic or foreign
corporation, or from any plan of exchange, if (1) the shares held by
the shareholder are part of a class shares of which are listed on a
national securities exchange, or are held of record by not less than
2,000 holders, on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or the plan of exchange, and
(2) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the
effective time of the merger or exchange, will be part of a class or
series of shares of which are (i) listed, or authorized for listing
upon official notice of issuance, on a national securities exchange,
or (ii) held of record by not less than 2,000 holders, and (b) cash in
lieu of fractional shares otherwise entitled to be received.
Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11
of this Act may exercise that right to dissent only by complying with
the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file
with the corporation, prior to the meeting, a written objection
to the action, setting out that the shareholder's right to
dissent will be exercised if the action is effective and giving
the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and
the shareholder shall not have voted in favor of the action, the
corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other
entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days
after the action is effected, deliver or mail to the shareholder
written notice that the action has been effected, and the
shareholder may, within ten (10) days from the delivery or
mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the
value thereof as of the day immediately preceding the meeting,
excluding any appreciation or depreciation in anticipation of the
proposed action. The demand shall state the number and class of
the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing
to make demand within the ten (10) day period shall be bound by
the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the
corporation, in the case of action other than a merger, and the
surviving or new corporation (foreign or domestic) or other
entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days
after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the
fact and date of the action and that the shareholder may exercise
the shareholder's right to dissent from the action. The notice
shall be accompanied by a copy of this Article and any articles
or documents filed by the corporation with the Secretary of State
to effect the action. If the shareholder shall not have consented
to the taking of the action, the shareholder may, within twenty
(20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, for payment of the fair
value of the shareholder's shares. The fair value of the shares
shall be the value thereof as of the date the written consent
authorizing the action was delivered to the corporation pursuant
to Section A of
-1-
<PAGE>
Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall
state the number and class of shares owned by the dissenting
shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand with the
twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the
case may be, of a demand for payment made by a dissenting
shareholder in accordance with Subsection (1) of this Section,
the corporation (foreign or domestic) or other entity shall
deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees
to pay that amount within ninety (90) days after the date on
which the action was effected, and, in the case of shares
represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the
corporation (foreign or domestic) or other entity of the fair
value of the shares, together with an offer to pay the amount of
that estimate within ninety (90) days after the date on which the
action was effected, upon receipt of notice within sixty (60)
days after that date from the shareholder that the shareholder
agrees to accept that amount and, in the case of shares
represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon
between the shareholder and the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case
may be, payment for the shares shall be made within ninety (90)
days after the date on which the action was effected and, in the
case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the
shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing,
surviving, or new corporation (foreign or domestic) or other entity,
as the case may be, do not so agree, then the shareholder or the
corporation (foreign or domestic) or other entity may, within sixty
(60) days after the expiration of the sixty (60) day period, file a
petition in any court of competent jurisdiction in the county in which
the principal office of the domestic corporation is located, asking
for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder,
service of a copy thereof shall be made upon the corporation (foreign
or domestic) or other entity, which shall, within ten (10) days after
service, file in the office of the clerk of the court in which the
petition was filed a list containing the names and addresses of all
shareholders of the domestic corporation who have demanded payment for
their shares and with whom agreements as to the value of their shares
have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation
(foreign or domestic) or other entity, the petition shall be
accompanied by such a list. The clerk of the court shall give notice
of the time and place fixed for the hearing of the petition by
registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses
therein stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation (foreign
or domestic) or other entity shall thereafter be bound by the final
judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and
have become entitled to the valuation of and payment for their shares,
and shall appoint one or more qualified appraisers to determine that
value. The appraisers shall have power to examine any of the books and
records of the corporation the shares of which they are charged with
the duty of valuing, and they shall make a determination of the fair
value of the shares upon such investigation as to them may seem
proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the
value of the shares. The appraisers shall also have such power and
authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their
shares and shall file their report of that value in the office of the
clerk of the court. Notice of the filing of the report shall be given
by the clerk to the parties in interest. The report shall be subject
to exceptions to be heard before the court both upon the law and the
facts. The court shall by its judgment determine the fair value of the
shares of the shareholders entitled to payment for their shares and
shall direct the payment of that value by the existing, surviving, or
new corporation (foreign or domestic) or other entity, together with
interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to
dissent was effected to the date of such judgment, to the shareholders
entitled to payment. The judgment shall be payable to the holders of
uncertificated shares immediately but to the holders of shares
represented by certificates only upon, and simultaneously with, the
surrender to the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, of duly endorsed
certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those
shares or in the corporation. The court shall allow the appraisers a
reasonable fee as court costs, and all court costs shall be allotted
between the parties in the manner that the court determines to be fair
and equitable.
-2-
<PAGE>
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to
the payment of the agreed value of the shares or pursuant to payment
of the judgment entered for the value of the shares, as in this
Article provided, shall, in the case of a merger, be treated as
provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving
corporation is the owner of all the outstanding shares of the other
corporations, domestic or foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action
referred to in Article 5.11 of this Act is the exclusive remedy for
the recovery of the value of his shares or money damages to the
shareholder with respect to the action. If the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may
be, complies with the requirements of this Article, any shareholder
who fails to comply with the requirements of this Article shall not be
entitled to bring suit for the recovery of the value of his shares or
money damages to the shareholder with respect to the action.
Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who had demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be
entitled to vote or exercise any other rights of a shareholder except
the right to receive payment for his shares pursuant to the provisions
of those articles and the right to maintain an appropriate action to
obtain relief on the ground that the corporate action would be or was
fraudulent, and the respective shares for which payment has been
demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its
shareholder records. Within twenty (20) days after demanding payment
for his shares in accordance with either Article 5.12 or 5.16 of this
Act, each holder of certificates representing shares so demanding
payment shall submit such certificates to the corporation for notation
thereon that such demand has been made. The failure of holders of
certificated shares to do so shall, at the option of the corporation,
terminate such shareholder's rights under Articles 5.12 and 5.16 of
this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated
shares for which payment has been demanded or shares represented by a
certificate on which notation has been so made shall be transferred,
any new certificate issued therefor shall bear similar notation
together with the name of the original dissenting holder of such
shares and a transferee of such shares shall acquire by such transfer
no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand
at any time before payment for his shares or before any petition has
been filed pursuant to Article 5.12 or 5.16 of this Act asking for a
finding and determination of the fair value of shares, but no such
demand may be withdrawn after such payment has been made or, unless
the corporation shall consent thereto, after any such petition has
been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article
5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a
court shall have been filed within the time provided in Article 5.12
or 5.16 of this Act, as the case may be, or if after the hearing of a
petition filed pursuant to Article 5.12 or 5.16, the court shall
determine that such shareholder is not entitled to the relief provided
by those articles, then, in any such case, such shareholder and all
persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and
shall be bound thereby, the right of such shareholder to be paid the
fair value of his shares shall cease, and his status as a shareholder
shall be restored without prejudice to any corporate proceedings which
may have been taken during the interim, and such shareholder shall be
entitled to receive any dividends or other distributions made to
shareholders in the interim.
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description Location
2.1 Agreement and Plan of Merger dated as of May 1, 1996, by and among the
Registrant and Electronic Transmission Corporation
3.1 Articles of Incorporation of the Registrant, dated September 5, 1986
3.2 Articles of Amendment to the Articles of Incorporation of the Registrant,
dated March 26, 1996
3.3 Bylaws of the Registrant, dated September 5, 1986
3.4 Form of Certificate of Incorporation of the Registrant, as continued and
domesticated into the State of Delaware
3.5 Form of Bylaws of the Registrant, as continued and dometicated into the
State of Delaware
4.1 Specimen of Continued Common Stock Certificate
5.1 Opinion of Looper, Reed, Mark & McGraw Incorporated regarding the legality
of the securities being registered
5.2 Opinion of Beaumont Church, Barristers and Solicitors, regarding the
legality of the securities being registered
8.1 Opinion of Looper, Reed, Mark & McGraw Incorporated regarding tax matters
9.1 Voting Trust Agreement, dated January 26, 1995, between Sterling National
Corporation and holders of Sterling Options
10.1 Bill of Sale, dated effective January 1, 1995, by and between Electronic
Transmission Corporation and Sterling National Corporation
10.2 Agreement for Processing Medical Claims on a Temporary Basis, dated
effective March 5, 1996, by and between Electronic Transmission Corporation
and Wal-Mart
10.3 Equipment Lease and Stock Option Agreement, effective April 23, 1996, by
and between Electronic Transmission Corporation and Ironwood Leasing
Limited
10.4 Letter Agreement, dated June 20, 1996, between Electronic Transmission
Corporation and Ironwood Leasing Limited
10.5 Promissory Note, dated June 1, 1996, in the principal amount of
$779,575.50, executed in favor of the Registrant by Electronic Transmission
Corporation
10.6 Staff Leasing Services Agreement, dated effective December 15, 1995, by and
between Network Employers Group, Inc. and Electronic Transmission
Corporation
10.7 Employment and Settlement Agreement, dated January 2, 1995, between
Electronic Transmission Corporation and L. Cade Havard
10.8 Employment and Settlement Agreement, dated December 4, 1995, between
Electronic Transmission Corporation and Elaine Boze
10.9 Employment and Settlement Agreement, dated March 1, 1995, between
Electronic Transmission Corporation and Timothy P. Powell
10.10Employment Agreement, dated May 1, 1996, between Electronic Transmission
Corporation and Ann C. McDearmon
10.11Employment Agreement, dated April 1, 1996, between Electronic Transmission
Corporation and Louann Smith
10.12Settlement and Employment Agreement, dated May 1, 1996, between Electronic
Transmission Corporation and Roy W. Mers
10.13Office Lease, dated January 5, 1995, by and between Natron Limited
Partnership and Electronic Transmission Corporation, including amendments
thereto
16.1 Form of Notice of Change of Auditor
16.2 Letter of Hans P. Cremers, Chartered Accountant, dated June 24, 1996
16.3 Letter of Simonton, Kutac & Barnidge, L.L.P., dated June 24, 1996
23.1 Consent of Looper, Reed, Mark & McGraw Incorporated (set forth in Exhibit
5.1)
23.2 Consent of Beaumont Church, Barristers and Solicitors (set forth in Exhibit
5.2)
23.3 Consent of Simonton, Kutac & Barnidge, L.L.P. as to the financial
statements of the Registrant
23.4 Consent of Simonton, Kutac & Barnidge, L.L.P. as to the financial
statements of Electronic Transmission Corporation
24.1 Power of Attornety (See page II-4 of the Registration Statement)
27.1 Financial Data Schedule
99.1 Form of Proxy for the Registrant
99.2 Form of Proxy for Electronic Transmission Corporation
EXHIBIT 2.1
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and between
ELECTRONIC TRANSMISSION CORPORATION,
a Texas corporation
and
ETC TRANSACTION CORPORATION,
an Alberta, Canada corporation
May 1, 1996
<PAGE>
ARTICLE/SECTION PAGE
- --------------- ----
RECITALS .................................................................. 1
ARTICLE 1 THE MERGER......................................................... 1
1.1 The Merger....................................................... 1
1.2 Closing ........................................................ 1
1.3 Effective Time of the Merger..................................... 2
1.4 Articles of Incorporation and Bylaws............................. 2
1.5 Directors and Officers of the Surviving Corporation.............. 2
ARTICLE 2 CONVERSION OF SHARES............................................... 2
2.1 Conversion of Company Common Stock............................... 2
2.2 Stock Certificates............................................... 3
2.3 Fractional Shares................................................ 3
2.4 Dissenting Shares................................................ 3
ARTICLE 3 REPRESENTATION AND WARRANTIES OF TRANSACTION CORP.................. 4
3.1 Organizations.................................................... 4
3.2 Capitalization................................................... 4
3.3 Certain Corporate Matters........................................ 4
3.4 Authority Relative to this Agreement............................. 4
3.5 Consents and Approvals; No Violations............................ 4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ETC-TEXAS........................ 5
4.1 Organization..................................................... 5
4.2 Capitalization and Ownership of ETC-Texas........................ 5
4.3 Certain Corporate Matters........................................ 6
4.4 Subsidiaries..................................................... 6
4.5 Authority Relative to this Agreement............................. 6
4.6 Consents and Approvals; No Violations............................ 6
4.7 Reports ........................................................ 7
4.8 Financial Statements............................................. 7
4.9 Events Subsequent to Financial Statements........................ 7
4.10 Undisclosed Liabilities.......................................... 8
4.11 Tax Returns and Audits........................................... 8
4.12 Real Property.................................................... 9
4.13 Books and Records................................................ 9
4.14 Questionable Payments............................................ 9
4.15 Environmental Matters............................................ 9
4.16 Intellectual Property............................................ 10
4.17 Insurance........................................................ 10
4.18 Contracts........................................................ 10
4.19 Litigation....................................................... 11
4.20 Employees........................................................ 11
4.21 Employee Benefit Plans........................................... 11
4.22 Legal Compliance................................................. 11
4.23 Broker's Fees.................................................... 11
4.24 Disclosure....................................................... 11
ARTICLE 5 CONDUCT OF BUSINESS PENDING THE CLOSING............................ 12
5.1 Conduct of Business by ETC-Texas Pending the Closing............. 12
5.2 Other Actions.................................................... 13
ARTICLE 6 ADDITIONAL AGREEMENTS.............................................. 13
6.1 Access and Information........................................... 13
6.2 Registration Statement .......................................... 14
6.3 Meetings of Shareholders......................................... 14
6.4 Press Releases................................................... 14
6.5 Reimbursement of Transaction Corp................................ 14
ARTICLE 7 CONDITIONS TO CLOSING.............................................. 15
7.1 Conditions to Obligations of Each Party to Effect the Closing.... 15
i
<PAGE>
7.2 Additional Conditions to Transaction Corp.'s Obligations......... 15
7.3 Additional Conditions to ETC-Texas' Obligations.................. 17
ARTICLE 8 REMEDIES........................................................... 18
8.1 Indemnification by ETC-Texas..................................... 18
8.2 Indemnification by Transaction Corp.............................. 18
8.3 Conditions of Indemnification.................................... 18
8.4 Waiver ........................................................ 19
8.5 Remedies Not Exclusive........................................... 20
ARTICLE 9 TERMINATION........................................................ 20
9.1 Termination by Mutual Consent.................................... 20
9.2 Termination by Any Party......................................... 20
9.3 Effect of Termination and Abandonment............................ 20
ARTICLE 10 GENERAL PROVISIONS................................................ 20
10.1 Notices ......................................................... 20
10.2 Interpretation.................................................... 21
10.3 Severability...................................................... 21
10.4 Miscellaneous..................................................... 21
10.5 Separate Counsel.................................................. 21
10.6 Governing Law..................................................... 21
10.7 Counterparts...................................................... 22
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 1,
1996, is made and entered into by and between ETC Transaction Corporation, an
Alberta, Canada corporation ("Transaction Corp.") f/k/a Solo Petroleums, Ltd.
("Solo") and Electronic Transmission Corporation, a Texas corporation
("ETC-Texas").
RECITALS
WHEREAS, the Board of Directors of Transaction Corp. has adopted
resolutions approving and adopting the continuance and domestication of
Transaction Corp. into a Delaware corporation (the "Continuance") for the
purposes of merging with ETC-Texas (the "Merger");
WHEREAS, the Board of Directors of ETC-Texas has adopted resolutions
approving and adopting the Merger;
WHEREAS, the Merger is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3 hereof), ETC-Texas shall be
merged with and into Transaction Corp. and the separate corporate existence
of ETC-Texas shall thereupon cease. Transaction Corp. (sometimes
hereinafter referred to as the "Surviving Corporation") shall be the
surviving corporation in the Merger. The Merger shall have the effects set
forth in the applicable provisions of the Delaware General Corporation Law
(the "DGCL") and the Texas Business Corporation Act (the "TBCA").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at a
time and place to be mutually agreed upon by ETC-Texas and Transaction
Corp. as soon as the conditions set forth in Article 7 have been satisfied
or waived or as soon as practicable thereafter. Such date is herein
referred to as the "Closing Date."
1.3 Effective Time of the Merger. If all of the conditions to the Merger set
forth in Article 7 shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article 9, the parties hereto shall cause Articles of Merger (the "Articles
of Merger") that meet the requirements of the applicable provisions of the
DGCL and the TBCA, respectively, to be properly executed and filed with the
Secretary of State of the States of Delaware and Texas, respectively, on
the Closing Date. The Merger shall be effective at the time of acceptance
of the filing of the Articles of Merger with the Secretary of State of the
States of Delaware and Texas in accordance with the DGCL and the TBCA,
respectively, or at such later time which the parties hereto shall have
agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
1.4 Certificate of Incorporation and Bylaws. In continuing and domesticating
into Delaware, Transaction Corp. shall file a Certificate of Incorporation
and Bylaws with the Secretary of State of the State of Delaware and such
Certificate of Incorporation and Bylaws of Transaction Corp. shall become
the Certificate of Incorporation and Bylaws of Transaction Corp. and of the
Surviving Corporation, subject always to the right of the Surviving
Corporation to amend its Articles of Incorporation and Bylaws in accordance
with the laws of the State of Delaware and the provisions of the
Certificate of Incorporation and Bylaws.
1.5 Directors and Officers of the Surviving Corporation. The directors and
officers of ETC-Texas immediately prior to the Effective Time shall be the
initial directors and officers of the Surviving Corporation and shall hold
such positions from the Effective Time until their respective successors
are duly elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation or as
otherwise provided by law.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion of Company Common Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Transaction Corp. or ETC-Texas
or any holder of capital stock of any of them:
AGREEMENT AND PLAN OF MERGER - Page 1
<PAGE>
(a) Subject to the limitations contained herein, each share of common
stock of ETC-Texas, no par value (the "ETC-Texas Common Stock"),
issued and outstanding immediately prior to the Effective Time shall
be automatically converted into the right to receive one and
one-fourth of a share of common stock of Transaction Corp. no par
value (the "Transaction Corp. Common Stock").
(b) All shares of ETC-Texas Common Stock shall be cancelled and cease to
be outstanding and each holder of a certificate representing ETC-Texas
Common Stock shall thereafter cease to have any rights with respect
thereto except as set forth in this Article 2.
2.2 Stock Certificates. At or following the Effective Time, each holder of an
outstanding certificate or certificates representing ETC-Texas Common Stock
shall surrender the same to Transaction Corp. and Transaction Corp. shall,
in exchange therefor, cause to be issued to the holder of such
certificate(s) a new certificate representing shares of Transaction Corp.
Common Stock in accordance with this Article 2, less any amount required to
be withheld under applicable federal, state or local tax requirements, and
the surrendered certificate(s) shall be cancelled. Until so surrendered and
exchanged, each such certificate shall represent solely the right to
receive shares of Transaction Corp. Common Stock in accordance with this
Article 2, without interest and less any tax withholding.
2.3 Fractional Shares. No fractional shares of Transaction Corp. Common Stock
shall be issued in the Merger. In lieu thereof, all fractional shares of
Transaction Corp. Common Stock that a holder of ETC-Texas Common Stock
would otherwise be entitled to receive as a result of the Merger shall be
automatically converted into the right to receive one full share of
Transaction Corp. Common Stock.
2.4 Dissenting Shares. Each share of ETC-Texas Common Stock issued and
outstanding immediately prior to the Effective Time not voted in favor of
the Merger, the holder of which has given written notice of the exercise of
dissenter's rights as required by the TBCA is herein called a "Dissenting
Share." Dissenting Shares shall not be converted into or represent the
right to receive shares of Transaction Corp. Common Stock pursuant to this
Article 2 and shall be entitled only to such rights as are available to
such holder pursuant to the TBCA, unless the holder thereof shall have
withdrawn or forfeited his dissenter's rights. Each holder of Dissenting
Shares shall be entitled to receive the value of such Dissenting Shares
held by him in accordance with the applicable provisions of the TBCA.
Transaction Corp. will promptly pay to any holder of Dissenting Shares such
amount as such holder shall be entitled to receive in accordance with the
applicable provisions of the TBCA. If any holder of Dissenting Shares shall
effectively withdraw or forfeit his dissenter's rights under the TBCA, such
Dissenting Shares shall be converted into the right to receive shares of
Transaction Corp. Common Stock in accordance with this Article 2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TRANSACTION CORP.
Transaction Corp. hereby represents and warrants to ETC-Texas as follows:
3.1 Organization. Transaction Corp. has been duly incorporated, is validly
existing as a corporation and is in good standing under the laws of
Alberta, its province of incorporation, and has the requisite corporate
power to carry on its business as now conducted.
3.2 Capitalization. The authorized capital stock of Transaction Corp. consists
of an unlimited number of Class "A" Common Shares and an unlimited number
of Class "B" Preferred Shares in the capital stock of Transaction Corp. As
of the date of this Agreement, 1,487,428 Class "A" Common Shares of
Transaction Corp. are issued and outstanding. No Class "B" Preferred Shares
have been issued. All of the issued and outstanding shares of Transaction
Corp. Common Stock are validly issued, fully paid and nonassessable and
free of preemptive rights. All shares of Transaction Corp. Common Stock
issuable in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable.
3.3 Certain Corporate Matters. Transaction Corp. is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership of its properties, the employment of
its personnel or the conduct of its business requires it to be so
qualified, except where such failure would not have a material adverse
effect on Transaction Corp.'s financial condition, results of operations or
business. Transaction Corp. has full corporate power and authority and all
authorizations, licenses and permits necessary to carry on the business in
which it is engaged and to own and use the properties owned and used by it.
3.4 Authority Relative to this Agreement. Transaction Corp. has the requisite
corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement by Transaction Corp. and the consummation by Transaction Corp. of
the transactions contemplated hereby have been duly authorized by the Board
of Directors of Transaction Corp. and, subject to stockholder approval as
set forth in this Agreement, no other actions on the part of Transaction
Corp. are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Transaction Corp. and constitutes, subject to stockholder
approval as set forth in this Agreement, a valid and binding agreement of
Transaction Corp., enforceable against
AGREEMENT AND PLAN OF MERGER - Page 2
<PAGE>
Transaction Corp. in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally or by general principles of
equity.
3.5 Consents and Approvals; No Violations. Except for applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities or blue sky laws, and the filing and recordation of a
certificate of merger or the articles of merger as required by the DGCL and
the TBCA, no filing with, and no permit, authorization, consent or approval
of, any public body or authority is necessary for the consummation by
Transaction Corp. of the transactions contemplated by this Agreement.
Neither the execution or delivery of this Agreement by Transaction Corp.
nor the consummation by Transaction Corp. of the transactions contemplated
hereby, nor compliance by Transaction Corp. with any of the provisions
hereof, will (a) conflict with or result in any breach of any provisions of
the Certificate of Incorporation or Bylaws of Transaction Corp. (b) result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Transaction Corp. is a
party or by which it or its properties or assets may be bound or (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Transaction Corp. or any of its properties or assets, except
in the case of clauses (b) and (c) for violations, breaches or defaults
which are not in the aggregate material to Transaction Corp. taken as a
whole.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
ETC-TEXAS
ETC-Texas hereby represents and warrants to Transaction Corp. as follows:
4.1 Organization. ETC-Texas is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, and
has the requisite corporate power to carry on its business as now
conducted.
4.2 Capitalization and Ownership of ETC-Texas. ETC-Texas' entire authorized
capital stock consists of 8,000,000 shares of ETC-Texas Common Stock, no
par value and 2,000,000 shares of ETC-Texas Preferred Stock, no par value.
All shares of ETC-Texas Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable and have not been issued in
violation of any pre-emptive rights. Except as set forth on Schedule 4.2
hereto, there are no outstanding or authorized options, rights, warrants,
calls, convertible securities, rights to subscribe, conversion rights or
other agreements or commitments to which ETC-Texas is a party or which is
binding upon ETC-Texas providing for the issuance by ETC-Texas or transfer
by ETC-Texas of additional shares of its capital stock and ETC-Texas has
not reserved any shares of its capital stock for issuance, nor are there
any outstanding stock option rights, phantom equity or similar rights,
contracts, arrangements or commitments based upon the book value, income or
other attribute of ETC-Texas.
4.3 Certain Corporate Matters. ETC-Texas is duly licensed or qualified to do
business and is in good standing as a foreign corporation in every
jurisdiction in which the character of ETC-Texas' properties or nature of
ETC-Texas' business requires it to be so licensed or qualified other than
such jurisdictions in which the failure to be so licensed or qualified does
not, or insofar as can reasonably be foreseen, in the future will not, have
a material adverse effect on its financial condition, results of operations
or business. ETC-Texas has full corporate power and authority and all
authorizations, licenses and permits necessary to carry on the business in
which it is engaged or in which it proposes presently to engage and to own
and use the properties owned and used by it. ETC-Texas has delivered to
Transaction Corp. true, accurate and complete copies of its Articles of
Incorporation and Bylaws, which reflect all amendments made thereto at any
time prior to the date of this Agreement. The records of meetings of the
shareholders and Board of Directors of ETC-Texas are complete and correct
in all material respects. The stock records of ETC-Texas and the
shareholder lists of ETC-Texas that ETC-Texas has previously furnished to
Transaction Corp. are complete and correct in all material respects and
accurately reflect the record ownership and the beneficial ownership of all
the outstanding shares of ETC-Texas' capital stock and all other
outstanding securities issued by ETC-Texas. ETC-Texas is not in default
under or in violation of any provision of its Articles of Incorporation or
Bylaws in any material respect. ETC-Texas is not in default or in violation
of any restriction, lien, encumbrance, indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability by which it
is bound or to which any of its assets is subject.
4.4 Subsidiaries. ETC-Texas does not own, directly or indirectly, any of the
capital stock of any other corporation or any equity, profit sharing,
participation or other interest in any corporation, partnership, joint
venture or other entity.
4.5 Authority Relative to this Agreement. ETC-Texas has the requisite corporate
power and authority to enter into this Agreement and carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement by ETC-Texas and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
ETC-Texas and, subject to shareholder approval as set forth in this
Agreement, no other actions on the part of ETC-Texas are necessary to
authorize this Agreement or the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by ETC-Texas and
constitutes, subject to shareholder approval as set forth in this
Agreement, a valid and binding obligation of ETC-Texas, enforceable in
accordance with its terms, except as such enforcement may be limited by
AGREEMENT AND PLAN OF MERGER - Page 3
<PAGE>
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
4.6 Consents and Approvals; No Violations. Except for applicable requirements
of the Securities Act, the Exchange Act, state securities or blue sky laws,
and the filing and recordation of a certificate of merger or the articles
of merger as required by the DGCL and the TBCA, no filing with, and no
permit, authorization, consent or approval of, any public body or authority
is necessary for the consummation by ETC-Texas of the transactions
contemplated by this Agreement. Neither the execution or delivery of this
Agreement by ETC-Texas nor the consummation by ETC-Texas of the
transactions contemplated hereby, nor compliance by ETC-Texas with any of
the provisions hereof, will (a) conflict with or result in any breach of
any provisions of the Articles of Incorporation or Bylaws of ETC-Texas, (b)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which ETC-Texas is
a party or by which it or any of its properties or assets may be bound or
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to ETC-Texas, or any of its properties or assets,
except in the case of clauses (b) and (c) for violations, breaches or
defaults which are not in the aggregate material to ETC-Texas taken as a
whole.
4.7 Financial Statements. ETC-Texas has delivered to Transaction Corp. all
financial information requested by Transaction Corp. (the "Financial
Statements"). The Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods covered thereby and present fairly the financial
condition of ETC-Texas as of such dates and the results of its operations
and changes in cash flows for such periods.
4.8 Events Subsequent to Financial Statements. Since March 31, 1996, there has
not been:
(a) Any adverse change in the financial condition, results of operations
or business of ETC-Texas;
(b) Any sale, lease, transfer, license or assignment of any assets,
tangible or intangible, of ETC-Texas;
(c) Any damage, destruction or property loss, whether or not covered by
insurance, affecting adversely the properties or business of
ETC-Texas;
(d) Any declaration, setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of ETC-Texas
or any redemption, purchase or other acquisition of any such shares;
(e) Any subjection to any lien on any of the assets, tangible or
intangible, of ETC-Texas;
(f) Any incurrence of indebtedness or liability or assumption of
obligations by ETC-Texas;
(g) Any waiver or release by ETC-Texas of any right of any material value;
(h) Any increase in compensation or benefits to officers or directors of
ETC-Texas;
(i) Any change made or authorized in the Articles of Incorporation or
Bylaws of ETC-Texas;
(j) Except as set forth on Schedule 4.9 hereto, any issuance, transfer,
sale or other disposition by ETC-Texas of any shares of its capital
stock or other equity securities, or any grant of any options,
warrants or other rights to purchase or obtain (including upon
conversion or exercise) shares of its capital stock or other equity
securities;
(k) Any loan to or other transaction with any officer, director or
shareholder of ETC-Texas giving rise to any claim or right of
ETC-Texas against any such person or of such person against ETC-Texas;
or
(l) Any other transaction or commitment entered into other than in the
ordinary course of business by ETC-Texas.
4.9 Undisclosed Liabilities. ETC-Texas has no material liability or obligation
whatsoever, either accrued, absolute, contingent or otherwise.
4.10 Tax Returns and Audits. ETC-Texas has duly and timely filed or caused to be
filed all federal, foreign, state and local income, franchise, sales, value
added and property tax returns (the "Tax Returns") required to be filed by
it and has paid in full or fully reserved against in the Financial
Statements all taxes, interest, penalties, assessments and deficiencies due
or claimed to be due by it to foreign, federal, state or local taxing
authorities (including taxes on properties, income, franchises, licenses,
sales, use and payrolls). The income tax returns filed by ETC-Texas are not
being, to the knowledge of ETC-Texas, examined by the Internal Revenue
Service (the "IRS") or other applicable taxing authorities for any period.
All taxes or estimates thereof that are due as of December 31, 1995, or are
claimed or asserted by any taxing authority to be due as of such date, have
been (a) timely and appropriately paid so as to avoid penalties for
underpayment or (b) accrued for on the balance sheet as of
AGREEMENT AND PLAN OF MERGER - Page 4
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December 31, 1995, as contained in the Financial Statements. Except for
amounts not yet due and payable, all tax liabilities to which the
properties of ETC-Texas may be subject have been paid and discharged. The
provisions for income and other taxes payable reflected in the Financial
Statements make adequate provision for all then accrued and unpaid taxes of
ETC-Texas. There are no tax liens on any property of ETC-Texas, nor are
there any pending or threatened examinations or tax claims asserted.
ETC-Texas has not been granted any extensions of limitation periods
applicable to tax claims. Since December 31, 1996, except jurisdictions in
which ETC-Texas filed tax returns, no claim has been made by a taxing
authority that ETC-Texas is or may be subject to taxation by that
jurisdiction. All copies of Tax Returns delivered to Transaction Corp. by
ETC-Texas are true and correct, and any and all notices from foreign,
federal, state and local taxing authorities, tax examination reports and
statements of deficiencies assessed against or agreed to by ETC-Texas since
December 31, 1996 have been made available to Transaction Corp. ETC-Texas
is not a party to, or bound by, any tax indemnity, tax sharing or tax
allocation agreement. ETC-Texas is not a member of an "affiliated group,"
as defined in Section 1504(a) of the Code and is not the owner of any
interest in a partnership, joint venture, trust, limited liability company
or other entity or organization. All positions taken on federal Tax Returns
that could give rise to a penalty for substantial understatement pursuant
to Section 6662(d) of the Code have been disclosed on such Tax Returns.
ETC-Texas has not agreed to and is not required to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method. ETC-Texas has no application
pending with any taxing authority requesting permission for any changes in
any accounting method, and the IRS has not proposed any such adjustment or
change in accounting method. ETC-Texas is not subject to any limitation
under Section 382 or Section 383 of the Code.
4.11 Real Property. ETC-Texas does not own any real property. ETC-Texas does
lease the premises located at 5025 Arapaho Road, Suite 515, Dallas, Texas
75248 as its principal place of business.
4.12 Books and Records. The books and records of ETC-Texas fairly reflect the
transactions to which ETC-Texas is a party or by which its properties are
bound.
4.13 Questionable Payments. ETC-Texas nor any employee, agent or representative
of ETC-Texas has, directly or indirectly, made any bribes, kickbacks,
illegal payments or illegal political contributions using ETC-Texas funds
or made any payments from ETC-Texas' funds to governmental officials for
improper purposes or made any illegal payments from ETC-Texas' funds to
obtain or retain business.
4.14 Environmental Matters.
(a) Environmental Laws. ETC-Texas is not currently in violation of, or
subject to any existing, pending or threatened investigation or
inquiry by any governmental authority or to any remedial obligations
under, any laws or regulations pertaining to health or the environment
(hereinafter sometimes collectively called "Environmental Laws"),
including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601 et
seq.), as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("CERCLA"), and the regulations promulgated thereunder, (ii)
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. 6901 et
seq.), as amended by the Hazardous and Solid Waste Amendment of 1984
("RCRA"), and the regulations promulgated thereunder, (iii) any
statutes, rules or regulations, whether federal, state or local,
relating to asbestos or polychlorinated biphenyls, and (iv) the
provisions contained in any applicable state statutes, rules and
regulations. This representation and warranty would continue to be
true and correct following disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the assets and operations of ETC-Texas.
(b) Use of Assets. To the best knowledge of ETC-Texas, the assets of
ETC-Texas have never been used in a manner that would be in violation
of any of the Environmental Laws, including without limitation CERCLA,
RCRA and any applicable state statutes, rules or regulations.
(c) Permits. ETC-Texas has not obtained and is not required to obtain, and
ETC-Texas has no knowledge of any reason that Transaction Corp. will
be required to obtain, any permits, licenses or similar authorizations
to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment owned or leased by ETC-Texas by reason of any
Environmental Laws.
(d) Superfund List. To the best knowledge of ETC-Texas, none of the assets
owned or leased by ETC-Texas are on any federal or state "Superfund"
list or subject to any environmentally related liens.
4.15 Intellectual Property. Except as set forth on Schedule 4.15, there are no
patents and patent applications, trade names, trademark and service mark
registrations and applications for or registered trade dress rights, common
law trademarks and copyright registrations and applications owned by
ETC-Texas or which ETC-Texas is licensed to use.
4.16 Insurance. Except as disclosed on Schedule 4.16, ETC-Texas has no insurance
policies in effect.
AGREEMENT AND PLAN OF MERGER - Page 5
<PAGE>
4.17 Contracts. Except as disclosed on Schedule 4.17, ETC-Texas has no material
contracts, leases, arrangements and commitments (whether oral or written).
ETC-Texas is not a party to or bound by or affected by any contract, lease,
arrangement or commitment (whether oral or written) relating to: (a)
collective bargaining with, or any representation of any employees by, any
labor union or association; (b) the purchase or sale of real property; (c)
distribution, agency or construction; and (d) lending or advancing of
funds.
4.18 Litigation. ETC-Texas is not subject to any judgment or order of any court
or quasijudicial or administrative agency of any jurisdiction, domestic or
foreign, nor is there any charge, complaint, lawsuit or governmental
investigation pending or, to the best knowledge of ETC-Texas, threatened
against ETC-Texas. ETC-Texas is not a plaintiff in any action, domestic or
foreign, judicial or administrative. There are no existing actions, suits,
proceedings or investigations of ETC-Texas, and ETCTexas knows of no basis
for such actions, suits, proceedings or investigations. There are no
unsatisfied judgments, orders, decrees or stipulations affecting ETC-Texas
or to which ETC-Texas is a party.
4.19 Employees. ETC-Texas currently leases 30 persons. ETC-Texas has entered
into written employment agreements with certain officers and/or directors
of ETC-Texas as outlined on Schedule 4.19. ETC-Texas is not a party to or
bound by any collective bargaining agreement. There are no loans or other
obligations payable or owing by ETC-Texas to any shareholder, officer,
director or employee of ETC-Texas, nor are there any loans or debts payable
or owing by any of such persons to ETC-Texas or any guarantees by ETC-Texas
of any loan or obligation of any nature to which any such person is a
party.
4.20 Employee Benefit Plans. ETC-Texas has no (a) non-qualified deferred or
incentive compensation or retirement plans or arrangements, (b) qualified
retirement plans or arrangements, (c) other employee compensation,
severance or termination pay or welfare benefit plans, programs or
arrangements or (d) any related trusts, insurance contracts or other
funding arrangements maintained, established or contributed to by ETC-Texas
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended.
4.21 Legal Compliance. No claim has been filed against ETC-Texas alleging a
violation of any applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof. ETC-Texas holds all of the
material permits, licenses, certificates or other authorizations of
foreign, federal, state or local governmental agencies required for the
conduct of its business as presently conducted.
4.22 Broker's Fees. ETC-Texas nor anyone on its behalf has any liability to any
broker, finder, investment banker or agent, or has agreed to pay any
brokerage fees, finder's fees or commissions, or to reimburse any expenses
of any broker, finder, investment banker or agent in connection with the
Merger or any similar transaction.
4.23 Disclosure. The representations and warranties and statements of fact made
by ETC-Texas in this Agreement and in any Schedule hereto are, as
applicable, accurate, correct and complete and do not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained herein or therein
not misleading.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by ETC-Texas Pending the Closing. ETC-Texas covenants
and agrees that prior to the Closing Date:
(a) ETC-Texas shall conduct its business and operations only in the usual
and ordinary course of business and consistent with past custom and
practice;
(b) ETC-Texas shall not directly or indirectly do any of the following:
(i) sell, pledge, dispose of or encumber any of its assets; (ii) amend
or propose to amend its Articles of Incorporation or Bylaws; (iii)
split, combine or reclassify any outstanding shares of its capital
stock, or declare, set aside or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to shares
of its capital stock; (iv) redeem, purchase or acquire or offer to
acquire any shares of its capital stock or other securities; (v)
create any subsidiaries; (vi) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(c) ETC-Texas shall not (i) issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, any additional shares of, or any
options, warrants, conversion privileges or rights of any kind to
acquire any shares of, its capital stock; (ii) acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division or
the material assets thereof; (iii) incur any indebtedness for borrowed
money, issue any debt securities or guarantee any indebtedness to
others; or (iv) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
AGREEMENT AND PLAN OF MERGER - Page 6
<PAGE>
(d) ETC-Texas shall not enter into any employment, severance or similar
agreements or arrangements with, or grant any bonus, salary increase,
severance or termination pay to, any officers or directors;
(e) ETC-Texas shall not adopt any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment
or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee;
(f) Except as otherwise required by its Articles of Incorporation or
Bylaws, by this Agreement or by applicable law, ETC-Texas shall not
call any meeting of its shareholders;
(g) ETC-Texas shall (i) use their best efforts not to take any action
which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue at any
time prior to the Closing Date as if then made; and (ii) notify
Transaction Corp. of any emergency or other change in the normal
course of its business or in the operation of its properties and of
any tax audits, tax claims, governmental or third party complaints,
investigations or hearings (or communications indicating that the same
may be contemplated) if such emergency, change, audit, claim,
complaint, investigation or hearing would be material, individually or
in the aggregate, to the financial condition, results of operations or
business of ETC-Texas, or to the ability of any of the parties hereto
to consummate the transactions contemplated by this Agreement;
(h) ETC-Texas shall notify Transaction Corp. promptly of any material
adverse event or circumstance affecting ETCTexas (including the filing
of any material litigation against ETC-Texas or the existence of any
dispute with any person or entity which involves a reasonable
likelihood of such litigation being commenced); and
(i) ETC-Texas shall comply with all legal requirements and contractual
obligations applicable to its operations and business and pay all
applicable taxes.
5.2 Other Actions. Unless approved in writing by Transaction Corp., ETC-Texas
shall not take any action or permit any action to occur that might
reasonably be expected to result in any of the representations and
warranties of ETC-Texas contained in this Agreement becoming untrue after
the date hereof or any of the conditions to the Closing set forth in
Article 7 of this Agreement not being satisfied.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access and Information. Except for information relating to any claims any
party may have against the other, ETCTexas and Transaction Corp. shall each
afford to the other and to the other's financial advisors, legal counsel,
accountants, consultants and other representatives full access during
normal business hours throughout the period prior to the Effective Time to
all of its books, records, properties and personnel and, during such
period, each shall furnish promptly to the other (a) a copy of each report,
schedule and other document filed or received by it pursuant to the
requirements of federal or state securities laws, and (b) all other
information as such other party may reasonably request. Each party shall
hold in confidence all non-public information until such time as such
information is otherwise publicly available and, if this Agreement is
terminated, each party will upon written request deliver to the other all
documents, work papers and other material obtained by such party or on its
behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof.
6.2 Registration Statement. ETC-Texas and Transaction Corp. shall jointly
prepare and file with the SEC as soon as practicable a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities
Act with respect to all issued and outstanding Transaction Corp. Common
Stock as well as stock to be issued in the Merger. The Registration
Statement shall also serve as the proxy statement with the respect to the
meetings of the respective shareholders of ETC-Texas and Transaction Corp.
to approve the Merger and the transactions contemplated thereby. ETC-Texas
and Transaction Corp. shall use their reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as
practicable. ETC-Texas and Transaction Corp. shall use their reasonable
best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities or blue sky permits or approvals
required to carry out the transactions contemplated by the Registration
Statement. The Registration Statement, when declared effective by the SEC,
will not include an untrue statement of material fact or omit to state a
material fact which is required to be stated or that is necessary to make a
statement not misleading in light of the circumstances in which it is made.
6.3 Press Releases. ETC-Texas and Transaction Corp. shall consult with each
other as to the form and substance of any press release or other public
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby; provided, however, that nothing in this Section 6.3
shall be deemed to prohibit any party hereto from making any disclosure
that is required to fulfill such party's disclosure obligations imposed by
law, including, without limitation, federal, state or provincial securities
laws.
AGREEMENT AND PLAN OF MERGER - Page 7
<PAGE>
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject
to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) Transaction Corp. will have been continued and domesticated in the
State of Delaware;
(b) The Registration Statement shall have been deemed and declared
effective by the SEC, no stop order with respect thereto shall be in
effect and no proceedings for the purpose of suspending the
effectiveness of the Registration Statement shall have been issued by
the SEC;
(c) The Merger shall have been approved by the shareholders of ETC-Texas
and Transaction Corp., respectively, in accordance with the laws of
the State of Texas and the Province of Alberta, respectively; and
(d) No order shall have been entered and remain in effect in any action or
proceeding before any foreign, federal or state court or governmental
agency or other foreign, federal or state regulatory or administrative
agency or commission that would prevent or make illegal the
consummation of the transactions contemplated hereby.
7.2 Additional Conditions to Transaction Corp.'s Obligations. The obligations
of Transaction Corp. to effect the Closing are subject to the satisfaction
of the following additional conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 4 of this
Agreement will be true and correct in all material respects as of the
date hereof and at and as of the Closing Date as though then made;
(b) ETC-Texas shall have performed, in all material respects, each
obligation and agreement and complied with each covenant to be
performed and complied with by it under Articles 5 and 6 of this
Agreement prior to the Closing Date;
(c) All consents by governmental or regulatory agencies or otherwise that
are required for the consummation of the transactions contemplated
hereby or that are required for Transaction Corp. to own, operate or
control ETC-Texas or any portion of the assets of ETC-Texas to prevent
a breach of or a default under or a termination of any agreement
material to ETC-Texas to which ETC-Texas is a party or to which any
material portion of the assets of ETC-Texas is subject, will have been
obtained;
(d) No action or proceeding before any court or governmental body will be
pending or threatened wherein a judgment, decree or order would
prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded or which might
adversely affect the right of Transaction Corp. to own, operate or
control ETCTexas;
(e) Transaction Corp. and its financial and legal advisors shall have
completed a due diligence review of the business, operations and
financial statements of ETC-Texas, the results of which shall be
satisfactory to Transaction Corp. in its sole discretion; and
(f) At the Closing, ETC-Texas shall have delivered or caused to be
delivered to Transaction Corp. the following:
(i) a certificate executed on behalf of ETC-Texas stating that the
conditions set forth in Sections 7.2(a) through (d) of this
Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by ETC-Texas'
Board of Directors authorizing and approving the Merger and the
execution, delivery and performance of this Agreement;
(iii)certified copies of resolutions duly adopted by ETC-Texas'
shareholders authorizing and approving the Merger and the
execution, delivery and performance of this Agreement;
(iv) certificates of good standing or comparable certificates for
ETC-Texas from the jurisdiction of its incorporation and from
every jurisdiction where a failure to be qualified or licensed
would have a material adverse effect on its financial condition,
results of operations or business, dated not earlier than five
(5) days prior to the Closing Date;
(v) a copy of ETC-Texas' Articles of Incorporation certified as of a
recent date by the Secretary of State of the State of Texas;
(vi) an incumbency certificate of the officers of ETC-Texas; and
AGREEMENT AND PLAN OF MERGER - Page 8
<PAGE>
(vii)such other documents as Transaction Corp. may reasonably request
in connection with the transactions contemplated hereby.
7.3 Additional Conditions to ETC-Texas' Obligations. The obligations of
ETC-Texas to effect the Closing are subject to the satisfaction of the
following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 3 of this
Agreement will be true and correct in all material respects as of the
date hereof and at and as of the Closing Date as though then made;
(b) Transaction Corp. shall have performed, in all material respects, each
obligation and agreement and complied with each covenant required to
be performed and complied with by it under Article 6 of this Agreement
prior to the Closing Date;
(c) No action or proceeding before any court or governmental body will be
pending or threatened wherein a judgment, decree or order would
prevent any of the transactions contemplated hereby or cause such
transactions to be declared unlawful or rescinded;
(d) On the Closing Date, Transaction Corp. shall have delivered to
ETC-Texas the following:
(i) a certificate executed on behalf of Transaction Corp. stating
that the conditions set forth in Sections 7.3(a) through (c) of
this Agreement have been satisfied;
(ii) certified copies of resolutions duly adopted by Transaction
Corp.'s Board of Directors authorizing and approving the Merger
and the execution, delivery and performance of this Agreement;
(iii)certified copies of the resolutions duly adopted by the
shareholders of Transaction Corp. authorizing and approving the
Merger and the execution, delivery and performance this
Agreement;
(iv) a good standing certificate for Transaction Corp. from the
Secretary of State of the State of Delaware, dated not earlier
than five (5) days prior to the Closing Date;
(v) a copy of Transaction Corp.'s Certificate of Incorporation
certified by the Secretary of State of the State of Delaware;
(vi) an incumbency certificate of the officers of Transaction Corp.;
and
(vii)such other documents as ETC-Texas may reasonably request in
connection with the transactions contemplated hereby.
ARTICLE 8
REMEDIES
8.1 Indemnification by ETC-Texas. Subject to the terms and conditions of this
Article 8, ETC-Texas agrees to indemnify, defend and hold Transaction Corp.
and its directors, officers, agents, attorneys and affiliates harmless from
and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by any such person
or entity by reason of or resulting from a breach of any representation,
warranty or covenant of ETC-Texas contained in this Agreement.
8.2 Indemnification by Transaction Corp. Subject to the terms and conditions of
is Article 8, Transaction Corp. hereby agrees to indemnify, defend and hold
ETC-Texas and its directors, officers, agents, attorneys and affiliates
harmless from and against all Damages asserted against or incurred by any
such person or entity by reason of or resulting from a breach of any
representation, warranty or covenant of Transaction Corp. contained in this
Agreement.
8.3 Conditions of Indemnification. The respective obligations and liabilities
of ETC-Texas and Transaction Corp. (the "indemnifying party") to the other
(the "party to be indemnified") under Sections 8.1 and 8.2 with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice
of commencement of any action evidenced by service of process or other
legal pleading, the party to be indemnified shall give the
indemnifying party written notice thereof together with a copy of such
claim, process or other legal pleading, and the indemnifying party
shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense; provided
that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel
shall be paid by the party to be
AGREEMENT AND PLAN OF MERGER - Page 9
<PAGE>
indemnified unless (i) the indemnifying party has agreed to pay such
fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnifying
party and the party to be indemnified and the party to be indemnified
has been advised by counsel that there may be one or more legal
defenses available to it that are different from or additional to
those available to the indemnifying party (in which case, if the party
to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the
defense of such action on behalf of the party to be indemnified, it
being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of
attorneys at any time for the party to be indemnified, which firm
shall be designated in writing by the party to be indemnified).
(b) If the indemnifying party, by the 30th day after receipt of notice of
any such claim (or, if earlier, by the 10th day preceding the day on
which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does
not elect to defend against such claim, the party to be indemnified
will (upon further notice to the indemnifying party) have the right to
undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the indemnifying party and
at the indemnifying party's expense, subject to the right of the
indemnifying party to assume the defense of such claims at any time
prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not settle
any claim without the consent of the party to be indemnified unless
such settlement involves only the payment of money and the claimant
provides to the party to be indemnified a release from all liability
in respect of such claim. If the settlement of the claim involves more
than the payment of money, the indemnifying party shall not settle the
claim without the prior consent of the party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
8.4 Waiver. No waiver by any party of any default or breach by another party of
any representation, warranty, covenant or condition contained in this
Agreement shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty,
covenant or condition. No act, delay, omission or course of dealing on the
part of any party in exercising any right, power or remedy under this
Agreement or at law or in equity shall operate as a waiver thereof or
otherwise prejudice any of such party's rights, powers and remedies. All
remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue
other available remedies.
8.5 Remedies Not Exclusive. The remedies provided in this Article 8 shall not
be exclusive of any other rights or remedies available to one party against
the other, either at law or in equity.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of the parties hereto.
9.2 Termination by Any Party. This Agreement may be terminated and the Merger
may be abandoned by action of the Board of Directors of any party hereto if
a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to
this clause shall have used all reasonable efforts to remove such
injunction, order or decree.
9.3 Effect of Termination and Abandonment. In the event of termination of this
Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations
of the parties pursuant to Section 6.1.
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, sent
by telex, telecopy, facsimile or overnight courier, or mailed by registered
or certified mail
AGREEMENT AND PLAN OF MERGER - Page 10
<PAGE>
(postage prepaid and return receipt requested), to the party to whom the
same is so delivered, sent or mailed at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Transaction Corp.:
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Attn: L. Cade Havard
Phone: (214) 980-0900
Fax: (214) 980-0929
(b) if to ETC-Texas:
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Attn: L. Cade Havard
Phone: (214) 980-0900
Fax: (214) 980-0929
10.2 Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. References to Sections and Articles refer to sections
and articles of this Agreement unless otherwise stated.
10.3 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated and the parties shall
negotiate in good faith to modify this Agreement to preserve each party's
anticipated benefits under this Agreement.
10.4 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and
oral, among the parties with respect to the subject matter hereof; (b)
except as expressly set forth herein, is not intended to confer upon any
other person any rights or remedies hereunder and (c) shall not be assigned
by operation of law or otherwise.
10.5 Separate Counsel. Each party hereby expressly acknowledges that it has been
advised and urged to seek its own separate legal counsel for advice with
respect to this Agreement.
10.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
10.7 Counterparts. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ETC-TEXAS:
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
Name: L. Cade Havard
Its: Chief Executive Officer
TRANSACTION CORP.:
ETC TRANSACTION CORPORATION
By: /s/ L. Cade Havard
Name: L. Cade Havard
Its: Chief Executive Officer
AGREEMENT AND PLAN OF MERGER - Page 11
EXHIBIT 3.1
<PAGE>
EXHIBIT 3.1
20352905
Corporate Access No
Alberta
Business Corporations Act
Form 2
Certificate of Incorporation
- SOLO PETROLEUMS LTD. -
Name of Corporation
I HEREBY CERTIFY THAT THE ABOVE-MENTIONED CORPORATION, THE ARTICLES OF
INCORPORATION OF WHICH ARE ATTACHED, WAS INCORPORATED UNDER THE BUSINESS
CORPORATIONS ACT OF THE PROVINCE OF ALBERTA.
Registrar of Corporations
/s/ Registrar of Corporations
September 5, 1986
-----------------
Date of Incorporation
<PAGE>
BUSINESS CORPORATIONS ACT
(Section 6)
CONSUMER AND
Alberta CORPORATE AFFAIRS ARTICLES OF INCORPORATION
1. NAME OF CORPORATION.
SOLO PETROLEUMS LTD.
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE.
See attached Appendix I
3. RESTRICTIONS IF ANY ON SHARE TRANSFERS.
"No restrictions on share transfers"
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS.
Not less than three (3) or more than seven (7)
5. IF THE CORPORATION IS RESTRICTED FROM CARRYING ON A CERTAIN BUSINESS,
SPECIFY THESE RESTRICTIONS.
None
6. OTHER PROVISIONS IF ANY.
Meetings of the shareholders may be held at any place outside of
Alberta where the Directors determine
See attached Appendix II.
7. DATE: September 4, 1986
INCORPORATORS NAMES: ADDRESS: SIGNATURE:
2100, 300 - 5th Avenue S.W.
Bruce A. Lawrence Calgary, AB T2P 3C4 /s/ Bruce A. Lawrence
INCORPORATION DATE 86/09/05
<PAGE>
APPENDIX I
There shall be two classes of shares, one consisting of an unlimited number
of Class A common shares, without nominal or par value, ("Class A Shares") and
the other consisting of an unlimited number of Class B redeemable preferred
shares, without nominal or par value, which may be issued in one or more series
("Class B Shares"). The shares in the capital stock of the Corporation shall
have attached thereto the rights, restrictions, conditions, limitations and
prohibitions hereinafter set forth:
CLASS A SHARES
1. The Class A Shares shall each carry the right to one vote at all meetings
of the shareholders and, subject to the rights attached to the Class B
Shares as hereinafter set forth, shall be fully participating as to
dividends and distribution of capital upon liquidation or winding-up of the
Corporation.
CLASS B SHARES
1. The Class B Shares may be issued in one or more series and the Directors
may, by resolution, fix the number of shares in each series and determine
the designation, rights, privileges, restrictions and conditions attached
to the shares of each series.
2. All or any part of the Class B Shares at any time outstanding may at any
time and from time to time be purchased or redeemed by the Corporation on
demand, on any date fixed by the Corporation, and the price for each Class
B Share purchased or redeemed by the Corporation shall be equal to the
price at which that Class B Share was issued.
3. In the event of winding-up or dissolution of the Corporation, the holders
of the Class B Shares shall in preference and priority to any payment on
the Class A Shares, be entitled, out of the assets of the Corporation
available for distribution to shareholders, to the payment in full of the
respective amounts which each such holder paid on the Class B Shares, but
shall not be entitled to any further participation in such assets. If the
assets of the Corporation available for distribution to shareholders are
insufficient to permit payment in full of the amounts owing to the holders
of the Class B Shares, then the holders of the Class B Shares shall
participate rateably in respect of the payment.
<PAGE>
APPENDIX II
The Directors may, between annual meetings, appoint one or more additional
directors of the Corporation to serve until the next annual meeting, but the
number of additional directors shall not at any time exceed one third of the
number of directors who held office at the expiration of the last annual meeting
of the Corporation.
<PAGE>
EXHIBIT 3.2
<PAGE>
EXHIBIT 3.2
CORPORATE ACCESS NUMBER
20352905
Alberta
GOVERNMENT OF ALBERTA
BUSINESS CORPORATIONS ACT
CERTIFICATE
OF
AMENDMENT
SOLO PETROLEUMS LTD.
CHANGED ITS NAME TO ETC TRANSACTION CORPORATION ON
MARCH 26, 1996.
/s/ Registrar of Corporations
Registrar of Corporations
<PAGE>
FORM 4
BUSINESS CORPORATIONS ACT
(Section 27 or 171)
CONSUMER AND
Alberta CORPORATE AFFAIRS ARTICLES OF AMENDMENT
1. NAME OF THE CORPORATION 2. CORPORATE ACCESS NUMBER
SOLO PETROLEUMS LTD. 20352905
3. ITEM NO. 1 OF THE ARTICLES OF INCORPORATION IS AMENDED IN ACCORDANCE WITH
SECTION 167(1)(a) OF THE BUSINESS CORPORATIONS ACT.
By changing the name of the Corporation to ETC TRANSACTION CORPORATION
ITEM NO. 2 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION IS AMENDED
IN ACCORDANCE WITH SUBSECTION 167(1)(f) OF THE BUSINESS CORPORATIONS
ACT.
By changing all of the currently issued and outstanding common shares
in the capital stock of the Corporation into a different number of
shares such that one (1) common share in the capital stock of the
Corporation shall be issued for every five (5) currently issued common
shares without amending the stated capital account of the common
shares of the Corporation and without reducing the authorized capital
of the Corporation.
DATE SIGNATURE TITLE
March 25, 1996 /s/ David M. Goldenberg Solicitor
-----------------------
David M. Goldenberg
TELEPHONE:
264-0000
<PAGE>
APPENDIX I
There shall be two classes of shares, one consisting of an unlimited number
of Class A common shares, without nominal or par value, ("Class A Shares") and
the other consisting of an unlimited number of Class B redeemable preferred
shares, without nominal or par value, which may be issued in one or more series
("Class B Shares"). The shares in the capital stock of the Corporation shall
have attached thereto the rights, restrictions, conditions, limitations and
prohibitions hereinafter set forth:
CLASS A SHARES
1. The Class A Shares shall each carry the right to one vote at all meetings
of the shareholders and, subject to the rights attached to the Class B
Shares as hereinafter set forth, shall be fully participating as to
dividends and distribution of capital upon liquidation or winding-up of the
Corporation.
CLASS B SHARES
1. The Class B Shares may be issued in one or more series and the Directors
may, by resolution, fix the number of shares in each series and determine
the designation, rights, privileges, restrictions and conditions attached
to the shares of each series.
2. All or any part of the Class B Shares at any time outstanding may at any
time and from time to time be purchased or redeemed by the Corporation on
demand, on any date fixed by the Corporation, and the price for each Class
B Share purchased or redeemed by the Corporation shall be equal to the
price at which that Class B Share was issued.
3. In the event of winding-up or dissolution of the Corporation, the holders
of the Class B Shares shall in preference and priority to any payment on
the Class A Shares, be entitled, out of the assets of the Corporation
available for distribution to shareholders, to the payment in full of the
respective amounts which each such holder paid on the Class B Shares, but
shall not be entitled to any further participation in such assets. If the
assets of the Corporation available for distribution to shareholders are
insufficient to permit payment in full of the amounts owing to the holders
of the Class B Shares, then the holders of the Class B Shares shall
participate rateably in respect of the payment.
<PAGE>
APPENDIX II
The Directors may, between annual meetings, appoint one or more additional
directors of the Corporation to serve until the next annual meeting, but the
number of additional directors shall not at any time exceed one third of the
number of directors who held office at the expiration of the last annual meeting
of the Corporation.
<PAGE>
EXHIBIT 3.3
<PAGE>
EXHIBIT 3.3
INDEX
Page
----
SECTION 1 INTERPRETATION 1
SECTION 2 BORROWING, BANKING AND SECURITIES 1
SECTION 3 EXECUTION OF INSTRUMENTS 2
SECTION 4 DIRECTORS 2
SECTION 5 POWERS OF DIRECTORS 4
SECTION 6 MEETINGS OF DIRECTORS 4
SECTION 7 PROTECTION OF DIRECTORS, OFFICERS AND OTHERS 5
SECTION 8 OFFICERS 6
SECTION 9 SHAREHOLDERS' MEETINGS 7
SECTION 10 DIVIDENDS 10
SECTION 11 NOTICES 11
SECTION 12 MISCELLANEOUS 12
<PAGE>
1
General By-Law of
SOLO PETROLEUMS LTD.
(hereinafter called the "Corporation")
being, a By-law relating generally to the conduct of the affairs of the
Corporation.
IT IS HEREBY ENACTED as By-law No. 1 of the Corporation as follows:
SECTION 1 INTERPRETATION
1.1 In this By-law and all other By-laws of the Corporation, unless the context
otherwise requires:
"Act" means the Business Corporations Act of Alberta, as from time to time
amended and every statute that may be substituted therefor and, in the case
of such substitution, any references in the By-laws to provisions of the
Act shall be read as references to the provisions substituted therefor in
the new statute or statutes;
"Appoint" includes "Elect" and vice versa;
"Articles" means the Articles, as from time to time amended, supplemented
or restated, pursuant to which the Corporation is incorporated under the
Act;
"Board" or "Directors" means the board of directors for the time being of
the Corporation acting by means of a resolution passed at a meeting of the
Board duly convened and held, or by means of a resolution consented to in
writing as provided in this By-law;
"By-laws" means this By-law and all other By-laws of the Corporation from
time to time in force and effect;
"Register" means the securities register maintained pursuant to the Act by
or on behalf of the Corporation;
"Regulations" means the Regulations under the Act as published or from time
to time amended and every regulation that may be substituted therefor and,
in the case of such substitution, any references in the By-laws to
provisions of the Regulations shall be read as references to the provisions
substituted therefor in the new Regulations;
"Signing Officer" means, in relation to any instrument, any person
authorized to sign the same on behalf of the Corporation by virtue of
Section 3.11 of this By-law or by a resolution passed pursuant thereto;
"this By-law" means this By-law No. 1;
"written" or "in writing" includes printing, typewriting, lithographing and
any other modes of reproducing words in permanently visible form;
Words importing the singular number include the plural and vice versa;
words importing a particular gender shall include all genders; the word "person"
shall include an individual, partnership, association, body corporate,
syndicate, trustee, executor, administrator, legal representative, and any
number or aggregate of persons; and the words "and" and "or" shall be construed
both conjunctively and disjunctively.
Save as aforesaid, all terms which are contained in the By-laws and which
are defined in the Act or the Regulations shall have the meanings given to such
terms in the Act or the Regulations.
The provision of headings in the By-laws is for ease of reference only, and
shall be disregarded when the meaning of the By-laws is construed.
All provisions of this By-law are subject to the provisions of the Articles
and any unanimous shareholder agreement, whether or not any provision of this
By-law is expressly stated to be so subject.
<PAGE>
2
SECTION 2 BORROWING, BANKING AND SECURITIES
2.1 Borrowing Power. Without limiting the borrowing powers of the Corporation
as set forth in the Act, but subject to the Articles and any unanimous
shareholder agreement, the Board may from time to time on behalf of the
Corporation, without authorization of the shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantee of the Corporation, whether
secured or unsecured;
(c) to the extent permitted by the Act, give a guarantee on behalf of the
Corporation to secure performance of any present or future
indebtedness, liability or obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any currently owned or subsequently acquired real or
personal, moveable or immoveable, property of the Corporation
including book debts, rights, powers, franchises and undertakings, to
secure any such bonds, debentures, note or other evidences of
indebtedness or guarantee or any other present or future indebtedness,
liability or obligation of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
2.2 Delegation. The Board may from time to time delegate to a committee of the
Board, a director or an officer of the Corporation or such other person as
may be designated by the Board, all or any of the powers conferred on the
Board by the preceding section of this By-law or by the Act to such extent
and in such manner as the Board may determine at the time of such
delegation.
SECTION 3 EXECUTION OF INSTRUMENTS
3.1 Attestation. Deeds, transfers, assignments, contracts, obligations,
certificates and other instruments may be signed on behalf of the
Corporation by two persons, one of whom holds the office of Chairman of the
Board, Managing Director, President, Vice-President or Director, and the
other of whom holds one of the said offices or the office of Secretary,
Treasurer, Assistant Secretary or Assistant Treasurer, or any other office
created by By-law or by the Board. In addition, the Board may from time to
time direct the manner in which and the person or persons by whom any
particular instrument or class of instruments may or shall be signed. The
Directors may, if they deem it appropriate, adopt and from time to time
change a common seal for the Corporation. Any signing officer may affix the
common seal to any instrument requiring the same, but no instrument is
invalid merely because the common seal is not affixed thereto.
3.2 Cheques, Drafts and Notes. All cheques, drafts or orders for the payment of
money and all notes and acceptances and bills of exchange shall be signed
on behalf of the Corporation by such person (whether or not a director or
officer of the Corporation) and in such manner as the Board may from time
to time designate.
SECTION 4 DIRECTORS
4.1 Number. The Board shall consist of such number of Directors as is fixed by
the Articles, or where the Articles specify a variable number, such number
of Directors as may be determined from time to time by the Shareholders by
ordinary resolution. At least half of the Directors shall be resident
Albertans.
4.2 Election and Term. All qualified retiring Directors shall be eligible for
re-election.
4.3 Procedure for Election of Directors.
<PAGE>
3
(a) Nominations. In addition to nomination by shareholder proposal as
provided in the Act, and subject to clause 4.3(b), candidates for the
position of Director may be nominated in either of the following ways:
(i) the Directors may nominate candidates (who may include
themselves) by including the name of the proposed candidates in
the notice or information circular which is distributed to the
shareholders prior to each Annual Meeting or other General
Meeting at which Directors are to be elected; or
(ii) any shareholder holding not less than 5% of the shares entitled
to be voted at an Annual Meeting or other General Meeting at
which Directors are to be elected, may in person or by proxy or
representative (where the shareholder is a body corporate or
association) nominate a candidate at such meeting.
(b) Where Directors are to be elected by the holders of a particular
category of shares or by particular persons, nominations shall be put
forward in accordance with the provisions which entitle the said
holders or persons to elect Directors, or if there are no such
provisions, as provided in clause 4.3(a) above.
(c) Close of Nominations. At every Annual Meeting or other General Meeting
at which Directors are to be elected, the chairman of the meeting
shall call for nominations from the floor and shall allow a suitable
time for nominations to be made.
Once all nominations have been made from the floor, or if after a
suitable time has been allowed no such nominations are made, the
chairman of the meeting shall declare nominations closed, and
thereafter no further nominations for the position of Director may be
made from the floor at that General Meeting.
(d) Elections by Ordinary Resolution.
(i) Following the close of nominations, the chairman of the meeting
shall name all candidates for the position of Director who have
been duly nominated and shall state how many positions for
Directors are available to be filled. If there are more
candidates than there are positions and if the number of
positions may be varied by ordinary resolution, the chairman of
the meeting shall call for an ordinary resolution to be made
varying the number of positions for Directors (subject to the
maximum and minimum permitted numbers) or confirming the number
of positions at the number previously determined.
(ii) Whether or not any resolution is proposed or passed as a result
of any call for a resolution which may be made by the chairman
under clause 4.3(d)(i), the election of Directors shall be
conducted by means of the proposal and passing (or defeat) of a
separate ordinary resolution in respect of each candidate who has
been nominated as aforesaid, and the order in which candidates
are considered shall be determined by the chairman of the
meeting. By consent of all persons present and entitled to vote
at the meeting, a single ordinary resolution may be proposed in
respect of all candidates. Where all available positions for
Directors are filled before all candidates have been considered,
those candidates who remain to be considered shall be deemed to
have been defeated, and no resolution shall be entertained for
their election at the General Meeting where they have been named
by the chairman as candidates.
(e) Elections by Cumulative Voting. Where the Articles require that
elections of directors be conducted by cumulative voting, all
elections shall be conducted by written ballot on which votes may only
be cast in favour of candidates. Ballots shall identify by name all
candidates, shall state the fixed number of Directors to be elected,
and shall provide spaces for indicating the number of shares held by
and the name and signature of the person casting the ballot, the
number of shares (if any) which that person is entitled to vote as a
proxy or representative, the number of votes cast in favour of each
candidate by that person by virtue of the shares held in his own name,
and, as a separate figure, the number of votes cast in favour of each
candidate by that person in his capacity as proxy or representative.
All ballots which are to be included in a count shall be completed,
signed and delivered to the scrutineers before any counting begins.
The scrutineers shall tabulate the result of the ballotting and
deliver a written statement thereof to the chairman of the meeting who
shall declare the result thereof.
<PAGE>
4
4.4 Appointment by Directors. If the Articles provide that the Directors may
appoint additional Directors between Annual General Meetings, a separate
resolution of the Directors shall be taken in respect of each person
nominated for appointment as an additional Director, unless all of the
Directors present at the meeting of Directors where the matter is discussed
agree to a resolution being taken for the simultaneous appointment of
several Directors.
4.5 Vacation of Office. In addition to the events set out in the Act which will
disqualify a Director from holding office, a Director shall cease to hold
office if he is convicted of an indictable offence.
4.6 Alternate Directors.
(a) Appointment and Rights. Subject to a contrary resolution of the Board,
a Director may appoint any other person who is not another Director as
his alternate, and may at any time revoke any such appointment. An
alternate director shall be entitled to notice of meetings of the
Board (provided that he gives the Corporation an address for service
within Canada or the United States of America), to be counted as part
of the quorum required for a meeting of the Board, to attend and vote
as a Director at any meeting of the Board at which his appointer is
not personally present, and generally, in the absence of his
appointer, when present in person to exercise all the functions of his
appointer as a Director (including without limitation, attesting by
his signature the affixing of the seal to any instrument). An
alternate director shall not be entitled to appoint an alternate to
represent his appointer, nor by virtue of his appointment as an
alternate director, to exercise any of his appointer's functions as an
officer of the Corporation.
(b) Revocation of Appointment. An alternate director shall cease to be an
alternate director if his appointment is revoked or if his appointer
ceases to be a Director, except that where the appointer retires as a
Director at an Annual Meeting and is re-elected as Director at that
Annual Meeting the appointer's alternate shall not cease to be an
alternate director by virtue of such retirement. All appointments and
revocations of appointments of alternate directors shall be in writing
signed by the appointer, and shall take effect when received at the
Registered Office.
(c) Liability of Alternate Directors and Their Appointers. A Director who
appoints an alternate director shall have the same responsibility in
respect of the acts and omissions of his appointed alternate when the
latter is acting in his capacity as an alternate director as though
those acts and omissions were the appointer's own and were done or
omitted in the appointer's capacity as Director.
In addition, an alternate director shall himself be responsible to the
Corporation for his acts or omissions in his capacity as an alternate
director as though he were a Director, and shall also be entitled to
the benefit of all provisions of these By-laws which are applicable to
Directors.
4.7 Expenses. Directors shall be reimbursed for all expenses properly incurred
by them in the discharge of their functions. The Board may establish
reasonable expense allowances to cover the said expenses, and Directors
need not, subject to the discretion of the Board, produce proof of having
incurred the said expenses in order to claim such allowances.
4.8 Directors in Other Capacities. Directors may be employed by the Corporation
in any other capacity and are entitled to be remunerated for services so
rendered.
SECTION 5 POWERS OF DIRECTORS
5.1 The management of the business and affairs of the Corporation shall be
vested in the Directors, who, in addition to the powers and authorities
expressly conferred upon them by the Act, the Articles and the By-laws, may
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation and are not by the Act, the Articles,
or the Bylaws expressly directed or required to be exercised or done by the
Corporation in General Meeting, but subject, nevertheless, to the
provisions of the Act, the Articles and the By-laws and to any regulations
from time to time made by the Corporation in General Meeting, provided that
no regulations so made shall invalidate any prior act of the Board which
would have been valid if such regulation had not been made.
<PAGE>
5
SECTION 6 MEETINGS OF DIRECTORS
6.1 Notice of Meeting. Notice of the time, date and place of each meeting of
the Board shall be given to each Director not less than 48 hours before the
time when the meeting is to be held in the same manner as notices of
meetings of shareholders are to be given pursuant to Section II Below, and
all Directors shall be notified in the same manner in respect of any one
meeting. All of the provisions of Section 11 shall apply in respect of
meetings of Directors except for clauses 11.4, 11.5, 11-10, 11.11 and
11.12, except that notice of a meeting of Directors shall always be sent to
a Director at his most recent address made known by him to the Corporation,
and further except that the mails shall not be used to summon a meeting of
Directors when mail service in Canada is interrupted or threatened to be
interrupted by strikes or other industrial disturbances, nor unless notice
is mailed at least five days before the date of meeting. A notice of a
meeting of Directors need not specify the purpose of or the business to be
transacted at the meeting except where the Act requires such purpose or
business to be specified.
6.2 Meeting after Election of Directors. A meeting of Directors shall be held
immediately following each Annual Meeting at which Directors are elected,
and no notice of such meeting is required. No notice of the meeting of
Directors at which he is appointed need be given to a person who is
appointed by the Directors as an additional Director or in order to fill a
vacancy.
6.3 Adjourned Meeting. Notice of an adjourned meeting of the Board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
6.4 Periodic Meetings without Notice. The Board may appoint a regular time and
place for its meetings. A copy of any resolution by which it is determined
to hold such periodic meetings shall be sent to each Director forthwith
after it is passed, and forthwith to each Director who is subsequently
elected or appointed. No other notice is required for any such periodic
meeting, except where the Act or this By-law requires the purpose thereof
or the business to be transacted thereat to be specified.
6.5 Holding of Meetings and Quorum. The Directors may meet together for the
dispatch of business, adjourn and otherwise regulate their proceedings as
they see fit, and may declare the quorum necessary for the transaction of
business; until the Directors make such determination, one half (or where
one half of the Directors is not a whole number, the whole number which is
closest to and less than one half) of the Directors shall be a quorum.
Where there are two or three directors, a quorum shall be two directors.
Where there is only one director, that director constitutes a quorum.
6.6 Convening of Meetings. The President may, and the Secretary shall at the
request of any Director, at any time convene a meeting of the Board.
6.7 Voting. Matters considered at any meeting of the Board shall be decided by
a majority of votes cast upon each matter. In cases of an equality of votes
the Chairman (or if the Chairman is not present, whoever is acting as
chairman of the meeting of the Board) shall have a casting vote.
6.8 Chairman. Directors may appoint one of their number to be Chairman of the
Board, and one of their number to be Vice-Chairman of the Board, and
determine the period for which they are to hold office, and while no other
person is appointed to be Chairman or Vice-Chairman of the Board, the
President for the time being of the Corporation shall be Chairman of the
Board. The Chairman shall preside at all meetings of the Board at which he
is present, and in the absence of the Chairman the Vice-Chairman shall
perform the Chairman's said function. If the Chairman or the Vice-Chairman
are not present at the meeting within five minutes after the time appointed
for holding the same, the Directors shall choose one of their number to be
chairman of such meeting.
6.9 Telephone Attendance. A Director may participate in a meeting of the Board
or of a committee of Directors by conference telephone, or by such other
means of communication as will permit all persons participating in the
meeting to hear each other, and a Director participating in a meeting by
conference telephone or such other means as aforesaid shall be deemed to be
present and shall be entitled to speak and vote at the meeting, and shall
be counted as part of the quorum therefor. The provisions of this clause
shall apply to the participation of a Director by conference telephone or
other means in part only of a meeting of the Board, and in such case the
Director shall be deemed to be present and shall be entitled to speak and
vote at, and shall be counted as part of the quorum for, that part only of
the meeting during which he is in communication by conference telephone or
other means.
6.10 Resolutions in Writing. A resolution in writing consented to by all of the
Directors without their meeting together shall be as valid as if it has
been passed at a meeting of the Directors duly called and held, and consent
to such resolution may
<PAGE>
6
be evidenced by means of several documents in the same form each signed by
one or more Directors, or by means of telegram, telex, telecopier, word
processor or any other method of transmitting written material. Any such
resolution in writing shall be held to relate back (or forward) to the date
therein stated to be the effective date thereof.
6.11 Committees. A committee of directors shall in the exercise of the powers
delegated to it conform to any regulations that may be imposed on it by the
Board. Subject to such regulations imposed by the Board, the proceedings of
a committee consisting of two or more Directors shall be governed by the
provisions herein contained for regulating the proceedings of the Board,
including the determination of a quorum, so far as the same are applicable
thereto.
6.12 Proceedings of Committee. A committee may meet and adjourn as the members
of the committee think proper. Questions arising at any meeting shall be
determined by a majority of votes of the members of the committee present.
In case of an equality of votes the chairman shall have a casting vote.
SECTION 7 PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.1 Conflict of Interest. A Director or officer shall not be disqualified by
his office, or be required to vacate his office, by reason only that he is
a party to, or is a director or officer or has a material interest in any
person who is a party to, a material contract or proposed material contract
with the Corporation or subsidiary thereof. Such a Director or officer
shall, however, disclose the nature and extent of his interest in the
contract at the time and in the manner provided by the Act.
7.2 Limitation of Liability. Subject in all cases to the requirements of the
Act, no Director or officer for the time being of the Corporation shall be
liable for the acts, receipts, neglects, or defaults of any other Director
or officer or employee or for joining in any receipt or act for conformity,
or for any loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation or for the insufficiency
or deficiency of any security in or upon which any of the moneys of or
belonging to the Corporation may be placed out or invested or for any loss,
conversion, misapplication or misappropriation of or any damage resulting
from any dealings with any moneys, securities or other assets belonging to
the Corporation, or for any loss, damage or misfortune whatever which may
happen in the execution of the duties of his respective office or trust or
in relation thereto. The Directors shall not be under any duty or
responsibility in respect of any contract, act or transaction whether or
not made, done or entered into the name or on behalf of the Corporation,
except such as shall have been submitted to an authorized or approved by
the Board of Directors.
7.3 lndemnity. The Corporation shall indemnify a Director or officer, a former
Director or officer, or a person who acts or acted at the Corporation's
request as a Director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and his heirs, executors,
administrators and other legal representatives, to the fullest extent which
may from time to time be permitted by the Act, from and against,
(a) all costs, charges and expenses that he incurs in respect of any
civil, criminal or administrative action or proceeding that is
proposed or commenced against him by reason of being or having been a
Director or officer of the Corporation, or if such body corporate as
aforesaid; and
(b) all other costs, charges and expenses that he sustains or incurs in
respect of the affairs of the Corporation,
except in respect of an action by or on behalf of the Corporation, or such
body corporate is aforesaid, to procure a judgment in its favour.
The Corporation shall also indemnify and shall, if required by the Act,
seek the permission of the Court to indemnify, such persons as aforesaid in all
other circumstances where the Act permits or requires an indemnity to be given.
Nothing in this section shall limit the right of any person entitled to
indemnity to claim indemnity apart from the provisions of this section.
7.4 Insurance. Subject to the Act, the Corporation may purchase and maintain
insurance for the benefit of any person referred to in this section against
any liability incurred by him in his capacity as a Director or officer of
the Corporation or of any body corporate where he acts or acted in that
capacity at the Corporation's request.
SECTION 8 OFFICERS
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7
8.1 Appointment. The officers of the Corporation shall consist of a President
and a Secretary and such other officers and assistant officers as the Board
may from time to time appoint. Any person may fill more than one of the
above offices. The persons holding such offices, besides having such powers
and fulfilling such duties as are delegated to them by this By-law and by
the Board, shall have such powers as are usually exercised by the holders
of such offices.
8.2 Chairman. The Chairman of the Board and the Vice-Chairman of the Board, if
either are appointed, shall in addition to the functions assigned to them
by clauses 6.7, 6.8 and 9.10 hereof advise the President and the other
officers of the Corporation and shall exercise such powers and perform such
duties as shall be assigned to them from time to time by the Board.
8.3 President. Unless otherwise determined by the Board, the President shall be
the Chief Executive Officer of the Corporation and, without limitation, but
subject to the direction of the Board, shall have power to:
(a) supervise and control the business and affairs of the Corporation, its
officers, employees and agents;
(b) execute bonds, deeds and contracts in the name of the Corporation and
affix the Seal thereto;
(c) cause the employment or appointment of such employees and agents of
the Corporation as the proper conduct of operations may require and
fix their remuneration and emoluments, subject to the provisions of
the Bylaws;
(d) remove or suspend any employee or agent who has been employed or
appointed under his authority or under authority of an officer
subordinate to him; and
(e) suspend for cause, pending final action by the Board any officer
subordinate to the President. In the event of any officer being
suspended from his duties by the President pursuant to this By-Law,
the Secretary shall immediately summon a meeting of the Board for the
soonest available date in order to review the matters involved in such
suspension, and to confirm or disallow the action of the President.
If so determined by the Board, the President may be appointed also as Managing
Director, in which case the appointee must be and remain a Director, and must
meet such residence requirements as are stipulated by the Act.
A President who is also appointed as Managing Director shall have all such
powers as are customarily exercised by a Managing Director in addition to the
powers stipulated above.
8.4 Vice-Presidents. Each Vice-President shall assist the President and shall
have such powers and perform such duties and services as shall from time to
time be prescribed or delegated to him by the President, the Executive
Committee or the Board of Directors. In the absences or disability of the
President, his duties shall be performed and his powers may be exercised by
the Vice-Presidents in order of their seniority unless otherwise determined
by the President, the Executive Committee or the Board, and further except
that a Vice-President shall not as of right exercise the functions of the
President as Chairman.
8.5 Other Officers. The officers of the Corporation other than the Chairman,
Vice-Chairman and President shall be appointed by the Board from among such
persons as the Board sees fit. Such officers shall have all functions,
powers and responsibilities which may be delegated to them by the Board,
and, subject to the discretion of the Board, which are customarily
exercised by the holders of such offices.
8.6 Secretary. The Secretary shall attend and be the secretary of all meetings
of the Board, Shareholders and committees of the Board and shall enter or
cause to be entered in records kept for that purpose minutes of all
proceedings thereat; he shall give or cause to be given, as and when
instructed, all notices to Shareholders, Directors, officers, auditors and
members of committees of the Board; he shall be the custodian of the
corporate seal of the Corporation and of all books, papers, records,
documents and instruments belonging to the Corporation, except when some
other officer or agent has been appointed for that purpose; and he shall
have such other powers and duties as the Board or the President may
specify.
8.7 Treasurer. The Treasurer shall keep proper accounting records in compliance
with the Act and shall be responsible for the deposit of money, the
safekeeping of securities and the disbursement of the funds of the
Corporation; he shall render to the Board whenever required an account of
all his transactions and he shall have such other powers and duties as the
Board or the President may specify.
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8
8.8 Substitute Officers. The Directors may appoint a temporary substitute for
any officer who shall for the purposes of the By-laws be deemed to be the
officer whose position he occupies.
8.9 Remuneration. The Directors shall have the power to fix and from time to
time to vary the salaries and emoluments of the officers.
8.10 Tenure of Office. The Directors shall have the power to fix and from time
to time vary the period for which any officer is to hold office and may at
any time, notwithstanding any previous determination, remove any officer
from his office and appoint another person in his place, but without
prejudice to the rights of such officer against the Corporation.
SECTION 9 SHAREHOLDERS' MEETINGS
9.1 Annual Meetings. Subject to the Act and the Articles, the time, date and
place of each Annual Meeting shall be determined by the Board. The business
of each Annual Meeting shall be the consideration of the Corporation's most
recent financial statements and the auditor's report thereon (except where
the employment of an auditor is dispensed with pursuant to the Act), the
election of directors (if required), and the reappointment of any incumbent
auditor. Such business shall be the ordinary business of every Annual
Meeting, and any other business to be considered at an Annual Meeting shall
be classified as special business.
9.2 Nomenclature for General Meetings. The General Meetings referred to in the
previous clause shall be called Annual Meetings, and all other General
Meetings of the Company shall, subject as provided in clause 9.3 below, be
called Special Meetings. The term "General Meeting" when used in the
By-laws shall include an Annual Meeting, a Special Meeting (whether of all
of the shareholders, or of any class or category of shareholders), and a
Special and Annual Meeting.
9.3 Special and Annual Meetings. The business of a Special Meeting (other than
the business of a Special Meeting of a particular class only of
shareholders) may be combined with the business of an Annual Meeting and
may be dealt with at a single meeting which shall be called a Special and
Annual Meeting. The order in which business is to be dealt with, and other
matters relating to the convening and holding and transaction of business
at, an Annual Meeting, a Special Meeting or a Special and Annual Meeting
shall be determined by the Board.
9.4 Special Meetings. A Special Meeting of shareholders may be summoned at any
time by authority of the Board or the President.
9.5 Right to Vote. If the Corporation has 15 or fewer members, those persons
whose names are entered on the Register at the time of a General Meeting
shall be entitled to exercise such voting rights as are attached to the
shares which are shown on the Register as being held by them, except that
if the Corporation has at or prior to a General Meeting received properly
endorsed share certificates or other evidence satisfactory to the Board of
a transfer of any shares, and if in a case where transfer of shares of the
Corporation is restricted, the transferee has first obtained all requisite
consents to the transfer and has produced to the Board such evidence
thereof as the Board may reasonably require, the transferee may exercise
the said voting rights in respect of the shares thus transferred, and the
transferor may not exercise the same.
If the Corporation has more than 15 members, a transferee of shares must
produce the evidence of transfer required by the Act, and make the required
demand, not less than 5 days before a General Meeting at which the
transferee seeks to vote shares which have been transferred to him but
which are not recorded in his name in the Register. In a case where
transfer of shares of the Corporation is restricted, a transferee must also
produce to the Board the evidence referred to in the previous paragraph
hereof.
A shareholder to whom shares are issued after the effective date of a list
of shareholders which is prepared under the Act in respect of a General
Meeting but before such Meeting is held, is upon production of the
certificate for such shares, or such other proof of the issue thereof as
the Board may reasonably require, entitled to vote such shares at the said
Meeting.
9.6 Irregularities. Irregularities in the notice of any General Meeting, or in
the giving thereof, or the accidental omission to give notice of any
General Meeting, or the non-receipt of any notice by any shareholder, shall
not invalidate any resolution passed or any proceedings taken at any
General Meeting and shall not prevent the holding of such General Meeting.
9.7 Evidence of Appointment. The chairman of a General Meeting may as a
condition of recognizing the authority of any representative of a body
corporate or association which is a shareholder, to represent that body
corporate or association at
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9
any General Meeting, demand production of a copy of the resolution
appointing the representative, certified under the seal of the body
corporate or association (if the body corporate or association has a seal)
by the President or Secretary thereof (or by an equivalent officer where
the body corporate or association has neither a President nor a Secretary).
9.8 Revocation of Appointment. The appointment of a representative by a body
corporate or association may at any time be revoked by notice in writing
delivered at the Registered Office and executed on behalf of the body
corporate or association in the same manner as the copy resolution referred
to in clause 9.7 above is to be certified.
9.9 Capacity of Representatives. The duly appointed representative of a body
corporate or association shall be entitled to exercise the same powers on
behalf of the body corporate or association which he represents at a
General Meeting, and in respect of notice and adjournment of General
Meetings (except the power to appoint a proxy), as that body corporate or
association could exercise if it were an individual shareholder present at
the General Meeting. Such representative shall when present at any General
Meeting count for all purposes and shall have the same rights as a member
personally present at the General Meeting holding those shares which are
held by the body corporate or association. References in these Bylaws to
members personally present at a General Meeting shall be taken to include a
representative present at a General Meeting.
9.10 Chairman. The Chairman of the Board or in his absence, the Vice-Chairman
and in his absence, the President, or in his absence a Vice-President (if
any), shall be entitled to take the chair at any General Meeting, or if
there is no Chairman of the Board, President or Vice-President, or if at
any General Meeting none of them is present within fifteen (15) minutes
after the time appointed for holding such General Meeting, the members
present shall choose a Director as chairman, and if no Director is present,
or if all the Directors present decline to take the chair, then the members
present shall elect one of their number to be chairman.
9.11 Secretary and Scrutineers. If the Secretary of the Corporation is absent,
the chairman of each General Meeting shall appoint some person, who need
not be a shareholder, to act as secretary of the General Meeting. If
desired, one or more scrutineers, who need not be shareholders, may be
appointed by ordinary resolution or by the chairman with the consent of the
shareholders present at the General Meeting.
9.12 Persons Entitled to be Present. A person not otherwise entitled to be
present at a General Meeting, may be admitted only on the invitation of the
chairman, subject to any ordinary resolution which may be passed regarding
admission of such persons.
9.13 Quorum. A quorum of shareholders is present at a General Meeting,
irrespective of the number of persons actually present at the General
Meeting, if the holder or holders of five (5%) percent of the shares
entitled to vote at the General Meeting are present in person or
represented by proxy.
9.14 Telephone Attendance. A shareholder may participate in a General Meeting by
conference telephone, or by such other means of communication as will
permit all persons participating in the General Meeting to hear each other,
and a shareholder participating in a General Meeting by conference
telephone or such other means as aforesaid shall be deemed to be present
and shall be entitled to speak and vote at the General Meeting, and shall
be counted as part of the quorum therefor. The provisions of this clause
shall apply to the participation of a shareholder by conference telephone
or other means in part only of a General Meeting, and in such case the
shareholder shall be deemed to be present and shall be entitled to speak
and vote at, and shall be counted as part of the quorum for, that part only
of the General Meeting during which he is in communication by conference
telephone or other means.
9.15 Adjournment and Dissolution. If within half an hour from the time appointed
for a General Meeting a quorum is not present, the General Meeting, if
convened upon the requisition of shareholders, shall be dissolved; in any
other case it shall stand adjourned to the same day in the next week, at
the same time and place; and if at such adjourned General Meeting a quorum
is not present, the members present, if at least two, shall be a quorum for
all purposes.
9.16 Voting. Every question submitted to a General Meeting shall be decided in
the first instance by a show of hands.
9.17 Declaration of Result of Vote. Unless a ballot is demanded as provided in
the Act, the declaration of the chairman that the resolution has been
carried, or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in the book of proceedings of the Corporation,
shall be conclusive evidence of the fact without proof of the number or
proportion of the votes recorded in favour of or against such resolution.
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10
9.18 Manner of Taking Ballot. If a ballot is demanded, and subject as provided
in clause 9.19, a ballot shall be taken in such manner and at such time and
place as the chairman of the General Meeting directs, and either at once or
after an interval or adjournment, and the result of the ballot shall be
deemed to be the resolution of the General Meeting at which the ballot was
demanded. The demand for a ballot may be withdrawn. In case of any dispute
as to the admission or rejection of a vote, the chairman shall determine
the same and such determination made in good faith shall be final and
conclusive.
9.19 Ballot on Election of Chairman. Any ballot duly demanded on the election of
a chairman of a General Meeting or on the question of adjournment shall be
taken at the General Meeting and without adjournment. 9.20 Business
Subsequent to Demand for Ballot. A demand for a ballot shall not prevent a
General Meeting from continuing for the transaction of any business other
than the question on which a ballot was demanded (except for business the
transaction of which depends on the outcome of the ballot).
9.21 Adjournment by Consent. The chairman of any General meeting may with the
consent of an ordinary resolution adjourn the same from time to time and
place to place, subject to compliance with the requirements of the Act
regarding notice of adjourned General Meetings. No business shall be
transacted at any adjourned General Meeting other than the business left
unfinished at the General Meeting from which the adjournment took place.
9.22 Right to Vote and Number of Votes. Subject to any restrictions imposed or
privilege conferred on any particular class of shares, at every General
Meeting:
(a) Upon a show of hands every shareholder or representative of a body
corporation or association present in person and entitled to vote
shall, save as to the casting vote of the chairman, have one (1) vote
only; and
(b) Upon a ballot every shareholder present in person, and every
representative of a body corporate or association, and every person
representing a shareholder by proxy, and entitled to vote shall, save
as to the casting vote of the chairman, have one (1) vote for every
share held or represented by him.
9.23 Form of Proxy. The instrument appointing a proxy shall be in writing in any
usual form.
9.24 Shareholders' Resolution in Writing. A resolution in writing, whether
ordinary or special, consented to by all the shareholders without their
meeting together, is as valid as if it had been passed at a General Meeting
of the members duly called and held, and consent to such resolution may be
evidenced by means of several documents in the same form each signed by one
or more shareholders, or by means of telegram, telex, telecopier or any
other method of transmitting written material. Any such resolution in
writing shall be held to relate back (or forward) to the date therein
stated to be the effective date thereof.
9.25 Receipt from Joint Shareholders. Any one of joint shareholders may give a
good and sufficient receipt for any dividend, return of capital, bonus or
other money, payable to such shareholders jointly.
9.26 Transfers. Transfers of shares may be in any usual form.
9.27 Lien for Indebtedness. Where the Corporation is a corporation which has
been continued under the Act, and a lien on partly paid shares issued prior
to the said continuation remains in existence after the said continuation,
all of the rights of the Corporation to enforce the said lien, or otherwise
to recover the monies secured thereby, shall remain enforceable by the
Corporation following the said continuance in the same manner as the said
rights were enforceable prior to the said continuance.
SECTION 10 DIVIDENDS
10.1 Entitlement as at Record Date. A transfer of shares shall not pass the
right as against the Corporation to any dividend unless the transfer is
registered before the record date in respect of the declaration of such
dividend.
10.2 Payment to Persons on Register. The Directors in declaring and paying a
dividend shall declare and pay the same to the shareholders of the
Corporation as evidenced by the Register on the record date for payment of
the dividend, and neither the Directors nor the Corporation shall be
responsible to any shareholder who fails to receive a dividend through the
inadvertent omission of his name from the Register.
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11
10.3 Manner of Payment; Bonus Shares. The Directors in declaring a dividend may
direct payment of such dividend wholly or in part by the distribution of
specific assets and in particular of paid-up shares, debentures or
debenture stock of the Corporation or of any other corporation or in any
one or more of such ways, and the Directors after declaring a dividend may
direct that such dividend be applied in paying up shares of the share
capital of the Corporation or such debentures or debenture stock as
aforesaid and that such paid-up shares, debentures or debenture stock be
issued to the shareholders of the Corporation. Where any difficulty arises
in making such a distribution the Directors may issue fractions of shares
or may altogether ignore fractions of shares, and may fix the value for
distribution of such specific assets or any part thereof, and may determine
that cash payments shall be made to any shareholders in order to adjust the
rights of all parties, and may vest any specific assets in trustees upon
such trusts for the persons entitled to the dividend as may seem expedient
to the Directors. The Board may appoint any person to sign on behalf of the
persons entitled to participate in a distribution any contract requisite or
convenient for giving effect thereto and such appointment and the signature
of such person shall be binding on all shareholders.
10.4 Set-off. The Corporation may set off against the dividends payable to any
shareholder all sums of money which may be due from him to the Corporation
on account of debts, obligations or otherwise.
10.5 Unclaimed Dividends. The Corporation may pay any unclaimed dividend,
interest or other sum payable on or in respect of a share into a separate
account and any interest accruing on such account shall be for the benefit
of the Corporation. Such payment into an account shall not constitute the
Corporation a trustee in respect of money paid in, and any such dividend
which is unclaimed on the expiry of six years after payment shall be
forfeited and shall revert to the Corporation.
10.6 Payment by Cheque to Registered Address. Unless otherwise directed, any
dividend or other payment required to be made to a shareholder may be paid
by cheque drawn on the bank of the Corporation and sent through the mail to
the registered address of the shareholder entitled to it, or in the case of
joint holders, to the registered address of that one whose name stands
first on the Register in respect of the joint holding; and every cheque or
warrant so sent shall be made payable to the order of the person to whom it
is sent, and in the case of joint holders it may be made payable to the
order of all such joint holders or to the order of the one only to whom it
is sent.
10.7 No Interest. No dividend shall bear interest against the Corporation.
SECTION 11 NOTICES
11.1 Method of Giving Notices. Any notice or other document required by the Act,
the Regulations, the Articles by the By-laws, to be sent to any shareholder
or to the auditor may be delivered personally or sent by prepaid mail or by
telegram, cable, telex, word processor or other electronic means of
communication whereby words can be visibly reproduced at a distant point of
reception to any such shareholder at his latest address as shown in the
records of the Corporation or its transfer agent (and the address shown on
the records of the transfer agent, if any, shall be used in preference to
the address shown on the records of the Corporation, in case of difference
between the two) and to the auditor at his business address.
11.2 Receipt of Notices. A notice shall be deemed to be given when it is
delivered personally to any such person or to his address as aforesaid. A
notice which is mailed shall be deemed to have been given (even if it is
returned as undeliverable) when deposited in a post office or public letter
box, except that the mails shall not be used for the giving of notice when
mail service in Canada is interrupted or threatened to be interrupted, by
mail strikes or other industrial disturbance, and instead notice shall in
such event be deemed to have been given to all shareholders when the notice
is published in a newspaper which is distributed in the capital cities of
all of the Provinces of Canada. A notice sent by any means of remote
electronic communication shall be deemed to have been given when delivered
to the appropriate communication company, or its representative, for
dispatch, or, if the notice is not sent commercially, when actually
transmitted from the sending machine.
11.3 Address for Notice. The Secretary may cause the recorded address of any
shareholder, director, officer, auditor or member of a committee of the
Board to be entered or changed in accordance with any information
reasonably believed by him to be reliable. Any such person may by written
notice signed by him and served on the Corporation (or its transfer agent,
if any) change his registered address for service of notice.
Where no registered address is shown in the records of the Corporation (or
its transfer agent, if any) for a shareholder, notice to such shareholder
shall be deemed to have been duly given upon it being posted up in the
Registered Office (or records office, if any) of the Corporation.
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12
11.4 Notice to Joint Shareholders. If two or more persons are registered as
joint holders of any share, notice given in accordance herewith to one of
such persons shall be sufficient notice to all of them.
11.5 Persons Entitled by Death or Operation of Law. Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, becomes entitled to any shares, shall be bound by every notice
in respect of such shares which prior to the entry of his name on the
Register has been duly given to the person from whom he derives his title
to such shares.
11.6 Return of Notices. If notices or documents are sent to a shareholder by
prepaid mail in accordance with Section 11.1 and three consecutive mailings
(whether or not of the same notice or document) are returned undeliverable,
it shall not be necessary to send any further notice or document to the
shareholder until he informs the Corporation in writing of a new address
for service of notice.
11.7 Omissions and Errors. The accidental omission to give any notice to any
shareholder, officer or auditor or the non- receipt of any notice by any
such person, or any error in any notice not affecting the substance
thereof, shall not invalidate any action taken at any meeting held pursuant
to such notice or otherwise founded thereon.
11.8 Signature on Notices. Unless otherwise specifically provided, notices or
documents to be given by the Corporation need not be signed on behalf of
the Corporation. If any such notice or document is signed on behalf of the
Corporation, the signature may be reproduced in writing (as herein
defined).
11.9 Waiver of Notice. Any shareholder, proxyholder, officer, auditor or other
person entitled to attend a General Meeting may at any time waive any
notice, or waive or abridge the time for any notice, required to be given
to him under the Act, the Regulations, the Articles, the By-laws or
otherwise, and such waiver or abridgement, whether given before or after
the General Meeting or other event of which notice is required to be given,
shall cure any default in the giving of or in the time allowed by such
notice, as the case may be.
11.10 Deceased Shareholder. Any notice or document delivered or sent by mail or
left at the address of any shareholder as the same appears in the Register
or posted up in the Registered Office (or records office) as hereinbefore
provided, shall, notwithstanding such shareholder being then deceased and
whether or not the Corporation has notice of his decease, be deemed to have
been duly served on such shareholder and such service shall for all
purposes be deemed a sufficient service of such notice or document on his
heirs, executors or administrators and on all persons, if any, jointly
interested in the shares held by him.
11.11 Notice Period. Where a given number of days notice or a notice extending
over any other period is required to be given, neither the day of service
of the notice nor the day for which notice is given shall be counted in
such number of days or other period.
11.12 Nature of Business. It shall not be necessary for any notice to set out
the nature of the business which is to come before an Annual Meeting unless
the same is special business.
11.13 One Notice for Several Meetings; Contingent Notice. A Special Meeting and
an Annual Meeting, or a Special and Annual Meeting, may be convened by one
notice. It shall be no objection to a notice that it only convenes a
General Meeting contingently on a resolution being passed at another
General Meeting, or that any business to be dealt with at a General Meeting
is only to be dealt with contingently on another resolution being passed at
that General Meeting.
SECTION 12 MISCELLANEOUS
12.1 Directors to Require Surrender of Share Certificate. Where the Corporation
is a corporation that is continued under the Act, the Board may require all
shareholders to surrender their share certificates, or such of their share
certificates as the Board may determine, for the purpose of cancellation
and replacement with share certificates that comply with Section 45 of the
Act. The Board may determine the manner and timing in which share
certificates are to be surrendered for cancellation and replacement, and
may take such proceedings as it deems necessary to compel any shareholder
to comply with a requirement to surrender share certificates pursuant to
this section. Subject to the Act, the Board may refuse to register the
transfer of shares represented by a share certificate that has not been
surrendered pursuant to a requirement under this section.
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12.2 Confidentiality. Except as required by the Act or as otherwise determined
by the Board, all records and documents of the Corporation shall be treated
as confidential, and shall be available only to such persons as the Board
may from time to time determine.
12.3 Effective Date. This By-law shall come into force upon the issue of a
Certificate of Incorporation or Continuance (as the case may be) under the
Act in respect of the Corporation,
ENACTED by resolution of the Directors passed on the 5th day of September,
1986.
/s/ /s/
President Secretary
CONFIRMED or ADOPTED by resolution of the shareholders of the Corporation
passed on the 5th day of September, 1986.
/s/ /s/
President Secretary
<PAGE>
EXHIBIT 3.4
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF INCORPORATION
OF
ETC TRANSACTION CORPORATION
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the General Corporation
Law of the State of Delaware (the "DGCL"), do hereby adopt the following
Certificate of Incorporation for the Corporation:
FIRST: The name of this corporation is ETC Transaction Corporation.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, Delaware 19801, County of New Castle. The name of the registered
agent of the Corporation at such address is CT Corporation Systems.
THIRD: The purpose for which the Corporation is organized is to engage in
any and all lawful acts or activity for which corporations may be organized
under the DGCL. The Corporation will have perpetual existence.
FOURTH: The Corporation shall have authority to issue two classes of shares
to be designated respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Seventeen
Million (17,000,000) shares of which Fifteen Million (15,000,000) shall be
Common Stock and Two Million (2,000,000) shall be Preferred Stock. Each share of
Common Stock shall have a par value of $0.001, and each share of Preferred Stock
shall have a par value of $1.00.
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in one or more series, each of which shall have such
designation(s) or title(s) as may be fixed by the Board of Directors prior to
the issuance of any shares thereof. The Board of Directors is hereby authorized
to fix or alter the dividend rates, conversion rights, rights and terms of
redemption, including sinking fund provisions, the redemption price or prices,
voting rights and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them. The rights, powers, preferences,
limitations and restrictions, if any, accompanying such shares of Preferred
Stock shall be set forth by resolution of the Board of Directors providing for
the issue thereof prior to the issuance of any shares thereof, in accordance
with the applicable provisions of the DGCL. Each share of any series of
Preferred Stock shall be identical with all other shares of such series, except
as to the date from which dividends, if any, shall accrue.
FIFTH: The name of the incorporator is George L. Diamond, and the mailing
address of such incorporator is Looper, Reed, Mark & McGraw Incorporated, 1601
Elm Street, Suite 4100, Dallas, Texas 75201.
SIXTH: The number of directors constituting the initial board of directors
is six (6), and the names and addresses of the persons who are to serve as
directors until the first annual meeting of stockholders or until their
successors are elected and qualified are as follows:
Name Address
- ---- -------
L. Cade Havard 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Elaine Boze 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Timothy P. Powell 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
CERTIFICATE OF INCORPORATION - Page 14
<PAGE>
Michael Eckstein 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
David O. Hannah 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Rick L. Snyder 5025 Arapaho Road
Suite 515
Dallas, Texas 75248
SEVENTH: Directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power to adopt,
amend and repeal the bylaws of the Corporation.
NINTH: No contract or transaction between the Corporation and one or more
of its directors, officers or stockholders, or between the Corporation and any
person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers or stockholders are directors, officers or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article Tenth is in effect.
Any repeal or amendment of this Article Tenth shall be prospective only and
shall not limit the rights of any such director or officer or the obligations of
the Corporation with respect to any claim arising from or related to the
services of such director or officer in any of the foregoing capacities prior to
any such repeal or amendment to this Article Tenth. Such right shall include the
right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent permitted
under the DGCL, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under the
DGCL, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible shall
be a defense to the action or create a presumption that such indemnification or
advancement is not permissible. In the event of the death of any person having a
right of indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of stockholders or directors, agreement, or otherwise.
CERTIFICATE OF INCORPORATION - Page 15
<PAGE>
Without limiting the generality of the foregoing, to the extent permitted
by then applicable law, the grant of mandatory indemnification pursuant to this
Article Tenth shall extend to proceedings involving the negligence of such
person.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under Section 145 of the DGCL.
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper benefit. Any repeal or
amendment of this Article Eleventh by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation arising from an act or
omission occurring prior to the time of such repeal or amendment. In addition to
the circumstances in which a director of the Corporation is not personally
liable as set forth in the foregoing provisions of this Article Eleventh, a
director shall not be liable to the Corporation or its stockholders to such
further extent as permitted by any law hereafter enacted, including, without
limitation, any subsequent amendment to the DGCL.
TWELFTH: The Corporation prohibits the use of a written consent in lieu of
any meeting of the stockholders of the Corporation.
THIRTEENTH: Cumulative voting with respect to the election of directors is
expressly prohibited.
FOURTEENTH: The Corporation expressly elects not to be governed by Section
203 of the DGCL.
I, the undersigned, for the purpose of forming the Corporation under the
laws of the State of Delaware, do make, file and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and, accordingly, I do hereunto set my hand on
_______________, 1996.
GEORGE L. DIAMOND
CERTIFICATE OF INCORPORATION - Page 16
<PAGE>
EXHIBIT 3.5
<PAGE>
EXHIBIT 3.5
CORPORATE BYLAWS OF
ETC TRANSACTION CORPORATION
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
SECTION SUBJECT MATTER PAGE
ARTICLE I. NAME AND OFFICES
1.1 Name................................................................. 1
1.2 Registered Office and Agent.......................................... 1
(a)Registered Office ............................................ 1
(b)Registered Agent.............................................. 1
(c)Change of Registered Office or Agent.......................... 1
1.3 Other Offices........................................................ 1
ARTICLE II. STOCKHOLDERS
2.1 Place of Meetings.................................................... 2
2.2 Annual Meetings...................................................... 2
2.3 Special Meetings..................................................... 2
2.4 Notice............................................................... 2
2.5 Voting List.......................................................... 3
2.6 Quorum............................................................... 3
2.7 Requisite Vote....................................................... 3
2.8 Withdrawal of Quorum................................................. 4
2.9 Voting at Meeting.................................................... 4
(a)Voting Power.................................................. 4
(b)Exercise of Voting Power; Proxies............................. 4
(c)Election of Directors......................................... 4
2.10 Record Date for Meetings; Closing Transfer Records................... 4
2.11 No Action Without Meetings........................................... 5
2.12 No Preemptive Rights................................................. 5
ARTICLE III. DIRECTORS
3.1 Management Powers.................................................... 5
3.2 Number and Qualification............................................. 6
3.3 Election and Term.................................................... 6
3.4 Voting on Directors.................................................. 6
3.5 Vacancies............................................................ 6
3.6 New Directorships.................................................... 7
3.7 Removal.............................................................. 7
3.8 Meetings............................................................. 7
(a)Place......................................................... 7
(b)Annual Meeting................................................ 7
(c)Regular Meetings.............................................. 7
(d)Special Meetings.............................................. 7
(e)Notice and Waiver of Notice................................... 7
(f)Quorum........................................................ 8
(g)Requisite Vote................................................ 8
3.9 Action Without Meetings.............................................. 8
3.10 Committees........................................................... 8
(a)Designation and Appointment................................... 8
(b)Members; Alternate Members; Terms............................. 8
(c)Authority..................................................... 8
(d)Records....................................................... 8
(e)Change in Number ............................................. 9
(f)Vacancies..................................................... 9
(g)Removal....................................................... 9
(h)Meetings...................................................... 9
(i)Quorum; Requisite Vote........................................ 9
(j)Compensation.................................................. 9
(k)Action Without Meetings....................................... 9
(l)Responsibility................................................ 9
(i)
<PAGE>
3.11 Compensation......................................................... 9
3.12 Maintenance of Records............................................... 10
3.13 Interested Directors and Officers.................................... 10
ARTICLE IV. NOTICES
4.1 Method of Notice..................................................... 11
4.2 Waiver............................................................... 11
ARTICLE V. OFFICERS AND AGENTS
5.1 Designation.......................................................... 11
5.2 Election of Officers................................................. 11
5.3 Qualifications....................................................... 12
5.4 Term of Office....................................................... 12
5.5 Authority............................................................ 12
5.6 Removal.............................................................. 12
5.7 Vacancies............................................................ 12
5.8 Compensation......................................................... 12
5.9 Chairman of the Board................................................ 12
5.10 President............................................................ 13
5.11 Vice Presidents...................................................... 13
5.12 Secretary............................................................ 13
5.13 Assistant Secretaries................................................ 14
5.14 Treasurer............................................................ 14
5.15 Assistant Treasurers................................................. 15
ARTICLE VI. INDEMNIFICATION
6.1 Indemnification...................................................... 15
6.2 Determination of Indemnification..................................... 16
6.3 Advance of Expenses.................................................. 16
6.4 Nature of Indemnification............................................ 17
6.5 Insurance............................................................ 17
6.6 Notice............................................................... 17
ARTICLE VII. STOCK CERTIFICATES AND TRANSFER REGULATIONS
7.1 Description of Certificates.......................................... 18
7.2 Delivery............................................................. 18
7.3 Signatures........................................................... 18
7.4 Issuance of Certificates............................................. 19
7.5 Payment for Shares................................................... 19
(a)Consideration................................................. 19
(b)Valuation..................................................... 19
(c)Effect........................................................ 19
(d)Allocation of Consideration................................... 19
7.6 Closing of Transfer Records; Record Date for Action With Meeting..... 19
7.7 Registered Owners.................................................... 20
7.8 Lost, Stolen or Destroyed Certificates............................... 20
(a)Proof of Loss................................................. 21
(b)Timely Request................................................ 21
(c)Bond.......................................................... 21
(d)Other Requirements............................................ 21
7.9 Registration of Transfers............................................ 21
(a)Endorsement................................................... 21
(b)Guaranty and Effectiveness of Signature....................... 21
(c)Adverse Claims................................................ 21
(d)Collection of Taxes........................................... 22
(e)Additional Requirements Satisfied............................. 22
7.10 Restrictions on Transfer and Legends on Certificates................. 22
(a)Shares in Classes or Series................................... 22
(b)Restriction on Transfer....................................... 22
(c)Preemptive Rights............................................. 22
(ii)
<PAGE>
(d)Unregistered Securities....................................... 22
ARTICLE VIII. GENERAL PROVISIONS
8.1 Distributions........................................................ 23
(a)Declaration and Payment....................................... 23
(b)Record Date................................................... 23
8.2 Reserves............................................................. 24
8.3 Books and Records.................................................... 24
8.4 Annual Statement..................................................... 24
8.5 Contracts and Negotiable Instruments................................. 24
8.6 Fiscal Year.......................................................... 25
8.7 Corporate Seal....................................................... 25
8.8 Resignations......................................................... 25
8.9 Amendment of Bylaws.................................................. 25
8.10 Construction......................................................... 25
8.11 Table of Contents; Captions.......................................... 26
(iii)
<PAGE>
BYLAWS
OF
ETC TRANSACTION CORPORATION
(a Delaware Corporation)
ARTICLE I.
NAME AND OFFICES
1.1 Name. The name of the Corporation is ETC Transaction Corporation,
hereinafter referred to as the "Corporation."
1.2 Registered Office and Agent. The Corporation shall establish, designate and
continuously maintain a registered office and agent in the State of
Delaware, subject to the following provisions:
(a) Registered Office. The Corporation shall establish and continuously
maintain in the State of Delaware a registered office which may be,
but need not be, the same as its place of business.
(b) Registered Agent. The Corporation shall designate and continuously
maintain in the State of Delaware a registered agent, which agent may
be either an individual resident of the State of Delaware whose
business office is identical with such registered office, or a
domestic corporation or a foreign corporation authorized to transact
business in the State of Delaware, having a business office identical
with such registered office.
(c) Change of Registered Office or Agent. The Corporation may, by
resolution of its Board of Directors, change its registered office or
change its registered agent, or both, upon the filing in the Office of
the Secretary of State of Delaware of a statement setting forth the
facts required by law, and executed for the Corporation by its
President or a Vice President. A certified copy of the certificate
certifying the change shall be recorded in the office of the recorder
for the county in which the new office is located.
1.3 Other Offices. The Corporation may also have offices at such other places
within and without the State of Delaware as the Board of Directors may,
from time to time, determine the business of the Corporation may require.
ARTICLE II.
STOCKHOLDERS
2.1 Place of Meetings. Each meeting of the stockholders of the Corporation is
to be held at the principal offices of the Corporation or at such other
place, either within or without the State of Delaware, as may be specified
in the notice of the meeting or in a duly executed waiver of notice
thereof.
2.2 Annual Meetings. The annual meeting of the stockholders for the election of
Directors and for the transaction of such other business as may properly
come before the meeting shall be held within one hundred twenty (120) days
after the close of the fiscal year of the Corporation on a day during such
period to be selected by the Board of Directors; provided, however, that
the failure to hold the annual meeting within the designated period of time
or on the designated date shall not work a forfeiture or dissolution of the
Corporation.
2.3 Special Meetings. Special meetings of the stockholders, for any purpose or
purposes, may be called by the Chairman of the Board or the President.
Special meetings of the stockholders shall be called by the President or
Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning ten percent
BYLAWS - Page 1
<PAGE>
(10%) of the capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting and the business to be transacted at any such special
meeting of stockholders, and shall be limited to the purposes stated in the
notice therefor.
2.4 Notice. Written or printed notice of the meeting stating the place, day and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Chairman of the
Board or the President, the Secretary or a majority of the members of the
Board of Directors calling the meeting, to each stockholder entitled to
vote at such meeting as determined in accordance with the provisions of
Section 2.10 hereof. If mailed, such notice shall be deemed to be delivered
when deposited in the United States Mail, with postage thereon prepaid,
addressed to the stockholder entitled thereto at his address as it appears
on the stock transfer records of the Corporation.
2.5 Voting List. The officer or agent having charge and custody of the stock
transfer records of the Corporation, shall prepare, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order and
containing the address and number of voting shares held by each, which list
shall be kept on file at the registered office or principal place of
business of the Corporation for a period of not less than ten (10) days
prior to such meeting and shall be subject to inspection by any stockholder
at any time during usual business hours. Such list shall also be produced
and kept open at the time and place of the meeting and shall be subject to
the inspection of any stockholder during the entire time of the meeting.
The original stock ledger or transfer book, or a duplicate thereof, shall
be evidence as to the identity of the stockholders entitled to examine such
list or stock ledger or transfer book and to vote at any such meeting of
the stockholders.
2.6 Quorum. The holders of a majority of the shares of the capital stock issued
and outstanding and entitled to vote thereat, represented in person or by
proxy, shall be requisite and shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise
provided by statute or by the Certificate of Incorporation or by these
Bylaws. The stockholders represented in person or by proxy at a meeting of
the stockholders at which a quorum is not present may adjourn the meeting
until such time and to such place as may be determined by a vote of the
holders of a majority of the shares represented in person or by proxy at
that meeting. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
2.7 Requisite Vote. If a quorum is present at any meeting, the vote of the
holders of a majority of the shares of capital stock having voting power,
present in person or represented by proxy, shall determine any question
brought before such meeting, unless the question is one upon which, by
express provision of the Certificate of Incorporation or of these Bylaws, a
different vote shall be required or permitted, in which case such express
provision shall govern and control the determination of such question.
2.8 Withdrawal of Quorum. If a quorum is present at the time of commencement of
any meeting, the stockholders present at such duly convened meeting may
continue to transact any business which may properly come before said
meeting until adjournment thereof, notwithstanding the withdrawal from such
meeting of sufficient holders of the shares of capital stock entitled to
vote thereat to leave less than a quorum remaining.
BYLAWS - Page 2
<PAGE>
2.9 Voting at Meeting. Voting at meetings of stockholders shall be conducted
and exercised subject to the following procedures and regulations:
(a) Voting Power. In the exercise of voting power with respect to each
matter properly submitted to a vote at any meeting of stockholders,
each stockholder of the capital stock of the Corporation having voting
power shall be entitled to one (1) vote for each such share held in
his name on the records of the Corporation, except to the extent
otherwise specified by the Certificate of Incorporation.
(b) Exercise of Voting Power; Proxies. At any meeting of the stockholders,
every holder of the shares of capital stock of the Corporation
entitled to vote at such meeting may vote either in person, or by
proxy executed in writing by such stockholder. A telegram, telex,
cablegram, or similar transmission by a stockholder, or a
photographic, photostatic, facsimile, or similar reproduction of a
writing executed by a stockholder, shall be treated as an execution in
writing. No proxy shall be valid after the expiration of eleven (11)
months from the date of its execution, unless otherwise stated
therein. A proxy shall be revocable unless expressly designated
therein as irrevocable and coupled with an interest. Proxies coupled
with an interest include the appointment as proxy of: (a) a pledgee;
(b) a person who purchased or agreed to purchase or owns or holds an
option to purchase the shares voted; (c) a creditor of the Corporation
who extended its credit under terms requiring the appointment; (d) an
employee of the Corporation whose employment contract requires the
appointment; or (e) a party to a voting agreement created under
Section 218 of the General Corporation Law of Delaware, as amended.
Each proxy shall be filed with the Secretary of the Corporation prior
to or at the time of the meeting. Voting for directors shall be in
accordance with the provisions of paragraph (c) below of this Section
2.9. Any vote may be taken by voice vote or by show of hands unless
someone entitled to vote at the meeting objects, in which case written
ballots shall be used.
(c) Election of Directors. In all elections of Directors cumulative voting
shall be prohibited.
2.10 Record Date for Meetings; Closing Transfer Records. As more specifically
provided in Article 7, Section 7.6 hereof, the Board of Directors may fix
in advance a record date for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such record
date to be not less than ten (10) nor more than sixty (60) days prior to
such meeting, or the Board of Directors may close the stock transfer
records for such purpose for a period of not less than ten (10) nor more
than sixty (60) days prior to such meeting. In the absence of any action by
the Board of Directors, the date upon which the notice of the meeting is
mailed shall be deemed the record date.
2.11 No Action Without Meetings. No written consent of the stockholders may be
used in lieu of any meeting of the stockholders.
2.12 No Preemptive Rights. Unless otherwise determined by the Board of Directors
in the manner provided under the General Corporation Law of Delaware, as
amended, no holder of shares of capital stock of the Corporation shall, as
such holder, have any right to purchase or subscribe for any capital stock
of any class which the Corporation may issue or sell, whether or not
exchangeable for any capital stock of the Corporation of any class or
classes, whether issued out of unissued shares authorized by the
Certificate of Incorporation, as amended, or out of shares of capital stock
of the Corporation acquired by it after the issue thereof; nor, unless
otherwise determined by the Board of Directors in the manner provided under
the General Corporation Law of Delaware, as amended, shall any holder of
shares of capital stock of the Corporation, as such holder, have any right
to purchase, acquire or subscribe for any securities which the Corporation
may issue or sell whether or not convertible into or exchangeable for
shares of capital stock of the Corporation of any class or classes, and
whether or not any such securities have attached or appurtenant thereto
warrants, options or other instruments which entitle the holders thereof to
purchase, acquire or subscribe for shares of capital stock of any class or
classes.
BYLAWS - Page 3
<PAGE>
ARTICLE III
DIRECTORS
3.1 Management Powers. The powers of the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by
these Bylaws directed or required to be exercised or done by the
stockholders.
3.2 Number and Qualification. The Board of Directors shall consist of three (3)
or more members; provided, however, the initial Board of Directors shall
consist of six (6) members. Directors need not be residents of the State of
Delaware nor stockholders of the Corporation. Each Director shall qualify
as a Director following election as such by agreeing to act or acting in
such capacity. The number of Directors may be increased or decreased from
time to time by amendment of these Bylaws; however, any director or the
entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors.
3.3 Election and Term. Members of the Board of Directors shall hold office
until the annual meeting of stockholders and until their successors shall
have been elected and qualified. At the annual meeting of the stockholders,
the stockholders entitled to vote in an election of Directors shall elect
Directors to hold office until the next succeeding annual meeting. Each
Director shall hold office for the term for which he is elected, and until
his successor shall be elected and qualified or until his death,
resignation or removal, if earlier.
3.4 Voting on Directors. Directors shall be elected by the vote of the holders
of a plurality of the shares entitled to vote in the election of Directors
and represented in person or by proxy at a meeting of stockholders at which
a quorum is present. Cumulative voting in the election of Directors is
expressly prohibited.
3.5 Vacancies. Any vacancy occurring in the Board of Directors may be filled by
the affirmative vote of a majority of the remaining Directors then in
office, though less than a quorum of the Board of Directors. For purposes
of these Bylaws, a "vacancy" shall be defined as an unfilled directorship
arising by virtue of the death, resignation or removal of a Director
theretofore duly elected to serve in such capacity in accordance with the
relevant provisions of these Bylaws. A Director elected to fill a vacancy
shall be elected for the unexpired portion of the term of his predecessor
in office.
3.6 New Directorships. Any directorship to be filled by reason of an increase
in the number of Directors actually serving as such may be filled by the
affirmative vote of a majority of the Directors then in office, though less
than a quorum of the Board of Directors, for a term of office continuing
only until the next election of one or more Directors by the stockholders.
3.7 Removal. Any Director may be removed either for or without cause at any
duly convened special or annual meeting of stockholders, by the affirmative
vote of a majority in number of shares of the stockholders present in
person or by proxy at any meeting and entitled to vote for the election of
such Director.
3.8 Meetings. The meetings of the Board of Directors shall be held and
conducted subject to the following regulations:
BYLAWS - Page 4
<PAGE>
(a) Place. Meetings of the Board of Directors of the Corporation, annual,
regular or special, are to be held at the principal office or place of
business of the Corporation, or such other place, either within or
without the State of Delaware, as may be specified in the respective
notices, or waivers of notice, thereof.
(b) Annual Meeting. The Board of Directors shall meet each year
immediately after the annual meeting of the stockholders, at the place
where such meeting of the stockholders has been held (either within or
without the State of Delaware), for the purpose of organization,
election of officers, and consideration of any other business that may
properly be brought before the meeting. No notice of any kind to
either old or new members of the Board of Directors for such annual
meeting shall be required.
(c) Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and at such place or places as shall
from time to time be determined and designated by the Board.
(d) Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President of the
Corporation on notice of two (2) days to each Director either
personally or by mail or by telegram; special meetings shall be called
by the Chairman of the Board or the President or Secretary in like
manner and on like notice on the written request of two (2) Directors.
(e) Notice and Waiver of Notice. Attendance of a Director at any meeting
shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose
of, any regular meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
(f) Quorum. At all meetings of the Board of Directors, a majority of the
number of Directors fixed by these Bylaws shall constitute a quorum
for the transaction of business, unless a greater number is required
by law or by the Certificate of Incorporation. If a quorum shall not
be present at any meeting of Directors, the Directors present thereat
may adjourn the meeting, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
(g) Requisite Vote. In the exercise of voting power with respect to each
matter properly submitted to a vote at any meeting of the Board of
Directors, each Director present at such meeting shall have one (1)
vote. The act of a majority of the Directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors.
3.9 Action Without Meetings. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted by law to
be taken at any meetings of the Board of Directors, or any committee
thereof, may be taken without a meeting, if all members of the Board of
Directors, or any committee thereof, consent thereto in writing, and such
written consent is filed in the minutes or proceedings of the Board of
Directors or committee.
3.10 Committees. Committees designated and appointed by the Board of Directors
shall function subject to and in accordance with the following regulations
and procedures:
(a) Designation and Appointment. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate and appoint one
or more committees under such name or names and for such purpose or
function as may be deemed appropriate.
(b) Members; Alternate Members; Terms. Each Committee thus designated and
appointed shall consist of one or more of the Directors of the
Corporation, one of whom, in the case of the Executive Committee,
shall be the President. The Board of Directors may designate one or
more of its members as alternate members of any committee, who may,
subject to any limitations imposed by the entire Board, replace absent
or disqualified members at any meeting of that committee. The members
or alternate members of any such committee shall serve at the pleasure
of and subject to the discretion of the Board of Directors.
(c) Authority. Each Committee, to the extent provided in the resolution of
the Board creating same, shall have and may exercise such of the
powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation as the Board of Directors
may direct and delegate, except, however, those matters which are
required by statute to be reserved unto or acted upon by the entire
Board of Directors.
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(d) Records. Each such Committee shall keep and maintain regular records
or minutes of its meetings and report the same to the Board of
Directors when required.
(e) Change in Number. The number of members or alternate members of any
Committee appointed by the Board of Directors, as herein provided, may
be increased or decreased from time to time by appropriate resolution
adopted by a majority of the entire Board of Directors.
(f) Vacancies. Vacancies in the membership of any committee designated and
appointed hereunder shall be filled by the Board of Directors, at a
regular or special meeting of the Board of Directors, in a manner
consistent with the provisions of this Section 3.10.
(g) Removal. Any member or alternate member of any committee appointed
hereunder may be removed by the Board of Directors by the affirmative
vote of a majority of the entire Board, whenever in its judgment the
best interests of the Corporation will be served thereby.
(h) Meetings. The time, place and notice (if any) of committee meetings
shall be determined by the members of such committee.
(i) Quorum; Requisite Vote. At meetings of any committee appointed
hereunder, a majority of the number of members designated by the Board
of Directors shall constitute a quorum for the transaction of
business. The act of a majority of the members and alternate members
of the committee present at any meeting at which a quorum is present
shall be the act of such committee, except as otherwise specifically
provided by statute or by the Certificate of Incorporation or by these
Bylaws. If a quorum is not present at a meeting of such committee, the
members of such committee present may adjourn the meeting from time to
time, without notice other than an announcement at the meeting, until
a quorum is present.
(j) Compensation. Appropriate compensation for members and alternate
members of any committee appointed pursuant to the authority hereof
may be authorized by the action of a majority of the entire Board of
Directors pursuant to the provisions of Section 3.11 hereof.
(k) Action Without Meetings. Any action required or permitted to be taken
at a meeting of any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by
all members of such committee. Such consent shall have the same force
and effect as a unanimous vote at a meeting. The signed consent, or a
signed copy, shall become a part of the record of such committee.
(l) Responsibility. Notwithstanding any provision to the contrary herein,
the designation and appointment of a committee and the delegation of
authority to it shall not operate to relieve the Board of Directors,
or any member or alternate member thereof, of any responsibility
imposed upon it or him by law.
3.11 Compensation. By appropriate resolution of the Board of Directors, the
Directors may be reimbursed for their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum (as
determined from time to time by the vote of a majority of the Directors
then in office) for attendance at each meeting of the Board of Directors or
a stated salary as Director. No such payment shall preclude any Director
from serving the Corporation in another capacity and receiving compensation
therefor. Members of special or standing committees may, by appropriate
resolution of the Board of Directors, be allowed similar reimbursement of
expenses and compensation for attending committee meetings.
3.12 Maintenance of Records. The Directors may keep the books and records of the
Corporation, except such as are required by law to be kept within the
State, outside the State of Delaware or at such place or places as they
may, from time to time, determine.
3.13 Interested Directors and Officers. No contract or other transaction between
the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association or
other organization in which one or more of its Directors or officers are
directors, officers, or have a financial interest, shall be void or
voidable
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solely for this reason, or solely because of the presence or participation
of such Director or officer at the meeting of the Board of Directors of the
Corporation or a committee thereof, which authorizes such contract or
transaction, or solely because his or their votes are counted for such
purpose, if (a) the material facts of such relationship or interest shall
be disclosed or known to the Board of Directors and the Board of Directors
shall, nevertheless in good faith, authorize, approve and ratify such
contract or transaction by a vote of a majority of the Directors present,
such interested Director or Directors to be counted in determining whether
a quorum is present, but not to be counted in calculating the majority of
such quorum necessary to carry such vote; (b) the material facts of such
relationship or interest as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by the vote of the
stockholders; or (c) the contract or transaction is fair to the Corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the stockholders. The provisions of this
Section shall not be construed to invalidate any contract or other
transaction which would otherwise be valid under the common and statutory
law applicable thereto.
ARTICLE IV.
NOTICES
4.1 Method of Notice. Whenever under the provisions of the General Corporation
Law of Delaware or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any Director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such Director or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States Mail.
4.2 Waiver. Whenever any notice whatsoever is required to be given under the
provisions of the General Corporation Law of Delaware or under the
provisions of the Certificate of Incorporation or these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent
to the giving of such notice. Attendance by such person or persons, whether
in person or by proxy, at any meeting requiring notice shall constitute a
waiver of notice of such meeting, except as provided in Section 3.8(e)
hereof.
ARTICLE V.
OFFICERS AND AGENTS
5.1 Designation. The officers of the Corporation shall be chosen by the Board
of Directors and shall consist of the offices of:
(a) President and Secretary; and
(b) Such other offices and officers (including a Chairman of the Board,
one or more Vice Presidents and a Treasurer) and assistant officers
and agents as the Board of Directors shall deem necessary.
5.2 Election of Officers. Each officer designated in Section 5.1(a) hereof
shall be elected by the Board of Directors on the expiration of the term of
office of such officer, as herein provided, or whenever a vacancy exists in
such office. Each officer or agent designated in Section 5.1(b) above may
be elected by the Board at any meeting.
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5.3 Qualifications. No officer or agent need be a stockholder of the
Corporation or a resident of Delaware. No officer or agent is required to
be a Director, except the Chairman of the Board. Any two or more offices
may be held by the same person.
5.4 Term of Office. Unless otherwise specified by the Board of Directors at the
time of election or appointment, or by the express provisions of an
employment contract approved by the Board, the term of office of each
officer and each agent shall expire on the date of the first meeting of
Directors next following the annual meeting of stockholders each year. Each
such officer or agent shall serve until the expiration of the term of his
office or, if earlier, his death, resignation or removal.
5.5 Authority. Officers and agents shall have such authority and perform such
duties in the management of the Corporation as are provided in these Bylaws
or as may be determined by resolution of the Board of Directors not
inconsistent with these Bylaws.
5.6 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation will be served thereby. Such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
5.7 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal or otherwise) shall be filled by the Board of
Directors.
5.8 Compensation. The compensation of all officers and agents of the
Corporation shall be fixed from time to time by the Board of Directors.
5.9 Chairman of the Board. If a Chairman of the Board is elected, he shall be
chosen from among the Directors and shall be the chief executive and
principal officer of the Corporation. He shall have the power to call
special meetings of the stockholders and of the Directors for any purpose
or purposes, and he shall preside at all meetings of the stockholders and
of the Board of Directors, unless he shall be absent or unless he shall, at
his election, designate the President to preside in his stead. The Chairman
of the Board shall be responsible for the operations and business affairs
of the Corporation and shall possess all of the powers granted by the
Bylaws to the President, including the power to make and sign contracts and
agreements in the name and on behalf of the Corporation. He shall, in
general, have supervisory power over the President and all other officers
and the business activities of the Corporation, subject to the discretion
of the Board of Directors.
5.10 President. Subject to the supervision of the Chairman of the Board, or in
the absence of the election of a Chairman of the Board, the President shall
be the chief executive officer of the Corporation; shall preside at all
meetings of the stockholders and the Board of Directors; shall have general
and active management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required
or permitted by law to be otherwise executed and except where the execution
thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation. The President shall perform such
other duties and possess such other authority and powers as the Board of
Directors may from time to time prescribe.
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5.11 Vice Presidents. The Vice President, or if there shall be more than one,
the Vice Presidents in the order determined by a majority vote of the Board
of Directors, shall, in the prolonged absence or disability of the
President (and Chairman of the Board, if one is elected), perform the
duties and exercise the powers of the President and shall perform such
other duties and have such other powers as the Board of Directors may from
time to time prescribe or the chief executive officer may from time to time
delegate.
5.12 Secretary. The Secretary may attend all meetings of the Board of Directors
and shall attend all meetings of the stockholders of the Corporation and
record all proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be maintained for that purpose and shall perform
like duties for the standing committees when required. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors, the Chairman of the
Board, or the President. He shall have custody of the corporate seal of the
Corporation, and he, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may
be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by
his signature.
5.13 Assistant Secretaries. The Assistant Secretary, or if there be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors, shall in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such
other duties and have such other powers as the Board of Directors may from
time to time prescribe or the chief executive officer may from time to time
delegate.
5.14 Treasurer. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President (and Chairman of the
Board, if one is elected) and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his
possession or under his control owned by the Corporation. The Treasurer
shall perform such other duties and have such other authority and powers as
the Board of Directors may from time to time prescribe or as the chief
executive officer may from time to time delegate.
5.15 Assistant Treasurers. The Assistant Treasurer, or, if there shall be more
than one, the Assistant Treasurers in the order determined by the Board of
Directors, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such
other duties and have such other powers as the Board of Directors may from
time to time prescribe or as the chief executive officer may from time to
time delegate.
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ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification. Each person who was or is made a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such individual is or was a Director, officer,
employee or agent of the Corporation, or while a Director, officer,
employee or agent of the Corporation is or was serving at the request of
the Corporation as a director, officer, partner, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified and held harmless by the Corporation from and against
any judgments, expenses, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if it is determined that he acted in good faith and reasonably
believed (i) in the case of conduct in his official capacity on behalf of
the Corporation that his conduct was in the Corporation's best interests,
(ii) in all other cases, that his conduct was not opposed to the best
interests of the Corporation, and (iii) with respect to any criminal action
or proceeding, that he had no reasonable cause to believe his conduct was
unlawful; provided, however, that in the event a determination is made that
such person is liable to the Corporation or is found liable on the basis
that personal benefit was improperly received by such person, no
indemnification shall be made in respect of any claim, issue or matter
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. The termination of any action, suit or 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 he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that his conduct was unlawful. A person shall be deemed to
have been found liable in respect of any claim, issue or matter only after
the person shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom.
6.2 Determination of Indemnification. Any indemnification under the foregoing
Section 6.1 (unless ordered by a court of competent jurisdiction) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of such person is proper in the
circumstances by virtue of the fact that it shall have been determined that
such person has met the applicable standard of conduct. Such determination
shall be made (1) by a majority vote of the Directors who at the time of
the vote are not named defendants or respondents in the action, suit or
proceeding even though less than a quorum; (2) by independent legal counsel
(in a written opinion) if there are no such Directors, or if such Directors
so direct; or (3) by the stockholders of the Corporation in a vote that
excludes the shares held by Directors who are named defendants or
respondents in the Proceeding.
6.3 Advance of Expenses. Reasonable expenses, including court costs and
attorneys' fees, incurred by a person who was or is named as a defendant or
respondent in any civil, criminal, administrative or investigative
proceeding, by reason of the fact that such individual is or was a Director
or officer of the Corporation, shall be paid by the Corporation at
reasonable intervals in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf
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of such person to repay the amount paid or reimbursed by the Corporation if
it is ultimately determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article 6. Such expenses incurred by
other employees or agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate. Such written undertaking
shall be an unlimited obligation of such person and it may be accepted
without reference to financial ability to make repayment.
6.4 Nature of Indemnification. The indemnification and advancement of expenses
provided hereunder shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, these Bylaws, any
agreement, vote of stockholders or disinterested Directors or otherwise,
both as to actions taken in an official capacity and as to actions taken in
any other capacity while holding such office, shall continue as to a person
who has ceased to be a Director, officer, employee or agent of the
Corporation and shall inure to the benefit of the heirs, executors and
administrators of such person.
6.5 Insurance. The Corporation shall have the power and authority to purchase
and maintain insurance or another arrangement on behalf of any person who
is or was a Director, officer, employee or agent of the Corporation, or who
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise against any liability, claim,
damage, loss or risk asserted against such person and incurred by such
person in any such capacity or arising out of the status of such person as
such, irrespective of whether the Corporation would have the power to
indemnify and hold such person harmless against such liability under the
provisions hereof.
6.6 Notice. Any indemnification or advance of expenses to a present or former
director of the Corporation in accordance with this Article 6 shall be
reported in writing to the stockholders of the Corporation with or before
the notice or waiver of notice of the next stockholders' meeting or with or
before the next submission of a consent to action without a meeting and, in
any case, within the next twelve month period immediately following the
indemnification or advance.
ARTICLE VII.
STOCK CERTIFICATES AND TRANSFER REGULATIONS
7.1 Description of Certificates. The shares of the capital stock of the
Corporation shall be represented by certificates in the form approved by
the Board of Directors and signed in the name of the Corporation by the
President or a Vice President and the Secretary or an Assistant Secretary
of the Corporation, and sealed with the seal of the Corporation or a
facsimile thereof. Each certificate shall state on the face thereof the
name of the holder, the number and class of shares and the designation of
the series, if any, which such certificate represents, the par value of
shares covered thereby or a statement that such shares are without par
value, and such other matters as are required by law. At such time as the
Corporation may be authorized to issue shares of more than one class or any
class in series, every certificate shall set forth upon the face or back of
such certificate a statement of the designations, preferences, limitations
and relative rights of the shares of each class or series authorized to be
issued, as required by the laws of the State of Delaware.
7.2 Delivery. Every holder of the capital stock in the Corporation shall be
entitled to have a certificate signed in the name of the Corporation by the
President or a Vice President and the Secretary or an Assistant Secretary
of the Corporation, certifying the class of capital stock and the number of
shares represented thereby as owned or held by such stockholder in the
Corporation.
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7.3 Signatures. The signatures of the President, Vice President, Secretary or
Assistant Secretary upon a certificate may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or
signatures have been placed upon any such certificate or certificates,
shall cease to serve as such officer or officers of the Corporation,
transfer agent or registrar, whether because of death, resignation, removal
or otherwise, before such certificate or certificates are issued and
delivered by the Corporation, such certificate or certificates may be
issued and delivered with the same effect as though the person or persons
who signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to serve as such officer
or officers of the Corporation.
7.4 Issuance of Certificates. Certificates evidencing shares of its capital
stock (both treasury and authorized but unissued) may be issued for such
consideration (except for shares of stock with par value which may be
issued for such consideration not less than par value thereof), and to such
persons as the Board of Directors may determine from time to time. Shares
shall not be issued until the full amount of the consideration, fixed as
provided by law, has been paid.
7.5 Payment for Shares. Consideration for the issuance of shares shall be paid,
valued and allocated as follows:
(a) Consideration. The consideration for the issuance of shares shall
consist of money paid, labor done (including services actually
performed for the Corporation), or property (tangible or intangible)
actually received. Neither promissory notes nor the promise of future
services shall constitute payment of consideration for shares.
(b) Valuation. In the absence of fraud in the transaction, the
determination of the Board of Directors as to the value of
consideration received shall be conclusive.
(c) Effect. When consideration, fixed as provided by law, has been paid,
the shares shall be deemed to have been issued and shall be considered
fully paid and nonassessable.
(d) Allocation of Consideration. The consideration received for shares
shall be allocated by the Board of Directors, in accordance with law,
between the stated capital and capital surplus accounts.
7.6 Closing of Transfer Records; Record Date for Action With Meetings. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or entitled to receive
a distribution by the Corporation (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a
share dividend, or in order to make a determination of stockholders for any
other proper purpose (other than determining stockholders entitled to
consent to action by stockholders proposed to be taken without a meeting of
stockholders), the Board of Directors may provide that stock transfer
records shall be closed for a stated period of time not to exceed, in any
case, sixty (60) days. If the stock transfer records shall be closed for
the purpose of determining stockholders, such records shall be closed for
at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer records, as aforesaid, the Board of Directors
may fix in advance a date as the record date for any such determination of
stockholders, such date in any case to be not more than sixty (60) days,
and in the case of a meeting of stockholders, not less than ten (10) days
prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer records
are not closed and no record date is fixed for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders
(or stockholders entitled to receive a distribution [other than a
distribution involving a purchase or redemption by the Corporation of any
of its own shares] or a share dividend), the close of business on the day
next preceding the date on which notice of the meeting is given or, if the
notice is waived, at the close of business on the day next preceding
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the date on which the meeting is held (the close of business on the day on
which the resolution of the Board of Directors declaring such distribution
or share dividend is adopted), as the case may be, shall be the record date
for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made
as provided in this Section, such determination shall be applied to any
adjournment thereof except where the determination has been made through
the closing of the stock transfer books and the stated period of closing
has expired.
7.7 Registered Owners. Prior to due presentment for registration of transfer of
a certificate evidencing shares of the capital stock of the Corporation in
the manner set forth in Section 7.9 hereof, the Corporation shall be
entitled to recognize the person registered as the owner of such shares on
its records (or the records of its duly appointed transfer agent, as the
case may be) as the person exclusively entitled to vote, to receive notices
and dividends with respect to, and otherwise exercise all rights and powers
relative to such shares; and the Corporation shall not be bound or
otherwise obligated to recognize any claim, direct or indirect, legal or
equitable, to such shares by any other person, whether or not it shall have
actual, express or other notice thereof, except as otherwise provided by
the laws of Delaware.
7.8 Lost, Stolen or Destroyed Certificates. The Corporation shall issue a new
certificate in place of any certificate for shares previously issued if the
registered owner of the certificate satisfies the following conditions:
(a) Proof of Loss. Submits proof in affidavit form satisfactory to the
Corporation that such certificate has been lost, destroyed or
wrongfully taken; and
(b) Timely Request. Requests the issuance of a new certificate before the
Corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse
claim; and
(c) Bond. Gives a bond in such form, and with such surety or sureties,
with fixed or open penalty, as the Corporation may direct, to
indemnify the Corporation (and its transfer agent and registrar, if
any) against any claim that may be made or otherwise asserted by
virtue of the alleged loss, destruction, or theft of such certificate
or certificates; and
(d) Other Requirements. Satisfies any other reasonable requirements
imposed by the Corporation.
In the event a certificate has been lost, apparently destroyed or wrongfully
taken, and the registered owner of record fails to notify the Corporation within
a reasonable time after he has notice of such loss, destruction, or wrongful
taking, and the Corporation registers a transfer (in the manner hereinbelow set
forth) of the shares represented by the certificate before receiving such
notification, such prior registered owner of record shall be precluded from
making any claim against the Corporation for the transfer required hereunder or
for a new certificate.
7.9 Registration of Transfers. Subject to the provisions hereof, the
Corporation shall register the transfer of a certificate evidencing shares
of its capital stock presented to it for transfer if:
(a) Endorsement. Upon surrender of the certificate to the Corporation (or
its transfer agent, as the case may be) for transfer, the certificate
(or an appended stock power) is properly endorsed by the registered
owner, or by his duly authorized legal representative or
attorney-in-fact, with proper written evidence of the authority and
appointment of such representative, if any, accompanying the
certificate; and
(b) Guaranty and Effectiveness of Signature. The signature of such
registered owner or his legal representative or attorney-in-fact, as
the case may be, has been guaranteed by a national banking association
or member of the New York Stock Exchange, and reasonable assurance in
a form satisfactory to the Corporation is given that such endorsements
are genuine and effective; and
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(c) Adverse Claims. The Corporation has no notice of an adverse claim or
has otherwise discharged any duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law (local, state or federal)
relating to the collection of taxes relative to the transaction has
been complied with; and
(e) Additional Requirements Satisfied. Such additional conditions and
documentation as the Corporation (or its transfer agent, as the case
may be) shall reasonably require, including without limitation
thereto, the delivery with the surrender of such stock certificate or
certificates of proper evidence of succession, assignment or other
authority to obtain transfer thereof, as the circumstances may
require, and such legal opinions with reference to the requested
transfer as shall be required by the Corporation (or its transfer
agent) pursuant to the provisions of these Bylaws and applicable law,
shall have been satisfied.
7.10 Restrictions on Transfer and Legends on Certificates.
(a) Shares in Classes or Series. If the Corporation is authorized to issue
shares of more than one class, the certificate shall set forth, either
on the face or back of the certificate, a full or summary statement of
all of the designations, preferences, limitations, and relative rights
of the shares of each such class and, if the Corporation is authorized
to issue any preferred or special class in series, the variations in
the relative rights and preferences of the shares of each such series
so far as the same have been fixed and determined, and the authority
of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series. In lieu of providing such a
statement in full on the certificate, a statement on the face or back
of the certificate may provide that the Corporation will furnish such
information to any stockholder without charge upon written request to
the Corporation at its principal place of business or registered
office and that copies of the information are on file in the office of
the Secretary of State.
(b) Restriction on Transfer. Any restrictions imposed or agreed to by the
Corporation on the sale or other disposition of its shares and on the
transfer thereof must be copied at length or in summary form on the
face, or so copied on the back and referred to on the face, of each
certificate representing shares to which the restriction applies. The
certificate may however state on the face or back that such a
restriction exists pursuant to a specified document and that the
Corporation will furnish a copy of the document to the holder of the
certificate without charge upon written request to the Corporation at
its principal place of business.
(c) Preemptive Rights. Any preemptive rights of a stockholder to acquire
unissued or treasury shares of the Corporation which are limited or
denied by the certificate of incorporation must be set forth at length
on the face or back of the certificate representing shares subject
thereto. In lieu of providing such a statement in full on the
certificate, a statement on the face or back of the certificate may
provide that the Corporation will furnish such information to any
stockholder without charge upon written request to the Corporation at
its principal place of business and that a copy of such information is
on file in the office of the Secretary of State.
(d) Unregistered Securities. Any security of the Corporation, including,
among others, any certificate evidencing shares of the Common Stock or
warrants to purchase Common Stock of the Corporation, which is issued
to any person without registration under the Securities Act of 1933,
as amended, or the Blue Sky laws of any state, shall not be
transferable until the Corporation has been furnished with a legal
opinion of counsel with reference thereto, satisfactory in form and
content to the Corporation and its counsel, to the effect that such
sale, transfer or pledge does not involve a violation of the
Securities Act of 1933, as amended, or the Blue Sky laws of any state
having jurisdiction. The certificate representing the security shall
bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE PRIVATE
INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL EITHER (i) A REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE CORPORATION SHALL
HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND
ITS COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED OFFER, SALE OR TRANSFER.
BYLAWS - Page 14
<PAGE>
ARTICLE VIII.
GENERAL PROVISIONS
8.1 Distributions. Subject to the provisions of the General Corporation Law of
Delaware, as amended, and the Certificate of Incorporation, distributions
of the Corporation shall be declared and paid pursuant to the following
regulations:
(a) Declaration and Payment. Distributions on the issued and outstanding
shares of capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting and may be paid
in cash, in property, or in shares of capital stock. Such declaration
and payment shall be at the discretion of the Board of Directors.
(b) Record Date. The Board of Directors may fix in advance a record date
for the purpose of determining stockholders entitled to receive
payment of any distribution, such record date to be not more than
sixty (60) days prior to the payment date of such distribution, or the
Board of Directors may close the stock transfer books for such purpose
for a period of not more than sixty (60) days prior to the payment
date of such distribution. In the absence of action by the Board of
Directors, the date upon which the Board of Directors adopts the
resolution declaring such distribution shall be the record date.
8.2 Reserves. There may be created by resolution of the Board of Directors out
of the surplus of the Corporation such reserve or reserves as the Directors
from time to time, in their discretion, think proper to provide for
contingencies, or to equalize distributions, or to repair or maintain any
property of the Corporation, or for such other purposes as the Directors
shall think beneficial to the Corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall maintain books and records of
account and shall prepare and maintain minutes of the proceedings of its
stockholders, its Board of Directors and each committee of its Board of
Directors. The Corporation shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a
record of the original issuance of shares issued by the Corporation and a
record of each transfer of those shares that have been presented to the
Corporation for registration of transfer. Such records shall contain the
names and addresses of all past and present stockholders of the Corporation
and the number and class of shares issued by the Corporation held by each
of them.
8.4 Annual Statement. The Board of Directors shall present at or before each
annual meeting of stockholders a full and clear statement of the business
and financial condition of the Corporation, including a reasonably detailed
balance sheet and income statement under current date.
8.5 Contracts and Negotiable Instruments. Except as otherwise provided by law
or these Bylaws, any contract or other instrument relative to the business
of the Corporation may be executed and delivered in the name of the
Corporation and on its behalf by the Chairman of the Board, the Chief
Executive Officer, or the Chief Operating Officer, if any, or the President
of the Corporation. The Board of Directors may authorize any other officer
or agent of the Corporation to enter into any contract or execute and
deliver any contract in the name and on behalf of the Corporation, and such
authority may be general or confined to specific instances as the Board of
Directors may determine by resolution. All bills, notes, checks or other
instruments for the payment of money shall be signed or countersigned by
such officer, officers, agent or agents and in such manner as are permitted
by these Bylaws and/or as, from time to time, may be prescribed by
resolution of the Board of Directors. Unless authorized to do so by these
Bylaws or by the Board of Directors, no officer, agent or employee shall
have
BYLAWS - Page 15
<PAGE>
any power or authority to bind the Corporation by any contract or
engagement, or to pledge its credit, or to render it liable pecuniarily for
any purpose or to any amount.
8.6 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
8.7 Corporate Seal. The Corporation seal shall be in such form as may be
determined by the Board of Directors. The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced.
8.8 Resignations. Any director, officer or agent may resign his office or
position with the Corporation by delivering written notice thereof to the
President or the Secretary. Such resignation shall be effective at the time
specified therein, or immediately upon delivery if no time is specified.
Unless otherwise specified therein, an acceptance of such resignation shall
not be a necessary prerequisite of its effectiveness.
8.9 Amendment of Bylaws. These Bylaws may be altered, amended, or repealed and
new Bylaws adopted at any meeting of the Board of Directors at which a
quorum is present, by the affirmative vote of a majority of the Directors
present at such meeting, provided notice of the proposed alteration,
amendment, or repeal be contained in the notice of such meeting. This shall
not in any way divest the stockholders or members of the power, nor limit
their power, to adopt, amend or repeal the Bylaws.
8.10 Construction. Whenever the context so requires herein, the masculine shall
include the feminine and neuter, and the singular shall include the plural,
and conversely. If any portion or provision of these Bylaws shall be held
invalid or inoperative, then, so far as is reasonable and possible: (1) the
remainder of these Bylaws shall be considered valid and operative, and (2)
effect shall be given to the intent manifested by the portion or provision
held invalid or inoperative.
8.11 Table of Contents; Captions. The table of contents and captions used in
these Bylaws have been inserted for administrative convenience only and do
not constitute matter to be construed in interpretation.
IN DUE CERTIFICATION WHEREOF, the undersigned, being the Secretary of ETC
Transaction Corporation, confirms the adoption and approval of the foregoing
Bylaws, effective as of _______________, 1996.
________________________, Secretary
BYLAWS - Page 16
EXHIBIT 4.1
<PAGE>
EXHIBIT 4.1
See "Description of Securities of Surviving Corporation".
EXHIBIT 5.1
<PAGE>
EXHIBIT 5.1
June 27, 1996
ETC Transaction Corporation
5025 Arapaho Road
Suite 515
Dallas, Texas 75248
Re: Registration Statement on Form S-4 of ETC Transaction Corporation (the
"Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") on June 27, 1996
Ladies and Gentlemen:
We have acted as United States counsel for ETC Transaction Corporation, an
Alberta, Canada Corporation (the "Company"), in connection with the registration
and proposed issuance (the "Registration") of an aggregate of 10,954,146 shares
(the "Shares") of Continued Common Stock of the Company as continued and
domesticated into the State of Delaware, U.S.A. The shares are being issued in
connection with the Continuance and the Merger of Electronic Transmission
Corporation, a Texas corporation ("ETC-Texas"), with and into the Company, all
as more fully described in the Registration Statement, filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Each of the
defined terms used herein shall have the meaning assigned to them in the
Registration Statement unless otherwise stated herein.
By virtue of the Continuance and as of the Effective Time of the Merger,
each share of Company Common Stock issued and outstanding immediately prior to
the effectiveness of the Continuance will be converted into one share of
Continued Common Stock and each share of ETC-Texas Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into one
and one-fourth (1.25) share of Continued Common Stock (the "Exchange Ratio").
Therefore, immediately following effectiveness of the Continuance and the
Merger, former holders of Company Common Stock and ETC- Texas Common Stock
(except any holders thereof who exercised dissenters' rights of appraisal) will
hold shares of Continued Common Stock.
For purposes of the opinions given herein, we have reviewed originals or
copies authenticated to our satisfaction of the following documents: (1)
Agreement and Plan of Merger, (2) Articles of Incorporation, Bylaws, corporate
minutes, corporate resolutions and other corporate documents of ETC-Texas, (3)
Articles of Incorporation, Bylaws, corporate minutes, corporate resolutions and
other corporate documents for the Company as an Alberta corporation, (4) the
form of Certificate of Domestication, Certificate of Incorporation and Bylaws of
the Surviving Corporation as a Delaware corporation, (5) the Registration
Statement, and (5) such other documents, records, and matters pertaining to the
Continuance, the Merger and the Registration, respectively, that we have deemed
necessary to review for purposes of this opinion (the "Transaction Documents").
In conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the correctness of all certificates, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals or such copies, and the accuracy
and completeness of all records made available to us by the Company and
ETC-Texas. In addition, we have assumed, without investigation, the accuracy of
the representations, warranties, and covenants as to factual matters made in the
Transaction Documents and the accuracy of representations and statements as to
factual matters made by directors, officers and employees of the Company and
ETC-Texas.
In addition to the assumptions outlined above, the opinions hereinafter
expressed are subject, without investigation, to the following assumptions:
<PAGE>
ETC Transaction Corporation
June 27, 1996
Page 3
1. The Transaction Documents are valid, binding, and enforceable, or will
become valid, binding, and enforceable obligations of, the respective
parties.
2. All terms, provisions, and conditions of, or relating to, the
Continuance, the Merger and the Registration are correctly and
completely reflected in the Transaction Documents.
Based upon our review of the Transaction Documents, upon the assumptions
previously set forth in this opinion letter, and assuming that the Continuance,
the Merger and the Registration and all other events occur as contemplated in
the Agreement and Plan of Merger and the Registration Statement, we are of the
opinion that:
1. Upon the effectiveness of the Continuance, the 2,007,145 shares of
Continued Common Stock to be issued by the Company, as continued and
domesticated into Delaware, to holders of Company Common Stock shall
be legally issued, fully paid, and nonassessable shares of Continued
Common Stock; and
2. Upon the effectiveness of the Merger, the 8,947,001 shares of
Continued Common Stock to be issued by the Company, as continued and
domesticated into Delaware, to holders of ETC-Texas Common Stock shall
be legally issued, fully paid, and nonassessable shares of Continued
Common Stock.
The discussion set forth above does not address the federal, state, local
or foreign tax aspects of the Continuance, the Merger or the Registration.
Furthermore, we are not licensed to practice law in any country other than the
United States and within the United States only in the State of Texas.
Therefore, this opinion does not address the effects of the laws of the Province
of Alberta as they relate to the Continuance, the Merger and the Registration.
This opinion is provided to you only and, without our prior written
consent, may not be relied upon, used, circulated, quoted or otherwise referred
to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by you. This opinion letter is limited to
the matters expressly stated herein. This opinion letter shall not be construed
as or deemed to be a guaranty or insuring agreement.
Notwithstanding the preceding paragraph, we hereby consent to the use of
this opinion letter as an exhibit to the Registration Statement, and we further
consent to the use of our name under the caption "Legal Matters" in the
Registration Statement and in the Prospectus/Proxy Statement which forms a part
thereof.
Very truly yours,
LOOPER, REED, MARK & MCGRAW
INCORPORATED
By: /s/ Richard B. Goodner
Richard B. Goodner
RBG:jcr
<PAGE>
EXHIBIT 5.2
<PAGE>
EXHIBIT 5.2
BEAUMONT CHURCH
2200 AGT Tower
411, 1st Street S.W.
Calgary, Alberta T2G 5E7
Phone: (403) 264-0000
Fax: (403) 264-0478
June 25, 1996
ETC TRANSACTION CORPORATION
515, 5025 Arapaho Road
Dallas, Texas
U.S.A. 75248
ATTENTION: MR. L. CADE HAVARD
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM S-4 TO BE FILED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")
At your request, we have examined the Registration Statement on Form S-4
(hereinafter referred to as the "Registration Statement"), in connection with
the registration of:
1. 2,007,145 shares of the capital stock of ETC Transaction Corporation,
an Alberta, Canada corporation (the "Company") to be issued to those
shareholders upon the continuance of the Company from Alberta to
Delaware and the merger of the Company and Electronic Transmission
Corporation, a Texas corporation ("ETC - Texas") in the manner
described in the Registration Statement and exhibits thereto; and
2. 8,947,001 shares of the capital stock of the Company to be issued to
the shareholders of ETC - Texas upon the merger of the Company and ETC
- Texas in the manner described in the Registration Statement and
exhibits thereto.
Each of the defined terms used herein shall have the meaning assigned to them in
the Registration Statement unless otherwise defined herein.
We have examined the proceedings heretofore taken and are familiar with the
procedures proposed to be taken by the Company in connection with the
authorization and issuance of the 2,007,145 shares to be issued to the existing
shareholders of the Company upon completion of the Continuance and the Merger
and the 8,947,001 shares to be issued to the current shareholders of ETC - Texas
upon completion of the Merger. Subject to the shareholders of the Company
passing the special resolutions approving the Continuance and the Merger at the
upcoming Meeting and subject to the Merger being concluded in accordance with
the terms of the Merger Agreement, it is our opinion that any and all steps
required under Alberta law, to the extent that Alberta law applies, will have
been taken so that the Continued Common Stock to be issued pursuant to the terms
described in
<PAGE>
ETC Transaction Corporation
June 27, 1996
Page 5
the Registration Statement and the exhibits thereto, will be legally issued as
fully paid and non-assessable shares in the capital stock of the Company which
will become the Surviving Corporation resulting from the Merger of the Company
and ETC-Texas in Delaware.
Our opinions expressed herein are based on the legislation and regulations in
effect in the Province of Alberta, Canada on the date hereof. We do not express
an opinion in respect of the laws of any jurisdiction other than the Province of
Alberta and the laws of Canada applicable therein.
We consent to the use of this opinion as an exhibit to the Registration
Statement and we further consent to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Proxy Statement/Prospectus
which forms a part thereof.
Yours very truly,
BEAUMONT CHURCH
Signed: "Douglas K.B. McLean"
Douglas K.B. McLean
DKBM/lma
EXHIBIT 8.1
<PAGE>
EXHIBIT 8.1
EXHIBIT 8.1
LOOPER, REED, MARK & McGRAW
INCORPORATED
ATTORNEYS
4100 THANKSGIVING TOWER
1601 ELM STREET HOUSTON OFFICE
DALLAS, TEXAS 75201 713-625-9100
214-654-4135 TELECOPY 713-625-9191
TELECOPY 214-953-1332
June 27, 1996
Electronic Transmission Corporation
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Re: Agreement and Plan of Merger between Electronic Transmission Corporation
("ETC- Texas") and ETC Transaction Corporation (the "Company")
Ladies and Gentlemen:
Our opinion has been requested on certain specific matters of U.S. Federal
Income Tax law with respect to Electronic Transmission Corporation, a Texas
corporation ("ETC-Texas") under the circumstances described below. This letter
is intended solely for the use of ETC-Texas, and accordingly, it is not intended
to be, and should not be, relied upon by any person, or entity other than
ETC-Texas.
We have acted as special counsel for ETC-Texas in connection with the
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
ETC-Texas will merge into ETC Transaction Corporation, a Delaware corporation
(the "Company"), which is proposed to be the continuation and domestication of
ETC Transaction Corporation, an Alberta, Canada corporation ("ETC-Canada"), all
as described in ETC-Canada's Form S-4 Registration Statement (the "Registration
Statement"). In such capacity, we have familiarized ourselves with the Merger
Agreement and the Registration Statement. The specific matters of federal income
tax law upon which you have requested our opinion are:
(i) that the Merger Agreement between ETC-Texas and the Company will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
(ii) that no gain or loss will be recognized by the Company or ETC-Texas as
a result of the Merger Agreement;
(iii) that the federal tax basis of ETC-Texas assets in the hands of the
Company will be the same as the federal tax basis of those assets in the hands
of ETC-Texas immediately prior to the Merger Agreement, and that the holding
period of the ETC-Texas assets in the hands of the Company will include the
period during which such assets were held by ETC- Texas;
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 2
(iv) that the shareholders of ETC-Texas will not recognize gain or loss
with respect to the their sole receipt of common stock of the Company ("Company
Common Stock") in exchange for their shares of common stock in ETC- Texas
("ETC-Texas Common Stock");
(v) that the federal tax basis and holding period for the shares of the
Company Common Stock received by ETC-Texas shareholders will be the same as the
federal tax basis and holding period for the ETC-Texas Common Stock exchanged
therefor, provided that, for purposes of the holding period, the ETC-Texas
Common Stock was held as a capital asset as of the Merger Agreement;
(vi) that a shareholder of ETC-Texas Common Stock who receives cash in lieu
of a fractional share of Company Common Stock will be treated as if he received
a fractional share of Company Common Stock pursuant to the Merger Agreement and
the Company then redeemed such fractional share for cash.
Other than the above specific requested tax opinions, no other opinions
have been requested and no other opinions are expressed or implied.
Our opinions are based upon the existence of the facts as set forth below,
which facts ETC-Texas has represented to us by its Certificate dated June 27,
1996 that we may assume for purposes of this opinion. We have no reason to
believe that any of these represented facts are not true and accurate or that
any assumed future events will not occur as contemplated. Further, we have no
reason to believe that we cannot rely upon ETC-Texas' statement relating these
facts and events. However, we have no knowledge or information regarding the
formation, operation, management or finances of ETC-Texas, ETC-Canada, or the
Company, other than as ETC-Texas has represented to us. To the extent the facts
of any actual situation are different from those relied upon, our opinion should
be disregarded as it might be different under the actual facts than as stated
below.
ETC-Texas has represented to us that for purposes of this opinion we may
assume the following:
(a) The accuracy of the matters contained in ETC-Canada's Form S-4
Registration Statement;
(b) ETC-Canada will continue and domesticate into the state of Delaware and
be succeeded by the Company (the "Continuation"). Substantially all of the
historic shareholders (i.e., more than 99%) of ETC-Canada will become
shareholders of the Company after the Continuation is complete.
(c) As of the effective time of the Merger Agreement (the "Effective Time")
and by virtue of the Continuation and the Merger Agreement, each share of
ETC-Texas Common Stock issued and outstanding immediately prior to the Effective
Time will be converted into 1.25 shares of validly issued, fully paid and
nonassessable shares of Company Common Stock. Therefore, former holders of
ETC-Texas Common Stock (except holders who exercise dissenters' rights of
appraisal) will hold Company Common Stock issued pursuant to the Merger
Agreement. No fractional shares of the Company will be issued pursuant to the
Merger Agreement. Holders of ETC-Texas Common Stock who would have otherwise
been entitled to fractional shares based on the exchange formula described above
will instead receive cash in lieu of fractional shares.
(d) The Company will continue the historic business of ETC-Texas, utilizing
the historic assets of ETC-Texas.
(e) There is no plan or intention on the part of holders of ETC-Texas
Common Stock to sell, exchange or otherwise dispose of a number of shares of the
Company Common Stock received pursuant to the Merger Agreement that would reduce
the ETC-Texas historic shareholders' ownership of the Company Common Stock to a
number of shares having a value, as of the Effective Time of the Merger
Agreement, of less than 50% of the value of all of the formerly outstanding
shares of ETC-Texas Common Stock as of the same date. For purposes of this
assumption, shares of ETC-Texas Common Stock exchanged for cash in lieu of
fractional shares will be treated as outstanding ETC-Texas Common Stock as of
the date of the Merger Agreement.
(f) ETC-Texas and the Company shall each pay their own expenses incurred in
connection with the transaction.
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 3
(g) The payment of cash to ETC-Texas shareholders in lieu of fractional
shares of the Company Common Stock is solely for the purpose of avoiding the
expense and inconvenience to the Company of issuing fractional shares and does
not represent separately bargained for consideration.
(h) The Company has no plan or intention to redeem or otherwise reacquire
any of its stock issued in the transaction.
(i) The number of shares of the Company Common Stock received by each
ETC-Texas stockholder in exchange for his or her ETC-Texas Common Stock was
determined in arms-length negotiations between the Company and ETC-Texas. The
merger of ETC-Texas into the Company has an identifiable business purpose, and
is not being undertaken for the purpose of tax avoidance.
Based upon our review of the Merger Agreement, the Registration Statement
and such other documents as we have deemed necessary, upon the assumptions set
forth above, and upon the representations made to us by ETC-Texas, we are of the
opinion that, assuming the Continuation and the merger and all other events
occur as contemplated in the Merger Agreement and the Registration Statement,
under the United States federal income tax laws in effect on the date hereof:
(1) The merger and acquisition by the Company of substantially all of the
assets of ETC-Texas in exchange for shares of Company Common Stock will
constitute a reorganization within the meaning of Section 368(a) of the Code.
The Company and ETC-Texas will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by the Company or ETC-Texas as a
result of the exchange of substantially all of the assets of ETC-Texas for
Company Common Stock.
(3) The federal tax basis of ETC-Texas assets in the hands of the Company
will be the same as the federal tax basis of those assets in the hands of
ETC-Texas immediately prior to the Effective Time of the Merger Agreement. The
holding period of the ETC-Texas assets in the hands of the Company will include
the period during which such assets were held by ETC- Texas.
(4) Shareholders of ETC-Texas Common Stock who receive solely shares of
Company Common Stock in exchange for their ETC-Texas Common Stock will not
recognize any gain or loss as a result of the Merger Agreement.
(5) The federal tax basis and holding period for the shares of the Company
Common Stock received by ETC- Texas shareholders will be the same as the federal
tax basis and holding period for the ETC-Texas Common Stock exchanged therefor,
provided that, for purposes of the holding period, the ETC-Texas Common Stock
was held as a capital asset at the Effective Time.
(6) A shareholder of ETC-Texas Common Stock who receives cash in lieu of a
fractional share of Company Common Stock will be treated as if he received a
fractional share of Company Common Stock pursuant to the Merger Agreement and
the Company then redeemed such fractional share for cash. The shareholder will
recognize gain equal to the difference, if any, between such shareholder's tax
basis in the fractional share and the amount of cash received. Such gain may be
classified as either capital in nature (if the ETC-Common Stock was held by such
shareholder as a capital asset), as ordinary income (if the stock was not held
as a capital asset), or as a dividend, which may produce ordinary income,
depending upon the shareholder's particular circumstances.
The discussion set forth above does not address the state, local or foreign
tax aspects of the Continuation or the Merger Agreement. The discussion is based
on currently existing provisions of the Code, existing and proposed treasury
regulations thereunder, and current administrative rulings and court decisions.
All of the foregoing is subject to change and any such change could affect the
continuing validity of the discussion. The opinion does not deal with the
specific circumstances of any particular ETC-Texas shareholder. EACH ETC-TEXAS
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISER AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER AGREEMENT TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
<PAGE>
Electronic Transmission Corporation
June 27, 1996
Page 4
You have not asked for, and we do not express, any opinion concerning the
tax consequences of the Merger Agreement other than those expressly set forth
above. The foregoing opinion is qualified, and no opinion is expressed as to the
federal income tax consequences of the Continuation.
This opinion is provided to you only and, without our prior consent, may
not be relied upon, used, circulated, quoted or otherwise referred to in any
manner by any person, firm, governmental authority or entity whatsoever other
than reliance thereon by you. This opinion letter is limited to the matters
stated herein and no opinion is implied or may be inferred beyond the matters
expressly stated herein.
Notwithstanding the preceding paragraph, we hereby consent to the
references to our firm appearing in the Registration Statement and to the filing
of this opinion as an exhibit to the Registration Statement.
This opinion is rendered as of the date hereof based on the facts in
existence on the date hereof, and we undertake no, and hereby disclaim any,
obligation to advise you of any changes or any new developments, whether
material or not material, that may be brought to our attention at a later date.
Any change in the facts and assumptions stated above, upon which this opinion is
based, could modify the conclusion.
We express no opinion with respect to the effect of any laws other than the
federal income tax laws of the United States of America.
Very truly yours,
LOOPER, REED, MARK & McGRAW, INCORPORATED
By: /s/ Looper, Reed, Mark & McGraw
----------------------------------------------
<PAGE>
EXHIBIT 9.1
<PAGE>
EXHIBIT 9.1
VOTING TRUST AGREEMENT
WHEREAS, each of the following parties (collectively the "Beneficiaries")
has received an offer (the "Offer(s)") from Sterling National Corporation (the
"Trustee") under which the Trustee will hold certain shares of post-Merger
common stock (the "Deposited SOLO Stock") of Solo Petroleums Ltd. ("Solo"), for
the benefit of the Beneficiaries on certain terms and conditions, the
Beneficiaries being as follows:
Beneficiary
-----------
Roy W. Mers
Elaine Boze
Tim Powell
Louann C. Smith
Dennis G. Bissonnette
Sharla Drummond
Gail M. Curts
Ann C. McDearmon
Rachel E. Harris
; and
WHEREAS, the Trustee and the Beneficiaries desire to declare and set forth
the terms of a trust under which the Trustee will hold the Deposited SOLO Stock
and vote said stock for the benefit of the Beneficiaries and not for the account
or benefit of Sterling National Corporation in its individual capacity;
NOW, THEREFORE, this Voting Trust Agreement is effective as of January 26,
1995 (the "Effective Date").
WITNESSETH:
In consideration of the premises, and other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the Trustee and
the Beneficiaries hereby agree as follows.
1. Declaration of Trust. The Trustee hereby declares that it will hold the
Deposited SOLO Stock, and any legal or equitable right, title, or interest which
the Trustee or Sterling National Corporation may have or acquire from time to
time in or to the Deposited SOLO Stock while the trust created hereunder (the
"Trust") remains in effect, as Trustee in trust for the benefit of the
Beneficiaries, all on the terms and conditions set forth herein and in the
Offers. The Trustee accepts the Deposited SOLO Stock in trust hereunder and
agrees to execute the Trust hereby created. Neither Sterling National
Corporation nor any of its creditors have or at any time while the Trust created
hereunder remains in effect shall have any right, title, or interest in any of
the Deposited SOLO Stock except as Trustee hereunder. The purposes of the Trust
shall be to hold the certificates evidencing the Deposited SOLO Stock until the
respective dates of which those certificates, or some or all of the shares they
represent, are deliverable to the Beneficiaries under the terms of the Offers
and to vote such shares as are held in the Trust. Deposited SOLO Stock will be
allocated to individual Beneficiaries and any stock splits, dividends, Solo.
attributable to those shares will accrue to the Beneficiary to which the shares
are allocated.
2. Termination of Trust. This Trust shall terminate in any event upon the
earliest to occur of (i) the date on which all Deposited SOLO Stock is delivered
to the respective Beneficiaries pursuant to the Offers; (ii) the date as of
which no shares of Deposited SOLO Stock remaining in the Trust will be
deliverable to any Beneficiary in the future under any circumstances pursuant to
the Offers; (iii) the date Solo and/or the majority of L. Cade Havard's stock is
purchased; or (iv) the date which is five (5) years after the Effective Date. At
the termination of this Trust, any shares not earned under the terms of the
Beneficiaries Agreements will revert to and remain the property of Sterling
National Corporation unless this Trust is terminated under (iii) above. In that
event, all shares not earned will be distributed to the Beneficiaries entitled
to earn those shares who are still employed by Solo (prior to the sale) and the
shares of the Beneficiaries not still employed by Solo will revert to Sterling
National Corporation.
<PAGE>
Trust Agreement
Page 2
3. Administration of Trust. Except as set forth herein, the Trustee shall
have the powers, duties, and responsibilities of a trustee with respect to the
Trust which are set forth in the Texas Trust Act, as the same may be amended
from time to time and shall act as escrow agent for the Deposited SOLO Stock. No
bond or other security shall be required of the Trustee. The Trustee shall
receive no compensation for acting hereunder. This Trust Agreement always shall
be construed in favor of the validity of any act or omission of the Trustee. The
Trustee shall not be liable for any act or omission hereunder or in connection
with the Trust, except in the case of gross negligence, bad faith, or fraud.
4. Voting Agreement. In partial consideration for the issuance of the
Deposited SOLO Stock, and as a condition thereof, the Beneficiaries desire to
enter into this Voting Trust Agreement for the purpose of voting the Deposited
SOLO Stock as a unit pursuant to Article 2.30(A) of the Texas Business
Corporation Act. During the term of this Trust, the Beneficiaries hereby agree
to combine their voting power from the Deposited SOLO Stock in the best
interests of SOLO, and whenever any matter is to come before a vote of SOLO
shareholders, hereby instruct L. Cade Havard, as agent for Trustee, to vote all
Deposited SOLO Stock at his sole discretion. In the event of Mr. Havard's death
or permanent disability, the Deposited SOLO Stock will be voted in accordance
with the agreement of two of the three Beneficiaries having the largest amount
of stock to be earned at that time.
5. Notices. Any notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any part may specify hereunder:
If to the Trustee: Sterling National Corporation, Trustee
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, CEO
If to any Beneficiary, to the address for such Beneficiary
maintained on the official corporate records of SOLO.
6. General. This Voting Trust Agreement expresses the complete
understanding of the parties with respect to the subject matter hereof,
superseding all prior or contemporaneous understandings, arrangements, or
agreements of the parties, and may be amended, supplemented, or waived in whole
or in part only by an instrument in writing executed by the parties hereto. No
party may assign this Voting Trust Agreement or its rights or obligations
hereunder without the written consent of all other parties hereto. Subject to
the foregoing, this Voting Trust Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, administrators,
successors, and assigns. The headings herein are for convenience of reference
only and shall not affect the meaning or interpretation of this Voting Trust
Agreement. This Voting Trust Agreement may be executed in multiple counterparts,
and by the parties in separate counterparts, each of which shall be an original
but all of which together shall constitute one and the same instrument. This
Voting Trust Agreement shall be governed by and construed in accordance with the
laws of the State of Texas. All United State SEC laws and regulations supersede
this Voting Trust Agreement. A counterpart of this Voting Trust Agreement shall
be deposited with SOLO at its principals place of business or registered office.
IN WITNESS WHEREOF, the parties have caused this Voting Trust Agreement to
be executed and delivered, on and effective as of the Effective Date.
STERLING NATIONAL CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
President and CEO
<PAGE>
Trust Agreement
Page 3
BENEFICIARIES:
/s/ Roy W. Mers
Roy W. Mers
/s/ Elaine Boze
Elaine Boze
/s/ Tim Powell
Tim Powell
/s/ Louann C. Smith
Louann C. Smith
/s/ Dennis G. Bissonnette
Dennis G. Bissonnette
/s/ Sharla Drummond
Sharla Drummond
/s/ Gail M. Curts
Gail M. Curts
/s/ Ann C. McDearmon
Ann C. McDearmon
/s/ Rachel E. Harris
Rachel E. Harris
EXHIBIT 10.1
<PAGE>
EXHIBIT 10.1
BILL OF SALE
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS )
THAT STERLING NATIONAL CORPORATION, a Texas corporation ("Sterling"), for
and in consideration of Ten Dollars ($10.00) and other good and valuable
consideration to it in hand paid by ELECTRONIC TRANSMISSION CORPORATION, a Texas
corporation ("ETC"), the receipt and sufficiency of which are hereby
acknowledged, has BARGAINED, SOLD, CONVEYED, TRANSFERRED, ASSIGNED, AND
DELIVERED, and by these presents hereby does BARGAIN, SELL, CONVEY, TRANSFER,
ASSIGN, AND DELIVER, unto ETC all of the following personal property located in
Dallas County, Texas (collectively the "Property"), effective as of the
commencement of January 1, 1995 (the "Effective Date"):
All assets of Sterling of every kind or description as of the Effective
Date, and wherever then located which are related to, or used or held for
use in connection with, the business of electronically editing and
transmitting medical, dental, chiropractic, and related claims between
providers, managed care organizations, third party administrators and other
payment organizations (the "Purchased Business"), including, without
limitation, the following:
(i) The files and records relating to the Purchased Business, office
furniture, and other personal property located in the Sterling
offices, or in storage, in the Quorum North building at 5025 Arapaho
Road, Dallas, Texas 75248.
(ii) All computer equipment and all software, including without limitation
(a) the IBM System 36 computer system and other systems with printers,
monitors, software, and related peripherals located in the Sterling
offices, or in storage, in the Quorum North building, (b) the rights
of Sterling in and to the claim processing and transmission, and
physician and other provider billing, software used with that computer
system, and (c) the software interfaces and proprietary software used
with that computer system, including software modifications purchased
from Medica Systems, Inc. or developed by Sterling personnel, (d)
proprietary Managed Care Software developed by Sterling.
(iii)The exclusive rights, under all contracts including but not limited
to the following:
a. Rental Agreement dated August 1, 1994, between Sterling and Suite
America, Inc. and Rental Agreement dated August 1, 1994, between
NCRS, Inc. and Suite America, Inc.
b. Joint Marketing Agreement between Rural Health Technologies and
NCRS, Inc. dated July 1, 1994.
c. Joint Marketing Agreement between DataTrans International, Inc.,
Sterling National Corporation, Michael L. Taylor and Brent A.
Ruiz dated September 23, 1994.
d. Willford Hall Medical Center Air Force Base ("Lackland").
e. Vendor Participation Agreement with National Electronic
Information Corporation dated February 21, 1995.
f. Blue Cross and Blue Shield of Texas, Inc. dated March 23, 1995.
g. DataTrans International, Inc. Joint Marketing and Subcontracting
Agreement dated April 28, 1995.
h. Consulting Agreement with Bobby R. Knight dated July 28, 1995.
i. Regional Memorandum of Understanding with GTE Southwest, Inc.
dated August 24, 1995.
<PAGE>
Bill of Sale
From Sterling National Corporation to Electronic Transmission Corporation
Page 2
j. Brooke Army Medical Center dated October 1, 1995.
k. Consulting Agreement with Douglas J. Reeves dated November 21,
1995.
(iv) The exclusive rights, under agreements reached, but not yet executed,
with the following parties:
a. National Electronic Information Corporation, including a payor
network service agreement, and agreements under which ETC will be
designated as the preferred provider for NEIC under contracts it
enters into with medical facilities administered by the
Department of Defense of the U.S. Veterans Administration.
b. William F. Beaumont Hospital.
c. Madigan Army Hospital, Seattle - Tacoma, Washington.
d. Fort Hood Army Hospital, Fort Hood, Texas
e. MedStar, Nacogdoches, Texas
f. Facts Services, Inc., Coral Gables, Florida
g. MIMS, Colorado
h. Anthem Health Network, Dallas, Texas
i. Choice One, Fort Worth, Texas
j. Group & Pension Administrators, Richardson, Texas
k. Health Economics Corporation, Dallas, Texas
l. Medical Control, Dallas, Texas
m. Pro America Managed Care, Ind., Fort Worth, Texas
n. Risk Share, Inc., Dallas, Texas
o. Top Priority Administrators, Dallas, Texas
p. East Texas Medical
q. The L.P. BAIER Company, Fairfax, Virginia
r. General/Florida Preferred, Thomasville, Georgia
s. WalMart, Rogers, Arkansas
t. S.B. Howard & Company, Rogers, Arkansas
(v) The knowledge, experience, and business know-how of Sterling in
connection with the Purchased Business and all documents disclosing
the same.
(vi) The agreements and understandings between Sterling and its employees,
affiliated persons, and independent contractors, including without
limitation L. Cade Havard, Roy W. Mers, Louann C. Smith, Dennis G.
Bissonnette, Gail Curts, Sharla Drummond, Tim Powell, Rachel Harris,
Elaine Boze, Doris Fraley, Ann McDearmon and Scott Vu.
Sterling hereby covenants and agrees with ETC to execute, acknowledge, and
deliver all and every such further instruments as may be necessary or desirable
fully to assure ETC and its successors and assigns title to all of the Property,
and to do or cause to be done all other acts and things necessary or appropriate
fully to bargain, sell, convey, transfer, assign, and deliver the Property to
ETC and to cause title thereto to be vested in ETC.
TO HAVE AND TO HOLD the Property unto ETC, its successors and assigns
forever; and Sterling hereby binds itself, its successors and assigns, to
warrant and forever defend title to the Property unto ETC, its successors and
assigns, against every person whomsoever lawfully claiming or to claim the same
or any part thereof by, through, or under Sterling but not otherwise.
<PAGE>
Bill of Sale From Sterling National Corporation to Electronic Transmission
Corporation Page 3
WITNESS THE EXECUTION HEREOF, in multiple original counterparts, this
1st day of December, 1995, but effective as of the commencement of January 1,
1995.
STERLING NATIONAL CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
President
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me on December 1, 1995, by
L. Cade Havard, President of Sterling National Corporation, on behalf of said
corporation.
/s/ Sharla Drummond
Notary Public in and for
The State of Texas
<PAGE>
EXHIBIT 10.2
<PAGE>
EXHIBIT 10.2
AGREEMENT FOR PROCESSING MEDICAL CLAIMS ON A TEMPORARY BASIS
Electronic Transmission Corporation ("ETC") has over the past few months
been working with WAL-MART ("WM") to evaluate the manner in which WM processes
its medical claims. During that time, ETC has had a chance to work with the
staff at WM and to develop an interface with the existing claims systems and
receive and process actual claims that have been received by WM. The results of
the work done on behalf of WM by ETC has been determined by both parties to have
been successful and both parties desire to take the next step in the
relationship between the two companies.
ETC has proposed to WM a long term contract, which details the service,
pricing, and other terms and conditions. While both WM and ETC have determined
that there is interest in a long term contract of this type, both have a desire
to begin the work of processing claims for a shorter period, during which time
the service, work flows, benefits, and other details can be further evaluated.
Since the process is new to WM, the time will also be used to determine what
additional services could be furnished by ETC and to see if any of the services
included in ETC's original proposal may not be necessary.
As a result of the aforementioned items, ETC and WM would like to form a
short term working relationship which, if successful, will grow into a longer
term agreement similar to the one first proposed by ETC. Therefore, the parties
agree as follows:
1. ETC agrees to install the necessary equipment on site at WM to scan
all of the machine printed HFCA 1500 and UB 92 medical claim forms and
to capture images of each to be sent to ETC.
2. The equipment provided will be the same as proposed to WM by ETC in
its long term contract, less the telecommunications equipment for high
speed data transfer. Instead of the telecommunications equipment, the
equipment package will include a high density, high speed disk drive
with removable media so that the images can be copied to disks and
sent to ETC daily for processing. At WM's option, they may use their
existing T-1 connection to transmit claims.
3. If WM chooses to send claims on disk, ETC will supply WM with a two
week supply of disks for use in sending claims and will the disk each
day after the claims have been collected by ETC.
4. ETC agrees that it will take the images delivered to it on disk or via
telecommunication, extract the data required for WM's claims system,
make needed corrections, reformat the data and send it electronically
back to WM for processing and claims payment.
5. As previously agreed, WM will provide complete data base tables for
providers and members to ETC and to keep those tables up to date, by
sending copies of changes made daily to ETC along with the disks
containing the claims.
6. ETC agrees to work to connect the claims flow to the different PPOs
used by WM, initially CCN, Health Advantage (Columbia HCA) in Florida
and other states and others as requested by WM. In the case of claims
going out to PPOs for repricing, WM will provide to ETC a means by
which to determine which claims go to each PPO. Once ETC can determine
where the claims go it will, before returning the data to WM, send the
information required by the specific PPOs where such PPOs will work
with ETC to receive and transmit data, collect the repricing
information, combine it with the original claim data and provide the
entire record back to WM electronically, so WM will be ready to
adjudicate and pay the claims.
7. ETC agrees to install the equipment at WM and train operators to
effectively image the claims to be sent to ETC. ETC will provide an
onsite priority service contract from Bell & Howell which calls for
onsite service within 4 hours of calling, but ETC cannot be
responsible for actual response time. WM will pay all maintenance
costs of the equipment provided and will indemnify ETC for any damage
to or loss of that equipment and will carry adequate insurance to
cover the damage to or loss of said equipment. ETC DOES NOT WARRANT
THE EQUIPMENT PROVIDED IN ANY WAY, INCLUDING ANY WARRANTY FOR
MERCHANTABILITY FOR A PARTICULAR PURPOSE, and WM agrees to look only
to the equipment and manufacturer's warranty, if any. ETC will do all
within its ability to see that any service needed on the equipment is
provided promptly.
ETC warrants its capability to perform the services described herein;
however, quality performance by ETC is dependent upon the availability of the
documentation requested and access to the WM network, facilities and personnel
at the appropriate times in the process. ETC's obligation under this warranty is
limited to the correction of any problems once notified of their existence.
THERE ARE NO OTHER WARRANTIES OF ANY KIND HEREUNDER OR WITH RESPECT TO THE
SOFTWARE AND SERVICES INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY AND OF FITNESS FOR ANY PARTICULAR PURPOSE. Under no
circumstances shall ETC be liable for any incidental,
<PAGE>
special, indirect, consequential, exemplary, lost profit, business interruption,
or other damages of any sort except as expressly set forth herein. This section
will survive any termination or expiration of this Agreement.
In exchange for the time spent on development, testing, and proving of the
system to date, and with the further acquisition of equipment for the WM site,
delivery setup, and training WM employees on the use of the Equipment, WM agrees
to the following:
1. WM will use the equipment provided by ETC to process machine printed
HCFA 1500 and UB 92 claim forms it receives.
2. WM will provide all the necessary data base tables described in number
5 above and will provide daily changes to the system tables to ETC.
3. While the equipment is onsite at WM, WM agrees that all of the
equipment provided by ETC is and will remain the property of ETC.
4. WM agrees to indemnify ETC from financial loss with regards to the
equipment, as a result of theft or damage of any kind other than
normal wear and tear.
5. WM acknowledges that the software associated with the system is the
property of ETC and will not be copied or used on any computers for
any reason.
6. WM agrees to use the service for a minimum of 90 days from the date of
delivery and setup of the equipment onsite at WM.
7. WM agrees that it wishes for ETC to handle every claim possible in
order to receive the maximum benefit of undertaking this automation
project. In order for ETC to be successful in getting the maximum
number of claims through the WM system electronically, it will be
necessary for ETC to link with as many of the PPO networks that
provide repricing to WM as possible. In order to eliminate any initial
resistance from the networks, WM agrees to pay the fees due to ETC
during the initial 90 day evaluation period. At the end of the 90 day
evaluation period, ETC agrees to review the changes for its service
and make a decision as to what fees will be charged in the future and
make suggestions as to how fees might be allocated among those wishing
to participate. It is ETC's experience that, once WM and the networks
both have a chance to evaluate the impact of automation on their
respective businesses, each can more easily justify paying for a fair
and equitable share of the ETC fees. WM agrees that for the 90 day
evaluation period it will pay to ETC $1.00 per claim for each claim
processed, but in no case less than $5,000 per month. ETC agrees that
any fees collected from PPO networks during the 90 day evaluation
period will be immediately credited to the next WM invoice for
services. ETC further agrees to follow a guideline set out by WM on
attempting to negotiate fees with PPO networks, which will not
interfere with the existing agreements between WM and the networks.
8. WM hereby authorizes ETC (i) to take all actions contemplated
hereunder including transmitting Claims on behalf of WM, and (ii) to
request and/or receive reports with respect to any such transmissions
which are available from recipients of such transmission or other
parties.
It is agreed by both parties to this agreement that progress of the
operations will be reviewed jointly at least monthly during the term of this
agreement. At the beginning of the third month, if both parties agree to move
forward on a long term contract, the initial contract provided to WM by ETC will
be the basis for completing a long term contract. At this time both parties
should have sufficient information about the other to establish jointly the
objectives, needs, service plans and overall scope of work to be able to
negotiate in good faith to complete a long term contract between the two
organizations. If agreement can be reached during the third month, the objective
of both parties will be to have an agreement signed and in place with an
effective date of 91 days after the initial work begins. If during the third 30
day period neither of the parties are ready for a long term contract, this
agreement can be extended with the agreement of both parties. Should WM decide
at the end of the 90 days that it does not wish to continue with the services of
ETC or to enter into a long term agreement, ETC will be notified and will remove
its equipment from the WM premises and a final bill will be rendered to WM from
ETC which will due upon receipt. The final bill will cover only claims ETC has
processed and will not exceed One Dollar ($1.00) per claim.
This Agreement represents the complete agreement of the parties with
respect to the subject matter hereof and may be amended only in writing executed
by the parties. This Agreement may be executed in multiple counterparts, and by
the parties in separate counterparts, each of which shall be an original but all
of which together shall constitute one and the same instrument. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas.
<PAGE>
Electronic Transmission Corporation WAL-MART
By:/s/ L. Cade Havard By:/s/ Charles R. Ratcliff
------------------ ------------------------
Print Name: L. Cade Havard Print Name: Charles R. Ratcliff
Title: Chairman, CEO Title: Senior Vice President
Benefits Administration
Address: 5025 Arapaho Road, Suite 515 Address: 922 W. Walnut
Dallas, TX 75248 Rogers, AR 72756-3206
Phone: (214) 980-0900 Phone: (501) 621-2559
Facsimile: (214) 980-0929 Facsimile: (501) 621-2654
Effective Date: 3-5-96
<PAGE>
EXHIBIT 10.3
<PAGE>
EXHIBIT 10.3
EQUIPMENT LEASE AND STOCK OPTION AGREEMENT
This agreement (this "Agreement") is entered into on the 23rd day of April,
1996 (the "Effective Date") between Electronic Transmission Corporation, a Texas
corporation ("ETC"), and Ironwood Leasing Limited, a Texas corporation ("ILL").
Whereas, ETC needs to lease scanning equipment to provide to its clients in
connection with its business of transmitting medical claims electronically; and
Whereas, ILL wishes to supply ETC with scanning equipment for that purpose:
Now, therefore, the parties agree as follows:
1. Lease of Equipment. ILL does hereby lease to ETC and ETC does hereby
lease from ILL the equipment described in Exhibit "A" attached hereto and
incorporated herein (the "Equipment") for the term indicated in Section 3,
unless sooner terminated in accordance with the terms of this agreement. It is
contemplated by the parties that this Agreement may be amended from time to time
to change, or add to, the description of the Equipment which is subject hereto
and to adjust the rental payments due hereunder as a result of such change. Upon
any such change, a revised Exhibit "A" shall be prepared and a new monthly
rental payment due pursuant to Section 3 shall be determined; provided, that no
such amendment shall be effective unless executed in writing by both parties.
ILL will be the exclusive source of scanning equipment for direct or indirect
use by ETC in its business during the term of this Agreement. ILL has the right
to decline to provide any scanner(s) requested. In that event, ETC may use
whatever means it chooses to secure placement of the desired scanner(s).
2. Term. This Agreement shall be for a term of five years commencing on the
date hereof, and shall thereafter automatically renew for consecutive one year
periods unless one party gives the other party written notice of its intention
to terminate this Agreement 90 days prior to the end of a renewal term, in which
case this Agreement shall terminate at the end of such renewal term.
3. Rental Payments. ILL will lease to ETC each piece of equipment
constituting the Equipment for the amount set forth for each such piece of
equipment on Exhibit "A", and such rental payments shall be due on the first of
each month for thirty months beginning the month following delivery.
4. Indemnity. ETC will indemnify ILL for any loss or damage to the
equipment and will carry adequate insurance coverage, or will require its
clients to carry adequate insurance coverage, (with ILL named as an additional
insured party) to protect the equipment in an amount not to exceed the purchase
price and with companies that are acceptable to ILL. ETC will indemnify and hold
harmless ILL and each of its employees from and against all liabilities, losses,
damages or actions, suits, demands or claims of any kind or nature (each a
"Claim"), directly or indirectly relating to or arising out of the operation,
possession, control, storage or condition of the Equipment or ETC's failure to
comply with the terms of the Agreement during the term, and all reasonable costs
and expenses whatsoever, to the extent they may be incurred or suffered by such
indemnified party in connection therewith. The foregoing indemnity shall cover,
without limitation, (i) any Claim in connection with a design or other defect
(latent or patent) in any Equipment, (ii) any Claim for negligence or strict or
absolute liability in tort and (iii) any Claim for damage due to business
interruption including, without limitation, consequential or special damages to
third parties, incidental, special, indirect, consequential, exemplary, lost
profit or other damages of any sort. Costs and expenses covered by this
indemnity shall include, without limitation, reasonable attorneys' fees and
expenses, fines, penalties and other charges as applicable. This section will
survive any termination or expiration of this Agreement.
5. Warranties: Repairs and Maintenance.
(a) ILL HAS NOT MADE, WILL NOT MAKE AND EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED) AS TO THE DESIGN, CONDITION,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY EQUIPMENT, OR ITS
CONFORMITY TO THE PROVISIONS AND SPECIFICATIONS OF ANY CONTRACT, ITS COMPLIANCE
WITH ANY LAWS, RULES, OR GOVERNMENTAL REQUIREMENTS; OR ANY PATENT INFRINGEMENT
OR LATENT OR PATENT DEFECTS OF ANY EQUIPMENT. ETC will not represent or warrant
to any of its customers or potential
1
<PAGE>
customers that the Equipment is fit for any purpose or use other than any
representation or warranty made by the Equipment's original manufacturer.
(b) To the extent that the Equipment or components thereof are protected by
warranties issued by original manufacturers from which ILL has purchased the
Equipment, ILL agrees to make any and all claims under such warranties to such
original manufacturers as may be reasonably requested or directed by ETC;
provided, however, that in no event shall ILL be liable to ETC because of any
failure or refusal of the original manufacturer (or any other party) to honor
any warranty covering the Equipment or any part thereof and that ETC agrees to
look only to the equipment manufacturer's warranty, if any.
(c) Except as provided in Section 4, to the extent repairs to the Equipment
are not covered by any manufacturer warranty, maintenance of the Equipment is
the responsibility of ILL and ILL will bear the cost and expenses of all
necessary repairs not caused in whole or in part by the improper or careless use
of the Equipment by ETC or ETC's clients; provided, however, that ILL shall not
be liable to ETC for, and ETC agrees to indemnify ILL against, any claims
related to Equipment down time or lack of, or failure to properly perform
maintenance.
6. Location; Use, Inspection and Return.
(a) Each scanner will be designated for a client or for ETC's use. ETC may
move the Equipment to any place within the United States, provided that the ILL
is notified of such change in location in writing.
(b) The Equipment shall be used solely in the conduct of ETC's business and
shall be operated by competent and qualified employees of ETC or its clients
only and in the manner and for the use contemplated by its manufacturer. ETC
shall pay all expenses of operation. ETC will not use, maintain, or store any
Equipment improperly, carelessly or in violation of this Agreement or any
applicable statutes, laws or regulation.
(c) The Equipment shall be used for commercial purposes only, and not for
consumer, personal, home or family purposes.
(d) ILL shall have the right to inspect the Equipment during regular
business hours at its expense for travel to client site.
(e) Upon the termination of this Agreement with respect to any Equipment,
such Equipment shall be returned in good condition at ETC's expense to ILL at
its principal place of business.
7. Title to Equipment. The Equipment shall at all times be the sole and
exclusive property of ILL. ETC shall not have any rights or property interest
therein other than pursuant to this Agreement. ETC may not assign any right to
or interest in the Equipment or permit any lien or encumbrance to exist thereon,
other than liens and encumbrances placed thereon by ILL or persons claiming
against ILL. The Equipment shall at all times remain personal property, and
shall not become affixed to real property in any way such that any portion of it
becomes a fixture.
8. True Lease: Security Interest. This Agreement describes the terms of,
and is intended by the parties hereto to be, a true lease; provided, however,
that the parties acknowledge that the terms and conditions of the Agreement may,
alternatively, create a secured financing or lease for security. If this
Agreement constitutes a security agreement or lease for security, ETC hereby
grants a security interest to ILL in all of ETC's right, title and interest in
the Equipment, to secure all of ETC's obligations under this Agreement. If
requested by ILL, ETC shall execute and deliver to ILL UCC-1 Financing
Statements reflecting that the Equipment is personal property subject to a true
lease.
9. Taxes. ILL shall pay any personal property taxes that may be levied
against the Equipment, and ETC shall promptly reimburse ILL for such taxes.
10. Escrow. ETC agrees to escrow all accounts received derived from the use
of this equipment, less third party costs, through March 31, 1996 or until any
class of securities of ETC or any company ETC merges with is registered under
the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise becomes
publicly traded, or the fund in escrow (the "Escrow Funds") equal the total
purchase price of the Equipment set forth on Exhibit "A" hereto, whichever is
sooner.
11. Stock Option. At any time during the term of this Agreement, ILL has
the option to (i) sell to ETC any or all of the Equipment in exchange for the
number of shares of ETC common stock (or stock of any company ETC merges with)
("ETC Stock"), that is equal to the purchase price set forth on Exhibit "A" for
the Equipment divided by 1.25 per share or (ii) purchase, at $1.25 per share,
the number of shares of ETC Stock (or stock of any company ETC merges with)
equal to the purchase price of the equipment divided by 1.25, and give ETC the
option to purchase the equipment at the end of the lease for
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$1.00; provided, however, that, if ETC issues or agrees to issue, or grants an
option to purchase, ETC Stock to any other person for a price less than $1.25,
the price payable by ILL shall be reduced to such lower price. If ILL elects to
exercise the option granted to it by ETC in this section, such exercise shall be
pursuant to a stock purchase agreement containing customary representation,
warranties and covenants.
12. Stock Rights. All stock received by ILL will be unencumbered and free
of trading restrictions except those required by SEC regulations. ETC will use
its best efforts to register shares flowing to ILL in any registration of shares
by ETC.
13. Anti-dilution. ETC will not issue additional securities before ETC
merges with a public company.
14. Events of Defaults. The following events are referred to collectively
as "Events of Default", or individually as an "Event of Default":
(a) ETC defaults in the due and punctual payment of rent, and such default
continues uncured for five days after written notice from ILL;
(b) The Equipment is subject to any attachment at the instance of any
creditor of or claimant against ETC, and said attachment is not discharged or
disposed of within fifteen days after its levy;
(c) ETC files a petition in bankruptcy or insolvency or for reorganization
or arrangement under the bankruptcy laws of the United States or under any
insolvency act of an state, or admits the material allegations of any such
petition by answer or otherwise, or is dissolved or makes an assignment for the
benefit of creditors;
(d) Involuntary proceedings under any such bankruptcy law or insolvency act
or for the dissolution of ETC are instituted against ETC, or a receiver or a
trustee is appointed for all or substantially all of the property of ETC, and
such proceeding is not dismissed or such receivership or trusteeship vacated
within sixty days after such institution or appointment;
(e) ETC fails or refuses to perform its obligations under Section 12 of
this Agreement;
(f) ETC fails or refuses to perform its obligations under Section 13 of
this Agreement; and
(g) ETC breaches any of the other agreements, terms, covenants or
conditions which this Agreement requires ETC to perform, and such breach
continues uncured for a period of thirty days after notice from ILL to ETC of
such breach; or, if such breach cannot reasonably be cured within such
thirty-day period, ETC fails to commence to cure such breach within thirty days
after notice from ILL or fails to proceed diligently to cure such breach within
a reasonable time period thereafter.
15. Remedies.
(a) If one or more Events of Default described in subdivisions (a) through
(g) of Section 14 occur then ILL has the right, at its election:
(i) To terminate this Agreement and collect the purchase price for the
Equipment set forth on Exhibit "A" from the Escrow Funds and, to the extent
that the Escrow Funds are not sufficient to fully pay the purchase price,
from ETC;
(ii) To give ETC written notice of ILL's intention to terminate this
Agreement on the earliest date permitted by law or on any later date
specified in such notice, in which case ETC's right to possession of the
Equipment will cease;
(iii) Without further demand or notice, to enter ETC's premises and
take possession of the Equipment or any part of the Equipment, and remove
such Equipment or any part thereof, using such reasonable force for such
purposes as may be necessary, without being liable for prosecution, without
being deemed guilty of any manner of trespass, and without prejudice to any
remedies for arrears of rent or other amounts payable under this Agreement
or as a result of any preceding breach of covenants or conditions; or
(iv) Without further demand or notice, to cure any Event of Default
and to charge ETC for the cost of effecting such cure, including, without
limitation, attorneys' fees and interest on the amount so advanced at the
rate of fifteen percent per annum, provided that ETC will have no
obligation to cure any such Event of Default.
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Should ILL elect to take possession of the Equipment as provided in clause
(iii), above, or should ILL take possession pursuant to legal proceedings or
pursuant to any notice provided by law, ILL may, from time to time, without
terminating this Agreement, relet the Equipment or any part of the Equipment in
ILL's or ETC's name, but for the account of ETC, for such term or terms (which
may be greater or less than the period which would have otherwise constituted
the balance of the term of this Agreement) and on such conditions and upon such
other terms (which may include concessions of free rent) as ILL, in its sole
discretion, may determine, and ILL may collect and receive the rent. In such
event ETC will continue to pay to ILL monthly rent and other sums as provided in
this Agreement, which would be payable under this Agreement if such repossession
had not occurred, less the net proceeds, if any, of any reletting of the
Equipment after deducting all of ILL's reasonable expenses in connection with
such reletting, including, without limitation, all repossession costs, brokerage
commissions, attorneys' fees, alteration and repair costs, and expenses of
preparation for such reletting. ILL will in no way be responsible or liable to
ETC for any failure to relet the Equipment, or any part of the Equipment, or for
any failure to collect any rent due upon such reletting. No such taking
possession of the Equipment by ETC will be construed as an election on ETC's
part to terminate this Agreement unless a written notice of such intention is
given to ETC. No notice from ILL under this paragraph will constitute an
election by ILL to terminate this Agreement unless such notice specifically so
states. ILL reserves the right following any such reletting to exercise its
right to terminate this Agreement by giving ETC such written notice, in which
event this Agreement will terminate as specified in such notice.
(b) The remedies described in this Section 15 shall be cumulative of each
other and shall not limit or impair any other rights or remedies that may be
available to the parties hereunder or under applicable law.
16. Line of Credit. ILL will use its best efforts to provide ETC with a
$500,000 line of credit for operating capital. ETC may draw from this line up to
eighty percent (80%) of its accounts receivable that are under 65 days due. This
draw will be re-evaluated monthly. To secure this line of credit, ETC will
pledge shares of its common stock on a two for one basis (i.e., two dollar trade
value of its stock for every one dollar drawn from the line of credit). Stock
options will enure to ILL to the amount of credit drawn on by ETC at the same
rate as described herein for scanners.
17. Loan Origination Fee. ETC will pay ILL a loan origination fee,
beginning three months after ETC merges with a public company, in an amount
equal to ten percent (10%) of ILL's total exposure under this Agreement
including the amount spent to purchase scanners and the amount drawn by ETC on
the line of credit, such amount being paid in ETC stock (or stock of any company
ETC merges with) valued at $1.25 per share. This loan origination fee will be a
cumulative amount calculated each quarter.
18. Financial Information. ETC shall use its best efforts to deliver to ILL
no later than 30 days after the end of each quarter or 90 days after the end of
each fiscal year, unaudited financial statements of ETC as of the end of such
quarter or year, until such time as ETC's financial statements are audited, in
which case ETC shall deliver to ILL such audited financial statements as soon as
they have been prepared; provided, however, that, this obligation shall
terminate as soon as any class of ETC's securities becomes registered under the
Exchange Act or becomes publicly traded.
19. Arbitration. Any and all controversies or claims arising out of or
relating to this Agreement shall be resolved by arbitration in accordance with
the rules of the American Arbitration Association and judgment on the award
rendered by the arbitrator or arbitrators shall be final and binding on the
parties. Any arbitration shall take place in Dallas, Texas.
20. Notices. All notices hereunder shall be in writing and delivered
personally or by certified U.S. Mail, return receipt requested, or recognized
courier service, addressed to the respective addresses set forth on the
signature page hereof or to such other address for itself as either party may
specify.
21. Assignments. Neither party hereto may assign this Agreement or its
rights hereunder to any third party without the prior written consent of the
other party hereto. Subject to the foregoing, this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
22. Complete Agreement. This Agreement represents the complete Agreement of
the parties with respect to the subject matter hereof and may be amended only in
writing executed by the parties. This Agreement may be executed in multiple
counterparts, and by the parties in separate counterparts, each of which shall
be an original but all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
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IN WITNESS WHEREOF, ETC AND ILL have caused this Agreement to be duly
executed and delivered by their authorized representatives, effective as of the
Effective Date.
Electronic Transmission Corporation Ironwood Leasing Limited
By: /s/ L. Cade Havard By: /s/ Alexis P. Shelokov
L. Cade Havard Alexis P. Shelokov
Chairman, CEO
Address: 5025 Arapaho Road, Suite 515 Address:
Dallas, Texas 75248
Telephone: (214) 980-0900 Telephone:
Facsimile: (214) 980-0929 Facsimile:
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EXHIBIT 10.4
<PAGE>
EXHIBIT 10.4
IRONWOOD LEASING, LTD.
4132 Hockaday
Dallas, Texas 75229
(214) 350-8882
June 20, 1996
Mr. L. Cade Havard, Chairman
Electronic Transmission Corporation
5025 Arapaho Road, Suite 515
Dallas, Texas 75248
Re: Equipment Lease and Stock Option (the "Agreement") between Electronic
Transmission Corporation ("ETC") and Ironwood Leasing, Ltd.
("Ironwood")
Dear Mr. Havard:
This letter shall serve as acknowledgment by Ironwood of its waiver to escrow
requirements imposed upon ETC pursuant to Section 10 of the Agreement for the
period commencing on the effective date of the Agreement and ending June 30,
1996. It is further understood that ETC shall not be required to comply with the
provisions of Section 10 of the Agreement until it has received 30 days written
notice from Ironwood of its intention to enforce the obligations of ETC under
said Section 10 of the Agreement.
Ironwood also hereby acknowledges that any option to purchase shares of the
Common Capital Stock of ETC pursuant to Section 11 of the Agreement shall have
an exercise price of $1.25 per share. The option exercise price shall not be
adjusted for any other options to purchase shares of ETC Common Stock issued to
any employee by ETC.
Very truly yours,
Ironwood Leasing, Limited
/s/ Dennis Barnes
Dennis Barnes
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EXHIBIT 10.5
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Electronic Transmission Corporation,
whose address is 5025 Arapaho Road, Suite 515, Dallas, Texas 75248, its
representatives, guarantors, successors and assigns (hereinafter referred to as
the "MAKER"), hereby unconditionally promises to pay to the order of ETC
Transaction Corporation, whose address is 5025 Arapaho Road, Suite 515, Dallas,
Texas 75248 (hereinafter referred to as "TRANSACTION"), the principal sum of
U.S. seven hundred seventy-nine thousand five hundred seventy-four dollars and
fifty cents (U.S. $779,574.50), such amount to be payable in lawful money of the
United States of America at six percent annual interest, such payment of
principal and interest being due and payable on or before July 1, 1997. All past
due principal and interest of this Note shall bear interest at the Maximum Rate
until paid. The term "Maximum Rate" as used herein shall mean, with respect to
the holder hereof, the maximum non-usurious interest rate, if any, that at any
time, or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note under the laws which are
presently in effect of the United States and the State of Texas applicable to
such holder and such indebtedness or, to the extent permitted by law, under such
applicable laws of the United States and the State of Texas which may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
applicable laws now allow. Regardless of any provision contained in this Note,
no holder of this Note shall ever be entitled to receive, collect or apply, as
interest on any amount owing hereunder, any amount in excess of an amount which
would result in exceeding the maximum charged by applicable law. Any rights and
remedies herein expressly conferred are cumulative of all other rights and
remedies by law or in equity provided, and shall not be deemed to deprive
TRANSACTION of any such other legal or equitable rights or remedies, by judicial
proceedings or otherwise, appropriate to enforce the conditions, covenants and
terms of this Note, and the employment of any remedy hereunder, or otherwise,
shall not prevent the concurrent or subsequent employment of any other
appropriate remedy or remedies.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, MAKER agrees to pay all costs of
collection, including but not limited to court costs and reasonable attorney's
fees.
MAKER and each surety, endorser, guarantor and other party ever liable for
payment of any sums of money payable on this Note jointly and severally waive
presentment and demand for payment, protest, notice of protest and non-payment,
as to this Note and agree that their liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof, or in any
indulgences, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes regardless of the number of such renewals,
extensions, indulgences, releases or changes.
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EXECUTED this 1st day of June, 1996.
Electronic Transmission Corporation, MAKER
By:/s/ L. Cade Havard
L. Cade Havard,
President, CEO
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EXHIBIT 10.6
<PAGE>
EXHIBIT 10.6
Network Employers Group, Inc.
Staff Leasing Services Agreement
This STAFF LEASING SERVICES AGREEMENT ("Agreement") is made on January 1,
1996, by and between Network Employers Group, Inc. ("NEG"), a Texas corporation,
and Electronic Transmission Corporation ("Client"), both parties acting by and
through their duly authorized representatives. NEG is a duly licensed Texas
staff leasing services company regulated by the Texas Department of Licensing
and Regulation under the Texas Staff Leasing Services Act (including TAC Chapter
72 Rules) (Exhibit "B"). Under the terms of this Agreement, NEG agrees to
maintain the employment of the employees listed on the payroll register (Exhibit
"A") (the "Payroll Register and Fee Schedule"), and NEG will periodically
designate and lease to Client certain employees to work at Client's place of
business and perform services for Client ("Assigned Employees"). In
consideration of the sum of Ten and No/100 Dollars ($10.00), mutual promises
herein contained and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged and confessed, the parties agree as
follows:
1. TERM OF AGREEMENT.
This Agreement begins on the Effective Date, and remains in effect at the
same rates and terms specified herein (unless the parties otherwise agree in
writing) until either party terminates, with or without cause, at any time, and
without payment of any penalty or premium charge, by giving 30 days prior
written notice, or by shorter notice as provided elsewhere in this Agreement.
Upon termination, neither party shall have any further duties or obligations
hereunder, except Client shall pay NEG any fees due, earned through the
effective date of termination, and NEG shall perform its obligations hereunder
through the effective date of termination.
2. PERSONNEL.
Client will provide NEG the following information on any individual
proposed to be hired by NEG: (i) Name, (ii) Social Security Number, (iii)
Expected Date and Time of Hire, and (iv) Job Description. An individual becomes
an Assigned Employee under this Agreement only after an offer of employment has
been made by NEG, and accepted by the individual, whether or not the individual
is then so designated an Assigned Employee on Exhibit "A".
3. SERVICE FEES.
a) Client shall pay NEG service fees, due and payable, based on the gross
payroll of the Assigned Employees and a service fee equal to the fee rate
percentage as specified on Exhibit "A", upon receipt or at least one working day
prior to the date payroll checks are distributed. Client agrees to provide NEG
with accurate payroll information at least four days prior to each payroll due
date. The parties understand and agree that Exhibit "A" represents payroll for
the Assigned Employees as at the date of this Agreement, that Exhibit "A" will
periodically vary, and that NEG's duties hereunder are based on Client's entire
leased Assigned Employee payroll, regardless of whether all Assigned Employees
are reflected on Exhibit "A". If the payroll information in Exhibit "A" is or
becomes inaccurate, Client agrees to immediately amend Exhibit "A" to reflect
current information and shall pay, within 10 days notice from NEG of the error,
any additional costs incurred by NEG as a result of the inaccuracy.
b) NEG shall not unilaterally adjust the fee rate percentage as specified
on Exhibit "A", except for adjustments made necessary by:
(i) statutory and regulatory changes, including but not limited to
adjustments to FICA, federal and/or state unemployment taxes, and
insurance premiums changes; and/or
(ii) changes in Exhibit "A" requested by Client which require
recalculation of the fee rate percentage, to the extent such
recalculation results in a fee rate percentage change greater
than 1%.
c) Any increases in the fee rate percentages for statutory or regulatory
changes in employment taxes, insurance costs or job descriptions shall be
effective on the date of such statutory or regulatory increase or change.
d) Any increase in the fee will be billed with the next effective payroll
period and be kept current at all times except for retroactive changes or
statutory and regulatory changes known at the time the payroll is billed.
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e) Any change in the fee rate percentage shall be reflected in a revised
Exhibit "A", which shall then be made
a part of this Agreement.
f) Client shall use a method of payment approved in advance by NEG.
g) Client or on-site supervisor shall report to NEG all time worked by all
NEG Assigned Employees furnished to Client each pay period and shall provide NEG
with written verification of same.
h) Client shall notify NEG within two working days of any invoice or other
communication error.
i) If Client fails to pay any amount owed under this Agreement when due,
Client shall pay a service charge of 1/2% per month (pro rated to the date of
payment) on the unpaid balance from invoice date until payment. In no event
shall the service charge exceed the lawful rate of interest chargeable on such
debt.
4. REQUIREMENTS AND ACKNOWLEDGEMENTS.
Client understands and acknowledges the following:
a) This Agreement, and all obligations and duties hereunder, are subject to
and governed by the Texas Staff Leasing Services Act and TAC Chapter 72 Rules.
b) Workers' Compensation Insurance. NEG will furnish and keep in force and
effect at all times during the term of this Agreement a policy of Texas
statutory workers' compensation insurance covering all NEG Assigned Employees
furnished to Client pursuant to the terms of this Agreement. Upon written
request, NEG will provide a certificate of insurance verifying such coverage.
Client will assist NEG in posting, and will maintain posting during the term of
this Agreement, the workplace notices required under state law in connection
with NEG's subscriber status (Exhibit "C") in conspicuous locations at each
Client worksite, as required by the Texas Workers' Compensation Act.
c) Pursuant to the Texas Staff Leasing Services Act, for workers'
compensation insurance purposes, both NEG and Client are co-employers, subject
to ss.ss. 3.08 and 4.01 of the Texas Workers' Compensation Act (now codified
under Tex. Labor Code Ann. ss.ss. 406.034 and 408.001). Unless a NEG Assigned
Employee gives proper notice to NEG of his or her desire to retain the
common-law right of action to recover damages for workplace personal injuries or
death, as provided by ss.406.034(b), he or she waives the right to sue both NEG
and Client to recover damages for personal injuries or death sustained in the
course and scope of employment. Under ss.408.001, both NEG and Client are
protected by the "exclusive remedy" provision: recovery of workers' compensation
benefits is the exclusive remedy of an Assigned Employee sustaining a
workrelated injury or death against NEG and/or Client (excepting wrongful death
due to intentional act or omission or gross negligence).
d) Pursuant to TWCC and Texas Department of Insurance ("TDI") rules and
regulations, NEG will (1) notify each existing Assigned Employee in writing that
NEG does have workers' compensation insurance coverage; (2) notify each Assigned
Employee hired hereafter, at the time of hire, in writing, that NEG does have
workers' compensation insurance coverage; (3) provide Client required notices to
post at conspicuous worksite locations that NEG does have workers' compensation
insurance coverage; and (4) perform all reporting and filing requirements and
any other actions required of subscribing employers.
e) Notice Requirements Under The Texas Staff Leasing Services Act. NEG will
(1) disclose to the Texas Department of Licensing and Regulation ("TDLR"), the
Client, and all Assigned Employees information in writing relating to any
insurance or benefit plan provided for the benefit of Assigned Employees,
including (i) the type of coverage; (ii) the identity of each insurer for each
type of coverage; (iii) the amount of benefits provided for each type of
coverage and to whom or on whose behalf benefits are to be paid; (iv) the policy
limits on each insurance policy; and (v) whether the coverage is fully insured,
partially insured, or fully self-funded; (2) require each Assigned Employee to
sign a written notification of service agreement (Exhibit "D") (Employment
Agreement), giving notice of this Agreement, as it affects Assigned Employees
hereunder, and that NEG shall provide employee injury benefits as described in
the Plan; and (3) notify the Texas Employment Commission ("TEC") of this
Agreement in the form prescribed by the TEC.
f) NEG will notify each Assigned Employee and Client of the name, mailing
address, and telephone number of the TDLR; such notice shall be made on a 2-inch
by 3-inch notification card (Exhibit "E"), and will be made a part of all
contractual agreements between NEG and Client. A poster-sized version of this
notice will be posted by Client at each Assigned Employee worksite location in a
place that is in clear and unobstructed public view (Exhibit "F").
g) Liability Insurance. Client shall furnish, and keep in force and effect
at all times during the term of this Agreement, comprehensive general liability
insurance including products/completed operations coverage with minimum limits
of $1,000,000.00 per occurrence and $2,000,000.00 aggregate. Client shall cause
its insurance carrier to issue a certificate of
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<PAGE>
insurance to NEG confirming this coverage and give not less than thirty (30)
days advance notice of cancellation or material change.
h) Client shall furnish, and keep in force and effect at all times during
the term of this Agreement, comprehensive automobile liability insurance
covering all owned, hired and non-owned automobiles with a minimum limit of
$1,000,000.00 per occurrence combined single limit bodily injury and property
damage liability. The policy shall also provide uninsured motorists insurance
with a minimum combined single limit of $60,000.00. In states where "no fault"
laws apply, Personal Injury Protection (P.I.P.) or equivalent coverage shall be
required to meet the requirements of the state. The Client shall cause its
insurance carrier to issue a certificate of insurance to NEG confirming this
coverage and to give not less than thirty (30) days advance notice of
cancellation or material change.
i) Client shall deliver copies of all insurance policy forms and
certificates required under this Agreement, signed by authorized representatives
of the insurance companies to NEG within fifteen (15) days of the Effective Date
of this Agreement.
j) Bonds. Client shall pay all expenses relating to any Bonds or Fidelity
Bonds which Client currently maintains, or later obtains, and shall provide NEG
copies of each within 15 days of receipt.
k) Subrogation. NEG and Client mutually waive any claim against each other
by way of subrogation, which may arise during the term of this Agreement, for a
loss of or damage to any property, covered by an insurance policy, but only to
the extent such property loss or damage is recovered under such insurance
policy, and not otherwise. This waiver shall bind, and be evidenced on
endorsements issued by, each party's insurers.
l) Unemployment Compensation. NEG is the employer of the Assigned Employees
for purposes of the Texas Unemployment Compensation Act (now codified under Tex.
Labor Code Ann. ss.ss. 201.001. et seq. and ss. 61.001). NEG will report
quarterly to the TEC Client's name, address, telephone number, federal income
tax identification number, and classification code (as described in the
"Standard Industrial Classification Manual" as published by the United States
Office of Management and Budget) on TEC prescribed forms.
m) Professional Licenses. Client shall be liable for compliance with any
professional licensing requirements and responsible for maintaining any
professional licenses required of Assigned Employees under this Agreement.
n) Professional Liability. Client shall be liable for professional
liability, including but not limited to malpractice or errors and omissions
coverage and compliance with any regulation mandating such coverage.
5. SUPERVISION.
NEG will periodically designate, on the "Designation of Supervisor Form"
(Exhibit "G"), one or more Assigned Employee(s) as the on-site supervisor(s)
("Supervisor", whether one or more). The Supervisor shall have sole and
exclusive authority to direct and control the workplace activity of Assigned
Employees and carry out NEG policies and procedures under this Agreement.
6. ADMINISTRATION.
a) NEG is the sole employer of the Assigned Employees, and except those
employment responsibilities which are in fact shared by NEG and Client and those
duties with regard to safety which are the duly responsibility of NEG and
Client, NEG shall have certain exclusive duties and powers, including, but not
limited to, the following:
(i) The right to hire, fire, discipline, reassign, direct and control
the work and conduct of the Assigned Employees;
(ii) The responsibility for adherence to Wage and Hour Administration
regulations, compliance with applicable benefits regulations,
COBRA compliance when applicable, minimum two-year maintenance of
employment and payroll records, and handling of all Texas and
federal unemployment claims, protests, and appeal hearings;
(iii)The responsibility to pay wages to Assigned Employees without
regard to payments made by the Client to NEG;
(iv) The responsibility to make (and account for same to Client) all
payroll deductions for income tax, social security tax, and other
payroll taxes as required under state or federal laws from
compensation paid to the Assigned Employees by NEG;
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(v) The responsibility to make (and account for same to Client) all
payments, including payments for income tax, social security tax,
unemployment, and disability insurance, to the proper
governmental agency or authority required under state or federal
laws to be made by as employer of the Assigned Employees and to
comply with all federal, state, and local tax regulations;
(vi) The responsibility to prepare and file with the proper
governmental agency or authority all returns and reports and
comply with applicable reporting and record keeping rules
required as employer, in connection with this Agreement;
(vii)The right to retain direction and control over the adoption of
employment and safety policies and the management of an
occupational injury or workers' compensation claims, claims
filing, or any related procedures;
(viii) The responsibility to manage, maintain, collect, and make
timely payments for (1) insurance premiums, (2) welfare benefits
plans; and (3) other employee withholding.
b) NEG agrees to reimburse Client for direct expenses, including any
penalties, damages and/or attorney's fees actually paid by Client, resulting
from NEG's failure to withhold taxes or failure to provide benefits for Assigned
Employees in accordance with this Agreement. However, NEG shall not be liable in
any event for Client's loss of profits, business goodwill, or any other
consequential, special, or incidental damages.
7. REPRESENTATIONS AND WARRANTIES OF CLIENT.
Client warrants and represents to NEG that:
a) All wages and compensation owed by Client to any Assigned Employee have
been paid by Client.
b) No agreement or arrangement exists with respect to any Assigned Employee
that would obligate NEG to any person or entity, except as set forth in this
Agreement.
c) Any representations made by Client to NEG elsewhere in, or outside, this
Agreement, concerning Client, are true for all of Client's operations, and all
of its workers, wherever located.
d) All of Client's pension and profit sharing and employee welfare benefit
plans in existence (if any) are funded, reported current, and are in compliance
with applicable law, and this Agreement shall not be deemed a breach under the
terms of any of those plans.
e) The Policy Information Page and/or the last periodic premium billing
under Client's last workers' compensation insurance policy as provided to NEG by
Client with this Agreement are true and correct.
8. SAFE WORK ENVIRONMENT.
a) Client will, at its own expense, comply with all applicable health and
safety laws, regulations, ordinances, directives, and rules (including its joint
duty with NEG to comply with those safety duties as stated in Section 6). Client
will notify NEG of any workplace injury to an Assigned Employee within 24 hours
on the "Injury Reporting Form" (Exhibit "H").
b) If Client fails to promptly comply with any written safety or health
recommendation from NEG or its agents, or with any provision under this Section
8, NEG may terminate this Agreement by written notice effective the later of (i)
five working days after delivery of notice, or (ii) the end of NEG's next
regular pay period. If Client does not desire to comply with any written safety
recommendation, Client may terminate this Agreement by written notice effective
the later of (i) five working days after delivery of notice, or (ii) the end of
NEG's next regular pay period.
c) Client shall assist in implementing the NEG's safety plan as provided to
Client, or other safety plan previously implemented by Client and accepted in
writing as policy by NEG. Client shall provide all personal protective
equipment, as required by the safety plan or any federal, state or local law,
regulation, ordinance, directive, or rule. NEG and Client will both ensure use
of such equipment by Assigned Employees.
d) NEG shall have the right (but not the obligation) to make periodic
safety surveys, at its own expense, wherever Assigned Employees are working.
e) Client shall assist NEG in implementing and enforcing the NEG Drug and
Alcohol Policy (Exhibit "I") or other drug and alcohol policy accepted in
writing as policy by NEG.
4
<PAGE>
9. INSPECTION AND CONFIDENTIALITY.
NEG and NEG's workers' compensation insurance carrier shall have the right
to inspect Client's premises, including any job site to which an Assigned
Employee is assigned. To the extent possible, such inspection will be scheduled
at a mutually convenient time. During the term of this Agreement, Client will
allow NEG to review files, records, and similar items which relate to or are
regularly used in operation of Client's business. Neither NEG, nor any of its
officers, directors, shareholders, attorneys, affiliates, agents, or
representatives, shall disclose to any third party any of the business
information of Client, either directly or indirectly, during the term of this
Agreement, or at any time thereafter, except as required by state or federal
law.
10. INDEMNIFICATIONS.
a) Upon a showing by Client that Client has complied with all written NEG
and governmental safety recommendations or directives, NEG shall indemnify,
defend and hold harmless Client from all suits, actions, demands, damages,
losses, or claims brought or made for or on account of a physically identifiable
on-the-job injury suffered by, or death of, an Assigned Employee while in the
course and scope of employment with, arising out of, or occasioned by, Assigned
Employee's employment by NEG.
b) NEG agrees to indemnify, hold harmless, protect and defend Client, its
directors, officers and shareholders from any claims, expense and liabilities
(including but not limited to reasonable attorney's fees and other costs and
expenses of litigation) incident to the failure of NEG to pay Assigned Employees
maintained hereunder, to pay withholding or employment taxes with respect to
Assigned Employees, or to maintain a policy of statutory workers' compensation
insurance covering Assigned Employees.
c) Notwithstanding any other provision of this Agreement, Client agrees to
indemnify, defend and hold harmless NEG, its agents, employees and
representatives, from and against any and all liability, expense (including
attorneys' fees) and claims for damages of any nature whatsoever, whether known
or unknown which NEG may incur suffer, become liable for or which may be
asserted or claimed against NEG, in whole or in part, as a result of the acts,
errors or omissions of i) third parties, ii) Client, or iii) Assigned Employees,
except as provided by Paragraph 10(a), or by any party arising out of any defect
in personal or real property owned or provided by Client.
11. ASSIGNMENT.
Neither party shall assign this Agreement or its rights and duties
hereunder, or any interest herein, without the prior written consent of the
other party, which consent shall not be unreasonably withheld.
12. NOTICES.
All notices, requests and communications provided hereunder shall be in
writing, and hand delivered or mailed by United States registered, certified, or
express mail, return receipt requested, and addressed to the party's principal
place of business as set forth in this Agreement adjacent the signature of each
party (or to such other address provided in writing by such party).
13. DEFAULT.
Each of the following, without limitation, shall constitute a breach of
this Agreement by Client: (1) failure to pay any sum due NEG within 10 days
after delivery of notice of default, (2) knowingly committing any act that
usurps any right or obligation of NEG as sole employer or co-employer of any
Assigned Employee or (3) violation of any provision of this Agreement by Client.
In event of dispute, the prevailing party shall be entitled to recover its
attorneys' fees and costs of court.
14. MISCELLANEOUS.
a) This Agreement constitutes the entire agreement between the parties with
regard to this subject matter, and no other agreement, statement, promise or
practice between the parties relating to the subject matter shall be binding on
the parties. This Agreement supersedes and renders void and all previous written
or oral agreements between the parties.
b) THIS AGREEMENT MAY BE CHANGED ONLY BY WRITTEN AMENDMENT SIGNED BY BOTH
PARTIES.
c) Failure or delay by either party to demand performance or to claim a
breach of any provision of this Agreement will not be construed as waiver of any
subsequent breach nor otherwise affect this Agreement or prejudice either party
in any subsequent action.
5
<PAGE>
d) Should any provision of this Agreement be held invalid or unenforceable,
such provision shall be deleted or modified to the minimum extent necessary to
make its application valid and enforceable, and the remainder of this Agreement
shall remain enforceable to the greatest extent permitted by law.
e) The paragraph headings of this Agreement are for reference only and
shall not be considered in interpretation of this Agreement.
f) This Agreement is between NEG and Client and creates no individual
rights of Assigned Employees as against Client.
g) This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, and all obligations of Client created hereunder are
performable in Dallas County. Venue for any action arising under this Agreement
shall lie only in Dallas County, Texas.
h) The following exhibits are attached to this Agreement and incorporated
herein by reference for all purposes:
EXHIBIT "A": Payroll Register and Fee Schedule
EXHIBIT "B": Staff Leasing Services Act and TAC Chapter 72
Rules
EXHIBIT "C": Notices required under the Texas Workers'
Compensation Act
EXHIBIT "D": Employment Agreement
EXHIBIT "E": Staff Leasing Services Act Notice Card
EXHIBIT "F": Staff Leasing Services Act Notice Poster
EXHIBIT "G": Designation of Supervisor Form
EXHIBIT "H": Injury Reporting Forms and Authorizations
EXHIBIT "I": Drug and Alcohol Policy
This AGREEMENT is duly executed effective this 15th day of December, 1995.
NETWORK EMPLOYERS GROUP, INC.:
By: /s/ Randy Evan Address: 5025 Arapaho,
Title: President Suite 475
Dallas, TX 75248
Phone: (214) 789-3950
Fax: (214) 789-3990
CLIENT: Electronic Transmission Corporation
By: /s/ L. Cade Havard Address: 5025 Arapaho,
Title: Chairman, CEO Suite 515
Dallas, TX 75248
Phone: (214) 980-0900
Fax: (214) 980-0929
6
<PAGE>
EXHIBIT 10.7
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AND SETTLEMENT AGREEMENT
This Employment and Settlement Agreement (this "Agreement") is made and
entered into this 2nd day of January, 1995, by and among Electronic Transmission
Corporation, and L. Cade Havard, an individual resident in Dallas County, Texas
("Mr. Havard").
ETC has been developing a business of electronically editing and
transmitting medical and dental claims from health care providers to entities
that pay such claims. ETC anticipates entering into a series of transactions
(the "Merger") whereby Solo Petroleums Ltd. ("Solo") will acquire all
outstanding shares of common stock of ETC (the "ETC Stock") in exchange for
shares of common stock of Solo ("Solo Stock"). Mr. Havard has (i) devoted
considerable time and effort to assisting ETC in developing this business since
January 1994; (ii) contributed approximately $1,000,000 to the development of
this business: and (iii) contributed computer equipment and software to this
business; and ETC owes compensation to Mr. Havard for these services and
contributions. In addition, ETC now desires to employ Mr. Havard as its Chief
Executive Officer, and Mr. Havard desires to accept such employment with ETC,
all on the following terms and subject to the following conditions.
NOW, THEREFORE, ETC and Mr. Havard hereby agree as follows.
1. Employment. ETC hereby employs Mr. Havard, and Mr. Havard hereby accepts
employment by ETC, for the term and compensation and subject to the terms and
conditions hereinafter set forth.
2. Duties of Mr. Havard. Mr. Havard shall serve in the capacity Chief
Executive Officer of ETC, subject at all times to the terms and conditions
hereof and to the ultimate control and direction of the Board of Directors of
ETC. In that capacity, Mr. Havard shall have responsibility for assisting in
developing and administering the business of ETC for the long term benefit of
its stockholders, and in accordance with industry standards. During the term of
this Agreement, Mr. Havard shall devote most of his entire business time and
efforts to the performance of the duties and responsibilities contained in this
Agreement, though it is recognized that Mr. Havard owns business interests
unrelated to ETC.
3. Compensation. As compensation for his services rendered to ETC in the
capacities set forth above, ETC shall pay to Mr. Havard a base salary at a rate
not less than one hundred eighty thousand dollars ($180,000.00) per year. This
will be paid to him at the rate of eight thousand dollars ($8,000) per month
until ETC has two consecutive months of showing a profit. At that time Mr.
Havard may elect to receive fifteen thousand dollars ($15,000) per month. Mr.
Havard also has the option of receiving all or part of the balance owed him at
the end of 1995 or in 1996. It is contemplated that such compensation will be
increased significantly after the first year of the term of this Agreement, and
that Mr. Havard will receive annual raises consistent with performance and will
receive an annual bonus in an amount equal to three percent (3%) of the gross
pretax net profits of ETC as well as yearly "cost of living" adjustments. Mr.
Havard shall have rights to stock options to purchase ETC stock, such options
being sufficient for him to obtain at least twenty percent (20%) of all ETC
stock options granted at any time.
4. Benefits. During the term hereof, Mr. Havard shall be entitled to
participate in all benefit plans, including stock option plans, provided by ETC
on the same basis as other ETC officers and will additionally receive free
medical insurance. ETC reserves the right unilaterally to modify, amend, or
terminate any such plans and programs at any time and from time to time during
the term of this Agreement. Mr. Havard shall be entitled to six weeks of paid
vacation time each year and will be provided with a company car of his choice.
Mr. Havard may perform all of his duties while living in Dallas, Texas and may
not be relocated against his will. Should Mr. Havard die during the term of this
agreement. ETC must offer his heirs the option of selling Mr. Havard's stock to
ETC at the highest price that has ever been paid for such stock sold in an "arms
length" transaction.
5. Reimbursement of Expenses. ETC shall reimburse Mr. Havard for all
expenses actually incurred by him in connection with ETC business, provided that
such expenses are reasonable and are in accordance with ETC policies. Such
reimbursement shall be made to Mr. Havard upon appropriate documentation of such
expenditures in accordance with ETC policies.
6. Term. The term of this Agreement shall be for the period commencing on
January 1, 1995, and ending on December 31, 2010, subject to earlier termination
as provided in Section 7. The term of this Agreement may be extended beyond
December 31, 2010, by mutual consent of ETC and Mr. Havard. Mr. Havard may
terminate this Agreement at any time without penalty.
7. Termination. This Agreement and Mr. Havard's employment hereunder shall
terminate in the event of Mr. Havard's death. If Mr. Havard becomes permanently
disabled (as determined by the ETC Board of Directors) for two consecutive
years, ETC may terminate this Agreement as Mr. Havard's early retirement by
paying one year's salary as severance pay, plus providing health insurance to
Mr. Havard for life, and allowing him to participate in any existing retirement
program
<PAGE>
Employment and Settlement Agreement Between ETC and L. Cade Havard
Page 2
in place at the time. ETC must also offer to buy Mr. Havard's stock at the
highest price that has ever been paid for such stock sold in an "arms length"
transaction. This Agreement and Mr. Havard's employment hereunder may be
terminated by ETC "for cause" at any time the ETC Board of Directors determines,
in the exercise of its good faith judgment, that Mr. Havard has engaged in gross
malfeasance or willful misconduct in performing his duties hereunder and that
his continued employment by ETC no longer is in the best interests of ETC.
8. Noncompetition for Existing Clients After Term. Mr. Havard agrees, for a
period of two years after the expiration of the term hereof, not to solicit, on
his own behalf or on behalf of any future employer or other entity, any business
from any entity with which ETC did business, during the term hereof. The parties
recognize that this covenant not to compete for specified customers for a
limited time period is an integral part of this Agreement and that ETC would not
enter into this Agreement, or would do so only on the basis of decreased
compensation to Mr. Havard, without this covenant.
9. Nondisclosure of Information and Trade Secrets. During his employment
hereunder and thereafter, Mr. Havard will not disclose to any person or entity
not directly connected with ETC, or use for his own benefit, any of the trade
secrets, financial information, systems, records, or business methods of ETC or
its affiliates, or any of the business relationships between ETC or its
affiliates and any of their business partners or customers, unless such
disclosure shall be in direct connection with or a part of Mr. Havard's
performance of his duties hereunder. The provisions of this section shall
survive any termination of this Agreement.
10. ETC Stock for Services. As additional compensation for his services,
Mr. Havard shall be offered options to purchase blocks of 100,000 shares of ETC
stock for one hundred dollars ($100.00) per block. These options shall be open
for five years from the date given. ETC stock options shall be issued to Mr.
Havard on the following schedule if, on the dates specified below, he then
remains in the employment of ETC hereunder.
Date Number of Shares of Stock
---- -------------------------
Consummation of Merger with Solo 100,000
January 1, 1996 100,000
January 1, 1997 100,000
January 1, 1998 100,000
Mr. Havard represents and warrants that:
(a) he has received and carefully read this Agreement and the materials
prepared by ETC regarding its respective businesses and statuses, is familiar
with and understands them, has based his investment decision on the information
contained therein, and has not asked any questions or requested any materials of
ETC which have not been answered or supplied; and
(b) he (i) is acquiring the Stock for his own account for investment and
not with a view to distribution or resale thereof, (ii) meets the suitability
standards for an investment in the Stock as set forth in the Securities Act of
1933, all applicable U.S. state and Canadian and provincial securities laws, and
all applicable regulations under any of the foregoing (collectively the
"Securities Laws and Regulations"), (iii) understands that the Stock, and the
issuance thereof, have not been registered under the Securities Laws and
Regulations and are not expected to be so registered, (iv) will not sell or
otherwise transfer the Stock except in compliance with the Securities Laws and
Regulations, and (v) resides at his address as set forth in section 11 below.
11. Unauthorized Termination. If ETC shall terminate Mr. Havard's
employment hereunder prior to the expiration of the term hereof, other than "for
cause" as set forth above, and recognizing that there is no right so to
terminate such employment, then ETC shall promptly pay to Mr. Havard as
liquidated damages in immediately available funds all compensation for the
remainder of the term hereof under section 3 above, all shares of Stock not
theretofore issued to Mr. Havard under section 10 above shall promptly be issued
to him, and ETC must purchase all his ETC stock at the highest price that has
ever been paid for such stock in an "arms length" transaction. Mr. Havard shall
also receive an amount each year until the end of this contract term equal to
what his yearly raises and bonuses would have been had he remained employed by
ETC, and ETC must purchase the company car provided to Mr. Havard and transfer
the title to him. If ETC shall remove Mr. Havard from the offices set forth in
section 2 above, or significantly change his duties as set forth therein,
without his consent, then Mr. Havard at his option may treat such actions as an
unauthorized termination under this section 11. As further liquidated damages,
Mr. Havard will be treated as an early retiree and ETC must provide free medical
insurance coverage to Mr. Havard for the rest of his life, and Mr. Havard shall
have the option to participate in all pension and profit sharing programs as
other ETC directors and employees.
12. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any party may specify hereunder:
<PAGE>
Employment and Settlement Agreement Between ETC and L. Cade Havard
Page 3
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard,
Chief Executive Officer
If to Mr. Havard: Mr. L. Cade Havard
2608 Fairbourne Cr.
Plano, Texas 75093
13. Mandatory Arbitration. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
14. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. However, this Agreement and the provisions hereof are subject to
amendment or modification to comply with any requirements of duly appointed
regulatory bodies. No party may assign this Agreement or its rights or
obligations hereunder without the written consent of all other parties hereto.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors, and assigns. The headings herein are for convenience of reference
only and shall not affect the meaning or interpretation of this Agreement. This
Agreement may be executed in multiple counterparts, and by the parties in
separate counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by its duly authorized representatives, on and effective
as of the Effective Date.
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and Chief Executive
Officer
MR. HAVARD
/s/ L. Cade Havard
L. Cade Havard
<PAGE>
EXHIBIT 10.8
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AND SETTLEMENT AGREEMENT
This Employment and Settlement Agreement (this "Agreement") is made and
entered into this 4th day of December, 1995, by and among Electronic
Transmission Corporation, and Elaine Boze, an individual resident in Denton
County, Texas ("Ms. Boze").
ETC has been developing a business of electronically editing and
transmitting medical and dental claims from health care providers to entities
that pay such claims. ETC anticipates entering into a series of transactions
(the "Merger") whereby Solo Petroleums Ltd. ("Solo") will acquire all
outstanding shares of common stock of ETC (the "ETC Stock") in exchange for
shares of common stock of Solo ("Solo Stock"). Ms. Boze has (i) devoted
considerable time and effort to assisting ETC in developing this business since
June 1995; (ii) contributed to the development of this business; and (iii)
contributed computer equipment and software to this business; and ETC owes
compensation to Ms. Boze for these services and contributions. In addition, ETC
now desires to employ Ms. Boze as its General Counsel, and Ms. Boze desires to
accept such employment with ETC, all on the following terms and subject to the
following conditions.
NOW, THEREFORE, ETC and Ms. Boze hereby are as follows.
1. Employment. ETC hereby employs Ms. Boze, and Ms. Boze hereby accepts
employment by ETC, for the term and compensation and subject to the terms and
conditions hereinafter set forth.
2. Duties of Ms. Boze. Ms. Boze shall serve in the capacity of General
Counsel of ETC, subject at all times to the terms and conditions hereof and to
the ultimate control and direction of the Board of Directors of ETC. In that
capacity, Ms. Boze shall have responsibility for preparing and reviewing legal
documents for ETC and giving opinions on Texas and federal law when requested.
During the term of this Agreement, Ms. Boze shall devote thirty (30) hours per
week of her business time and efforts to the performance of the duties and
responsibilities contained in this Agreement. ETC will provide an office, two
telephone lines, and a secretary, all of which may be used by Ms. Boze for her
private law practice as well as for performing work for ETC.
3. Compensation. As compensation for her services rendered to ETC in the
capacities set forth above, ETC shall pay to Ms. Boze a base salary at a rate
not less than sixty thousand dollars ($60,000.00) per year, net of any
deductions for taxes and other authorized deductions. When ETC's revenues reach
one hundred thousand dollars ($100,000) per month, a review will be made for a
salary increase. Thereafter, there will be annual reviews for raises and bonuses
as declared by the Board of Directors. Ms. Boze shall have rights to stock
options to purchase ETC stock, such options being equal to the percent her total
salary is to the total salaries paid (L. Cade Havard's salary excluded), such
percentage then applied to 80% of the options issued by ETC.
4. Benefits. During the term hereof, Ms. Boze shall be entitled to
participate in all benefit plans, including stock option plans, provided by ETC
on the same basis as ETC officers and will additionally receive free medical
insurance for herself. ETC reserves the right unilaterally to modify, amend, or
terminate any such plans and programs at any time and from time to time during
the term of this Agreement. Ms. Boze shall be entitled to four weeks of paid
vacation time each year which may be scheduled to allow her to do work for the
Methodist Church. Ms. Boze may perform all of her duties while living in Dallas,
Texas and may not be relocated against her will.
5. Reimbursement of Expenses. ETC shall reimburse Ms. Boze for all expenses
actually incurred by her in connection with ETC business, provided that such
expenses are reasonable and are in accordance with ETC policies. Such
reimbursement shall be made to Ms. Boze upon appropriate documentation of such
expenditures in accordance with ETC policies.
6. Term. The term of this Agreement shall be for the period commencing on
January 1, 1996, and ending on December 31, 1998, subject to earlier termination
as provided in Section 7. The term of this Agreement may be extended beyond
December 31, 1998, by mutual consent of ETC and Ms. Boze. Ms. Boze may terminate
this Agreement at any time without penalty.
7. Termination. This Agreement and Ms. Boze's employment hereunder shall
terminate in the event of Ms. Boze's death. If Ms. Boze becomes permanently
disabled (as determined by the ETC Board of Directors), ETC may terminate
<PAGE>
Employment and Settlement Agreement Between ETC and Elaine Boze
Page 2
this Agreement as Ms. Boze's early retirement by paying one year's salary as
severance pay, plus providing health insurance to Ms. Boze for life, and
allowing her to participate in any existing retirement program in place at the
time. This Agreement and Ms. Boze's employment hereunder may be terminated by
ETC "for cause" at any time the ETC Board of Directors determines, in the
exercise of its good faith judgment, that Ms. Boze has engaged in gross
malfeasance or willful misconduct in performing her duties hereunder and that
her continued employment by ETC no longer is in the best interests of ETC.
8. Noncompetition for Existing Clients After Term. Ms. Boze agrees, for a
period of two years after the expiration of the term hereof, not to solicit, on
her own behalf or on behalf of any future employer or other entity, any business
done by ETC from any entity with which ETC did business, during the term hereof.
The parties recognize that this covenant not to compete for specified customers
for a limited time period is an integral part of this Agreement and that ETC
would not enter into this Agreement, or would do so only on the basis of
decreased compensation to Ms. Boze, without this covenant.
9. Nondisclosure of Information and Trade Secrets. During her employment
hereunder and thereafter, Ms. Boze will not disclose to any person or entity not
directly connected with ETC, or use for her own benefit, any of the trade
secrets, financial information, systems, records, or business methods of ETC or
its affiliates, or any of the business relationships between ETC or its
affiliates and any of their business partners or customers, unless such
disclosure shall be in direct connection with or a part of Ms. Boze's
performance of her duties hereunder. The provisions of this section shall
survive any termination of this Agreement.
10. Unauthorized Termination. If ETC shall terminate Ms. Boze's employment
hereunder prior to the expiration of the term hereof, other than "for cause" as
set forth above, and recognizing that there is no right so to terminate such
employment, then ETC shall promptly pay to Ms. Boze as liquidated damages an
amount equal to twenty-five percent (25%) of all salary due for the remainder of
the term hereof under section 3 above, such amount payable at Ms. Boze's current
salary rate until the balance is paid. Should there be a sale of ETC other than
to Solo Petroleums, Ltd. or change of control from ETC's current management, the
following provisions will apply. Ms. Boze shall receive an amount each year
until the end of this contract term equal to what her yearly salary, raises and
bonuses would have been had she remained employed by ETC. If ETC shall remove
Ms. Boze from the office set forth in section 2 above, or significantly change
her duties as set forth therein, without her consent, then Ms. Boze at her
option may treat such actions as an unauthorized termination under this section
10. As further liquidated damages, Ms. Boze will be treated as an early retiree
and ETC must provide free medical insurance coverage to Ms. Boze for the rest of
her life, and Ms. Boze shall have the option to participate in all pension and
profit sharing programs as other ETC directors and employees.
11. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any party may specify hereunder:
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, Chief
Executive Officer
If to Ms. Boze: Ms. Elaine Boze
3701 Verlaine Drive
Carrollton, Texas 75007
12. Mandatory Arbitration. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
13. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. However, this Agreement and the provisions hereof are subject to
amendment or modification to comply with any requirements of duly appointed
regulatory bodies. No party may assign this Agreement or its rights or
obligations hereunder without the written consent of all other parties hereto.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors, and assigns. The headings herein are for convenience of reference
only, and shall not affect the meaning or interpretation of this Agreement.
<PAGE>
Employment and Settlement Agreement Between ETC and Elaine Boze
Page 3
This Agreement may be executed in multiple counterparts, and by the parties in
separate counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by its duly authorized representatives, on and effective
as of the Effective Date.
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and Chief Executive
Officer
MS. BOZE
/s/ Elaine Boze
Elaine Boze
<PAGE>
EXHIBIT 10.9
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AND SETTLEMENT AGREEMENT
This Employment and Settlement Agreement (this "Agreement") is made and
entered into this 1st day of March, 1995, by and among Electronic Transmission
Corporation, and Tim Powell, an individual resident in Dallas County, Texas
("Mr. Powell").
ETC has been developing a business of electronically editing and
transmitting medical and dental claims from health care providers to entities
that pay such claims. ETC anticipates entering into a series of transactions
(the "Merger") whereby Solo Petroleums Ltd. ("Solo") will acquire all
outstanding shares of common stock of ETC (the "ETC Stock") in exchange for
shares of common stock of Solo ("Solo Stock"). Mr. Powell has (i) devoted
considerable time and effort to assisting ETC in developing this business since
September, 1994; (ii) contributed to the development of this business, and (iii)
contributed computer equipment and software to this business; and ETC owes
compensation to Mr. Powell for these services and contributions. In addition,
ETC now desires to employ Mr. Powell as its Vice-President of Data Services, and
Mr. Powell desires to accept such employment with ETC, all on the following
terms and subject to the following conditions.
NOW, THEREFORE, ETC and Mr. Powell hereby agree as follows.
1. Employment. ETC hereby employs Mr. Powell, and Mr. Powell hereby accepts
employment by ETC, for the term and compensation and subject to the terms and
conditions hereinafter set forth.
2. Duties of Mr. Powell. Mr. Powell shall serve in the capacity of
Vice-President of Data Services of ETC, subject at all times to the terms and
conditions hereof and to the ultimate control and direction of the Board of
Directors of ETC. In that capacity, Mr. Powell shall have responsibility for
assisting in developing and administering the business of ETC for the long term
benefit of its stockholders, and in accordance with industry standards. During
the term of this Agreement, Mr. Powell shall devote most of his entire business
time and efforts to the performance of the duties and responsibilities contained
in this Agreement.
3. Compensation. As compensation for his services rendered to ETC in the
capacities set forth above, ETC shall pay to Mr. Powell a base salary at a rate
not less than seventy-two thousand dollars ($72,000.00) per year, paid as
specified by Mr. Powell. When ETC's revenues reach one hundred thousand dollars
($100,000) per month, a review will be made for a salary increase. Thereafter,
there will be annual reviews for raises and bonuses as declared by the Board of
Directors. Mr. Powell shall have rights to stock options to purchase ETC stock,
such options being equal to the percent his total salary is to the total
salaries paid (L. Cade Havard's salary excluded), such percentage then applied
to 80% of the options issued by ETC.
4. Benefits. During the term hereof, Mr. Powell shall be entitled to
participate in all benefit plans, including stock option plans, provided by ETC
on the same basis as other ETC officers and will additionally receive free
medical insurance for himself. ETC reserves the right unilaterally to modify,
amend, or terminate any such plans and programs at any time and from time to
time during the term of this Agreement. Mr. Powell shall be entitled to three
weeks of paid vacation time each year. Mr. Powell may perform all of his duties
while living in Dallas, Texas and may not be relocated against his will.
5. Reimbursement of Expenses. ETC shall reimburse Mr. Powell for all
expenses actually incurred by him in connection with ETC business, provided that
such expenses are reasonable and are in accordance with ETC policies. Such
reimbursement shall be made to Mr. Powell upon appropriate documentation of such
expenditures in accordance with ETC policies.
6. Term. The term of this Agreement shall be for the period commencing on
March 1, 1995, and ending on December 31, 1998, subject to earlier termination
as provided in Section 7. The term of this Agreement may be extended beyond
December 31, 1998, by mutual consent of ETC and Mr. Powell. Mr. Powell may
terminate this Agreement at any time without penalty.
7. Termination. This Agreement and Mr. Powell's employment hereunder shall
terminate in the event of Mr. Powell's death. If Mr. Powell becomes permanently
disabled (as determined by the ETC Board of Directors), ETC may terminate this
Agreement as Mr. Powell's early retirement by paying one year's salary as
severance pay, plus providing health insurance to Mr. Powell for life, and
allowing him to participate in any existing retirement program in place at the
time. This Agreement and Mr. Powell's employment hereunder may be terminated by
ETC "for cause" at any time the ETC Board of
<PAGE>
Employment and Settlement Agreement Between ETC and Tim Powell
Page 2
Directors determines, in the exercise of its good faith judgment, that Mr.
Powell has engaged in gross malfeasance or willful misconduct in performing his
duties hereunder and that his continued employment by ETC no longer is in the
best interests of ETC.
8. Noncompetition for Existing Clients After Term. Mr. Powell agrees, for a
period of two years after the expiration of the term hereof, not to solicit, on
his own behalf or on behalf of any future employer or other entity, any business
from any entity with which ETC did business, during the term hereof. The parties
recognize that this covenant not to compete for specified customers for a
limited time period is an integral part of this Agreement and that ETC would not
enter into this Agreement, or would do so only on the basis of decreased
compensation to Mr. Powell, without this covenant.
9. Nondisclosure of Information and Trade Secrets. During his employment
hereunder and thereafter, Mr. Powell will not disclose to any person or entity
not directly connected with ETC, or use for his own benefit, any of the trade
secrets, financial information, systems, records, or business methods of ETC or
its affiliates, or any of the business relationships between ETC or its
affiliates and any of their business partners or customers, unless such
disclosure shall be in direct connection with or a part of Mr. Powell's
performance of his duties hereunder. The provisions of this section shall
survive any termination of this Agreement.
10. Unauthorized Termination. If ETC shall terminate Mr. Powell's
employment hereunder prior to the expiration of the term hereof, other than "for
cause" as set forth above, and recognizing that there is no right so to
terminate such employment, then ETC shall promptly pay to Mr. Powell as
liquidated damages an amount equal to twenty-five percent (25%) of all salary
due for the remainder of the term hereof under section 3 above, such amount
payable at Mr. Powell's current salary rate until the balance is paid. Should
there be a sale of ETC other than to Solo Petroleums, Ltd. or change of control
from ETC's current management, the following provisions will apply. Mr. Powell
shall receive an amount each year until the end of this contract term equal to
what his yearly salary, raises and bonuses would have been had he remained
employed by ETC. If ETC shall remove Mr. Powell from the office set forth in
section 2 above, or significantly change his duties as set forth therein,
without his consent, then Mr. Powell at his option may treat such actions as an
unauthorized termination under this section 10. As further liquidated damages,
Mr. Powell will be treated as an early retiree and ETC must provide free medical
insurance coverage to Mr. Powell for the rest of his life, and Mr. Powell shall
have the option to participate in all pension and profit sharing programs as
other ETC directors and employees.
11. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any party may specify hereunder:
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, Chief
Executive Officer
If to Mr. Powell: Mr. Tim Powell
2661 Midway Road, #224-194
Carrollton, Texas 75006-2359
12. Mandatory Arbitration. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
13. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. However, this Agreement and the provisions hereof are subject to
amendment or modification to comply with any requirements of duly appointed
regulatory bodies. No party may assign this Agreement or its rights or
obligations hereunder without the written consent of all other parties hereto.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors, and assigns. The headings herein are for convenience of reference
only and shall not affect the meaning or interpretation of this Agreement. This
Agreement may be executed in multiple counterparts, and by the parties in
separate counterparts, each of which shall be
<PAGE>
Employment and Settlement Agreement Between ETC and Tim Powell
Page 3
an original but all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by its duly authorized representatives, on and effective
as of the Effective Date.
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and Chief Executive
Officer
MR. POWELL
/s/ Tim Powell
Tim Powell
<PAGE>
EXHIBIT 10.10
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into this
1st day of May, 1996, by and among Electronic Transmission Corporation, a Texas
corporation ("ETC"), and Ann Compton McDearmon ("Ms. McDearmon").
ETC now desires to employ Ms. McDearmon as Executive Vice President,
Marketing and Ms. McDearmon desires to accept such employment with ETC, all on
the following terms and subject to the following conditions.
NOW, THEREFORE, ETC and Ms. McDearmon hereby agree as follows.
1. Employment. ETC hereby employs Ms. McDearmon, and Ms. McDearmon hereby
accepts employment by ETC, for the term and compensation and subject to the
terms and conditions hereinafter set forth.
2. Duties of Ms. McDearmon. Ms. McDearmon shall serve in the capacity of
Executive Vice President and Director of Marketing, subject at all times to the
terms and conditions hereof and to the ultimate control and direction of the
President, the Chief Executive Officer, and the Board of Directors of ETC. In
that capacity, Ms. McDearmon shall have a substantial role in the marketing by
ETC of the services it offers to its clients. Ms. McDearmon shall not make any
agreements, representations, or performance guarantees, or execute or agree to
any instruments or contracts, on behalf of ETC or any of its subsidiaries or
affiliates without prior consent of ETC's chief executive officer or Board of
Directors. During the term of this Agreement, Ms. McDearmon shall devote her
entire business day and efforts to the performance of the duties and
responsibilities contained in this Agreement.
3. Compensation. As compensation for her services rendered to ETC in the
capacities set forth above, ETC shall pay to Ms. McDearmon a base salary of
forty-eight thousand dollars ($48,000) per year and shall receive a commission
of nine percent (9%) of all gross income generated from sales to companies
brought to ETC by her. She shall also receive a commission of two percent (2%)
of all gross income generated from sales to companies brought to ETC by Marsha
Wilcox. Gross income shall be calculated for each calendar month during the term
hereof by (i) determining the gross income received by ETC in immediately
available funds during such calendar month from commissions, administrative and
other fees, fees for editing and transmitting claims and other direct sources,
from accounts credited to Ms. McDearmon, and (ii) subtracting any third party
subcontractor or consultant or other third party expenses incurred by ETC with
respect to such accounts during such calendar month. The percentages specified
above of the gross income so calculated for each calendar month during the term
hereof, less any authorized deductions, shall be paid to Ms. McDearmon in the
next calendar month. There shall be no carry-over from one month to the next of
any negative net income.
Commissions shall continue for the life of the above described accounts so
long as this Agreement or any extension thereof is in effect. If this Agreement
is terminated or not renewed, commissions shall be paid on said accounts for one
year after termination or non-renewal. Should this Agreement be terminated
without cause by ETC, the liquidated damages shall be payment of commissions to
Ms. McDearmon for the remainder of the term of this Agreement and for one year
thereafter.
Ms. McDearmon hereby assigns her twenty-five percent (25%) interest in
Claims, Etc. to ETC.
4. Benefits. During the term hereof, Ms. McDearmon shall be entitled to
participate in any benefit plans, stock option plans, and medical insurance
programs, provided by ETC on the same basis as other ETC employees.
5. Reimbursement of Expenses. ETC shall reimburse Ms. McDearmon for all
expenses actually incurred by her in connection with ETC business, provided that
such expenses are reasonable and are in accordance with ETC policies. Such
reimbursement shall be made to Ms. McDearmon upon appropriate documentation of
such expenditures in accordance with ETC policies.
6. Term. The term of this Agreement shall be for the period commencing on
May 1, 1996, and ending on December 31, 1998, subject to earlier termination as
provided in Section 7. The term of this Agreement may be extended beyond
December 31, 1998, by mutual consent of ETC and Ms. McDearmon.
7. Termination. This Agreement and Ms. McDearmon's employment hereunder
shall terminate in the event of Ms. McDearmon's death or if Ms. McDearmon
becomes permanently disabled as determined by the ETC board of Directors.
<PAGE>
Employment and Settlement Agreement Between ETC and Ann
McDearmon
Page 2
This Agreement and Ms. McDearmon's employment hereunder may be terminated by ETC
"for cause" at any time the ETC Board of Directors determines, in the exercise
of its good faith judgment, that Ms. McDearmon has engaged in gross malfeasance
or willful misconduct in performing her duties hereunder and that her continued
employment by ETC no longer is in the best interests of ETC. Ms. McDearmon may
terminate this agreement at any time.
8. Noncompetition for Existing Clients After Termination. Ms. McDearmon
agrees, for a period of six months after the termination of this Agreement, not
to solicit, on her own behalf or on behalf of any future employer or other
entity, any business from any entity with which ETC or any of its subsidiaries
did business during the term hereof, unless Ms. McDearmon purchases Claims, Etc.
In that event, she may continue that business but may not solicit any ETC
business outside of Claims, Etc. The parties recognize that this covenant not to
compete for specified customers for a limited time period is an integral part of
this Agreement and that ETC would not enter into this Agreement, or would do so
only on the basis of decreased compensation to Ms. McDearmon, without this
covenant.
9. Nondisclosure of Information and Trade Secrets. During her employment
hereunder and thereafter, Ms. McDearmon will not disclose to any person or
entity not directly connected with ETC, or use for her own benefit, any of the
trade secrets, financial information, systems, records, or business methods of
ETC or its subsidiaries or affiliates, or any of the business relationships
between ETC or its subsidiaries or affiliates and any of their business partners
or customers, unless such disclosure shall be in direct connection with or a
part of Ms. McDearmon's performance of her duties hereunder. All software
development code written while Ms. McDearmon is employed by ETC will be the
intellectual property of ETC and will be protected by ETC copyrights. The
provisions of this section shall survive any termination of this Agreement.
10. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any party may specify hereunder:
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, Chief
Executive Officer
If to Ms. McDearmon: Ms. Ann McDearmon
6503 N. Ridge
Dallas, Texas 75214
11. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. This Agreement replaces all other agreements between the parties,
including but not limited to the Employment Agreement dated December 27, 1996.
No party may assign this Agreement or its rights or obligations hereunder
without the written consent of all other parties hereto. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, administrators, successors, and
assigns. The headings herein are for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement. This Agreement may be
executed in multiple counterparts, and by the parties in separate counterparts,
each of which shall be an original but all of which together shall constitute
one and the same instrument. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
<PAGE>
Employment and Settlement Agreement Between ETC and Ann
McDearmon
Page 3
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by its duly authorized representatives, on and effective
as of the Effective Date.
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and Chief
Executive Officer
MS. McDEARMON
/s/ Ann Compton McDearmon
Ann Compton McDearmon
<PAGE>
EXHIBIT 10.11
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into this
1st day of April, 1996, between Electronic Transmission Corporation ("ETC"), and
Louann C. Smith, an individual resident in Dallas County, Texas ("Ms. Smith").
ETC has been developing a business of electronically editing and
transmitting medical and dental claims from health care providers to entities
that pay such claims. ETC desires to employ Ms. Smith as its Corporate
Secretary, Treasurer and Controller, and Ms. Smith desires to accept such
employment with ETC, all on the following terms and subject to the following
conditions.
NOW, THEREFORE, ETC and Ms. Smith hereby agree as follows.
1. Employment. ETC hereby employs Ms. Smith, and Ms. Smith hereby accepts
employment by ETC, for the term and compensation and subject to the terms and
conditions hereinafter set forth.
2. Duties of Ms. Smith. Ms. Smith shall serve in the capacity of Corporate
Secretary, Treasurer and Controller of ETC, subject at all times to the terms
and conditions hereof and to the ultimate control and direction of the Board of
Directors of ETC. In that capacity, Ms. Smith shall have responsibility for
keeping all the corporate and financial records of ETC. During the term of this
Agreement, Ms. Smith shall devote all of her entire business time and efforts to
the performance of the duties and responsibilities contained in this Agreement.
3. Compensation. As compensation for her services rendered to ETC in the
capacities set forth above, ETC shall pay to Ms. Smith a salary at a rate of
fifty thousand dollars ($50,000.00) per year. Thereafter, there will be annual
reviews for raises and bonuses as declared by the Board of Directors.
4. Benefits. During the term hereof, Ms. Smith shall be entitled to
participate in all benefit plans, including stock option plans, provided by ETC
on the same basis as other ETC officers and will additionally receive free
medical insurance for herself. ETC reserves the right unilaterally to modify,
amend or terminate any such plans and programs at any time and from time to time
during the term of this Agreement. Ms. Smith shall be entitled to two weeks of
paid vacation time each year. Ms. Smith may perform all of her duties while
living in Dallas, Texas and may not be relocated against her will.
5. Reimbursement of Expenses. ETC shall reimburse Ms. Smith for all
expenses actually incurred by her in connection with ETC business, provided that
such expenses are reasonable and are in accordance with ETC policies. Such
reimbursement shall be made to Ms. Smith upon appropriate documentation of such
expenditures in accordance with ETC policies.
6. Term. The term of this Agreement shall be for the period commencing on
April 1, 1996, and ending on December 31, 1998, subject to earlier termination
as provided in Section 7. The term of this Agreement may be extended beyond
December 31, 1998, by mutual consent of ETC and Ms. Smith. Ms. Smith may
terminate this Agreement at any time without penalty.
7. Termination. This Agreement and Ms. Smith's employment hereunder shall
terminate in the event of Ms. Smith's death. If Ms. Smith becomes permanently
disabled (as determined by the ETC Board of Directors), ETC may terminate this
Agreement as Ms. Smith's early retirement by paying one year's salary as
severance pay, plus providing health insurance to Ms. Smith for life, and
allowing her to participate in any existing retirement program in place at the
time. This Agreement and Ms. Smith's employment hereunder may be terminated by
ETC "for cause" at any time the ETC Board of Directors determines, in the
exercise of its good faith judgment, that Ms. Smith has engaged in gross
malfeasance or willful misconduct in performing her duties hereunder and that
her continued employment by ETC no longer is in the best interests of ETC.
8. Noncompetition for Existing Clients After Term. Ms. Smith agrees, for a
period of two years after the expiration of the term hereof, not to solicit, on
her own behalf or on behalf of any future employer or other entity, any business
from any entity with which ETC did business, during the term hereof. The parties
recognize that this covenant not to compete for specified customers for a
limited time period is an integral part of this Agreement and that ETC would not
enter into this Agreement, or would do so only on the basis of decreased
compensation to Ms. Smith, without this covenant.
<PAGE>
Employment Agreement Between ETC and Louann Smith
Page 2
9. Nondisclosure of Information and Trade Secrets. During her employment
hereunder and thereafter, Ms. Smith will not disclose to any person or entity
not directly connected with ETC, or use for her own benefit, any of the trade
secrets, financial information, systems, records, or business methods of ETC or
its affiliates, or any of the business relationships between ETC or its
affiliates and any of their business partners or customers, unless such
disclosure shall be in direct connection with or a part of Ms. Smith's
performance of her duties hereunder. The provisions of this section shall
survive any termination of this Agreement.
10. Unauthorized Termination. If ETC shall terminate Ms. Smith's employment
hereunder prior to the expiration of the term hereof, other than "for cause" as
set forth above, and recognizing that there is no right so to terminate such
employment, then ETC shall promptly pay to Ms. Smith as liquidated damages an
amount equal to twenty-five percent (25%) of all salary due for the remainder of
the term hereof under section 3 above, such amount payable at Ms. Smith's
current salary rate until the balance is paid. Should there be a sale of ETC
other than to ETC Transaction Corporation or change of control from ETC's
current management, the following provisions will apply. Ms. Smith shall receive
an amount each year until the end of this contract term equal to what her yearly
salary, raises and bonuses would have been had he remained employed by ETC. If
ETC shall remove Ms. Smith from the office set forth in section 2 above, or
significantly change her duties as set forth therein, without her consent, then
Ms. Smith at her option may treat such actions as an unauthorized termination
under this section 10. As further liquidated damages, Ms. Smith will be treated
as an early retiree and ETC must provide free medical insurance coverage to Ms.
Smith for the rest of her life, and Ms. Smith shall have the option to
participate in all pension and profit sharing programs as other ETC directors
and employees.
11. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as any party may specify hereunder:
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, Chief
Executive Officer
If to Ms. Smith: Ms. Louann C. Smith
16300 Ledgemont Lane, #106
Addison, Texas 75248
12. Mandatory Arbitration. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
13. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. However, this Agreement and the provisions hereof are subject to
amendment or modification to comply with any requirements of duty appointed
regulatory bodies. No party may assign this Agreement or its rights or
obligations hereunder without the written consent of all other parties hereto.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors, and assigns. The headings herein are for convenience of reference
only and shall not affect the meaning or interpretation of this Agreement. This
Agreement may be executed in multiple counterparts, and by the parties in
separate counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
<PAGE>
Employment Agreement Between ETC and Louann Smith
Page 3
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed and delivered by its duly authorized representatives, on and effective
as of the Effective Date.
ELECTRONIC TRANSMISSION CORPORATION
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and Chief Executive
Officer
MS. SMITH
/s/ Louann C. Smith
Louann C. Smith
<PAGE>
EXHIBIT 10.12
<PAGE>
EXHIBIT 10.12
SETTLEMENT AND EMPLOYMENT AGREEMENT
This Settlement and Employment Agreement (this "Agreement") is made and
entered into this 1st day of May, 1996 (the "Effective Date"), by and between
Electronic Transmission Corporation, a Texas corporation ("ETC"), and Roy W.
Mers, collectively referred to as "Employee". ETC desires to retain Employee to
assist ETC, and Employee desires to accept such retainer, all on the following
terms and subject to the following conditions.
NOW, THEREFORE, ETC and Employee hereby agree as follows.
1. Employment. ETC hereby retains Employee as an independent Employee to
ETC, and Employee hereby accepts such retainer, for the term and compensation
and subject to the terms and conditions hereinafter set forth.
2. Duties of Employee. Employee shall assist ETC in obtaining financing for
ETC's business ventures. During the term of this Agreement, Employee will not
market, provide or recommend any products or services which might compete with
those offered, or contemplated to be offered, by ETC. ETC recognizes that
Employee is involved with various other business endeavors for his own account
and for third parties. Specifically, Employee's rights to the Managed Vision
Care project developed with Sterling National Corporation and all rights and
revenues attributable thereto belong solely to Employee and survive any
termination of this Agreement.
3. Compensation. As compensation for services rendered to ETC in the
capacities set forth above, ETC shall pay to Employee compensation for each
calendar month during the term hereof for funding obtained through Employee's
efforts as follows:
(a) For all capital invested by private investors for which no commission
is due to any other funding source ETC will pay Employee a fee of ten percent
(10%) of the capital invested.
(b) On additional capital provided by any investment banking or brokerage
group to which a commission is due, a fee will be paid to Employee on a "Lehman
Formula" five per cent (5%) on the first one million dollars ($1,000,000), four
percent (4%) on the second million dollars, three per cent on the third million
dollars, two percent (2%) on the fourth million dollars and one percent (1%) on
the capital raised in excess of five million dollars.
(c) On any loans generated or credit lines established by Employee on
behalf of ETC, ETC will pay a fee of two percent (2%) of the loan amount or
maximum amount used on any credit line.
(d) Employee will additionally be compensated with ETC stock at a rate of
one hundred thousand (100,000) shares for the first one million dollars ($
1,000,000) of capital raised, seventy-five thousand (75,000) shares for the
second million dollars of capital raised, fifty thousand (50,000) shares for the
third million dollars of capital raised, and twenty-five thousand (25,000)
shares for the fourth million dollars and each additional million dollars in
capital raised. The stock may be earned pro-rata beginning at five hundred
thousand dollars ($500,000) in capital raised. If less than five hundred
thousand dollars in capital is provided during the term of this agreement, no
shares will be earned. No stock will be earned by providing access to credit
lines.
(e) ETC will continue to provide medical insurance to Employee during the
term of this agreement and any extensions thereof. At the termination of this
agreement, Employee will have any rights afford him under law for medical
insurance, ie., COBRA.
4. Status as Employee. Employee shall be an employee of ETC and not an
agent of ETC. Employee shall be responsible for determining the means of
accomplishing his duties as set forth herein, subject to overall direction and
guidance of ETC's chief executive officer and Board of Directors. Employee shall
not make any agreements, representations, or performance guarantees, or execute
or agree to any instruments or contracts, on behalf of ETC without prior consent
of its chief executive officer or Board of Directors.
5. Term. The term of this Agreement shall be for the period commencing on
the Effective Date and ending on August 1, 1996, subject to earlier termination
as provided in Section 6. At that time, if Employee has secured a minimum of two
million dollars ($2,000,000) or greater in capital, ETC agrees to negotiate in
good faith to redefine the duties of Employee and enter into a new employment
agreement with Employee. ETC will honor Employee's compensation including stock
bonuses should any entity the Employee introduced to ETC subsequently provide
financing to the company prior to August 1, 1997.
<PAGE>
Employment Agreement Between ETC and Roy Mers
Page 2
6. Termination. This Agreement be terminated by ETC "for cause" at any time
the ETC Board of Directors determines, in the exercise of its good faith
judgment, that Employee or its agents have engaged in gross malfeasance or
willful misconduct in performing his duties hereunder and that his continued
retainer by ETC no longer is in the best interests of ETC.
7. Noncompetition for Existing Clients After Term. Employee agrees, for a
period of one year after payments to Employee cease, not to solicit, on his own
behalf or on behalf of any future employer or other entity, any business from
any entity with which ETC did business, during the term hereof. The parties
recognize that this covenant not to compete for specified customers for a
limited time period is an integral part of this Agreement and that ETC would not
enter into this Agreement, or would do so only on the basis of decreased
compensation to Employee, without this covenant. This covenant does not replace
any additional non-disclosure, non-compete agreements in place between Employee
and ETC.
8. Nondisclosure of Information and Trade Secrets. During his employment
hereunder and thereafter, Employee will not disclose to any person or entity not
directly connected with ETC, or use for his own benefit, any of the trade
secrets, financial information, systems, records, or business methods of ETC or
its affiliates, or any of the business relationships between ETC or its
affiliates and any of its business partners or customers, unless such disclosure
shall be in direct connection with or a part of Employee's performance of his
duties hereunder and is done with the full knowledge and informed consent of
ETC. The provisions of this section shall survive any termination of this
Agreement.
9. Notices. All notices hereunder shall be in writing and delivered
personally or sent by U.S. Mail or recognized courier service, addressed as
follows or to such other address for itself as either party may specify
hereunder:
If to ETC: Electronic Transmission Corporation
5025 Arapaho, Suite 515
Dallas, Texas 75248
Attention: Mr. L. Cade Havard, Chief
Executive Officer
If to Employee: Mr. Roy W. Mers
3537 Normandy, Unit C
Dallas, Texas 75205
10. Waiver of Liability and Hold Harmless. For the receipt of one hundred
and twenty thousand (120,000) shares of pre-merger ETC stock and other of good
and valuable consideration, the receipt of which is herein acknowledged, Roy W.
Mers has resigned his position as President of ETC and as a Director and has
canceled all employment agreements or arrangements he may have with ETC,
Sterling National Corporation, or L. Cade Havard. The parties hereby desire to
compromise and settle all claims and causes of action arising out of their
business relationships and agreements and agree as follows:
Except as described herein, the parties hereby terminate any and all
agreements with each other and waive any and all claims of any nature
whatsoever, known or unknown against each other. In consideration of the
premises and the mutual promises and covenants herein contained, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
each of the parties above named, for its predecessors, successors, assigns,
administrators, and legal representatives, releases and forever discharges the
other, its predecessors, successors, assigns administrators and legal
representatives, of and from any and all claims, demands, damages, actions,
causes of action, or suits in equity, of whatsoever kind or nature whether
heretofore or hereafter accruing or whether now known or not known to the
parties, for or because of any matter or thing done, omitted, or suffered to be
done by any of such parties prior to and including the date hereof and in any
way directly or indirectly arising out of the business agreements and
relationships between the parties and holds the other party harmless for any
acts or omissions it committed during the time Employee served as President of
ETC.
11. Entire Agreement, Counterparts, Governing Law. This Agreement expresses
the complete understanding of the parties with respect to the subject matter
hereof, superseding all prior or contemporaneous understandings, arrangements,
or agreements of the parties, and may be amended, supplemented, or waived in
whole or in part only by an instrument in writing executed by the parties
hereto. No party may assign this Agreement or its rights or obligations
hereunder without the written consent of all other parties hereto. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, administrators, successors, and
assigns. The headings herein are for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement. This Agreement may be
executed in multiple counterparts, and by the parties in separate counterparts,
each of which shall be an original but all of which together shall constitute
one and the same instrument. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
<PAGE>
Employment Agreement Between ETC and Roy Mers
Page 3
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed, on and effective as of the Effective Date.
Electronic Transmission Corporation Employee
By: /s/ L. Cade Havard By: /s/ Roy W. Mers
L. Cade Havard Roy W. Mers
Chairman and Chief Executive Officer
<PAGE>
Employment Agreement Between ETC and Roy Mers
Page 4
EXHIBIT 10.13
<PAGE>
EXHIBIT 10.13
OFFICE LEASE
EXHIBIT 10.13
OFFICE LEASE
BUILDING: QUORUM NORTH
LANDLORD: NATRON LIMITED PARTNERSHIP
TENANT: ELECTRONIC TRANSMISSION CORP. ("ETC")
<PAGE>
TABLE OF CONTENTS
1. CERTAIN LEASE PROVISIONS
1.1 Tenant's address and telephone number
1.2 Premises
1.3 Leased Premises
1.4 Total Building Area
1.5 Tenant's Pro-Rata Share of Building Area
1.6 Lease Term
1.7 Commencement Date
1.8 Expiration Date
1.9 Base Rent for Lease Term
1.10 Base Rent, Monthly Installments
1.11 (a) Address of Landlord for Rent Payments
(b) Address of Landlord for Notices
(c) Address of Tenant for Notices
1.12 Geographic Area for CPI Calculation
1.13 Base Month for CPI Calculation
1.14 Landlord's Share of Operating Expenses
1.15 Landlord's Share of Real Estate Taxes
1.16 Security Deposit
1.17 Use
1.18 Brokers
1.19 Addendum(s)
2. PREMISES
2.1 Definition
2.2 Public Areas
3. TERMS
3.1 Term
3.2 Delay in Commencement
3.3 Early Possession
3.4 Delivery of Possession
3.5 Holding Over
4. RENTS
4.1 Base Rent
4.2 Additional Rent
4.3 Parking and Storage
4.4 Acceptance of Rental Payments
5. ESCALATIONS OF RENT
5.1 Determination
5.2 Indexing
6. SHARED EXPENSES
6.1 Determination
6.2 Escalations
6.3 Statements
7. SECURITY DEPOSIT
8. USE
8.1 Use
8.2 Compliance With Law
8.3 Waste and Nuisance
<PAGE>
8.4 Conditions of Premises
8.5 Insurance Cancellation
8.6 Landlord's Rules and Regulations
9. LANDLORD'S SERVICES
9.1 Basic Services
9.2 Initial Construction
9.3 Interruption of Service
10. MAINTENANCE, REPAIRS AND ALTERATIONS
10.1 Landlord's Obligations
10.2 Tenant's Obligations
10.3 Surrender
10.4 Alterations and Additions
11. TENANT'S USE OF PUBLIC AREAS
12. TAXES AND TELEPHONE
13. INSURANCE AND INDEMNITY
13.1 Liability Insurance
13.2 Property Insurance
13.3 Insurance Policies
13.4 Waiver of Subrogation
13.5 Hold Harmless
13.6 Exemption of Landlord from Liability
14. DAMAGE OR DESTRUCTION
14.1 Option to Terminate Lease
14.2 Obligation to Repair or Restore
14.3 Fault of Tenant
14.4 Obligations of Tenant
14.5 Termination by Tenant
15. CONDEMNATION
16. ASSIGNMENT AND SUBLETTING
16.1 Landlord's Consent Required
16.2 No Release of Tenant
16.3 Attorneys Fees and Administrative Fees
16.4 Right to Collect Rent
17. DEFAULTS; REMEDIES
17.1 Defaults
17.2 Remedies in Default
17.3 Default by Landlord
17.4 Late Charges
18. RIGHTS OF MORTGAGEES
18.1 Subordination
18.2 Mortgagee's Consent to Amendments
18.3 Mortgagee's Right to Cure
19. NOTICES
20. RELOCATION
21. QUIET POSSESSION
<PAGE>
22. OPTIONS
23. LANDLORD'S LIEN
24. HAZARDOUS MATERIALS
25. GENERAL PROVISIONS
25.1 Estoppel Certificate
25.2 Landlord's Interests
25.3 Severability
25.4 Interest on Past Due Obligations; Certified Funds
25.5 Time of the Essence
25.6 Captions
25.7 Entire Agreement
25.8 Waivers
25.9 Recording
25.10 Determinations by Landlord
25.11 Cumulative Remedies
25.12 Covenants and Conditions
25.13 Binding Effect; Choice of Law
25.14 Attorneys Fees
25.15 Landlord's Access
25.16 Auctions
25.17 Merger
25.18 Corporate Authority
25.19 Signs
25.20 Brokers
25.21 Guarantor
25.22 Governing Law
25.23 Joint and Several Liability
25.24 No Joint Venture
26. RENEWAL OPTION
EXHIBITS
Exhibit A -- Legal Description
Exhibit B -- Premises Site Plan
Exhibit C -- Parking Addendum
Exhibit D -- Rules and Regulations
Exhibit E -- Guaranty
Exhibit F -- Work Letter Addendum
<PAGE>
OFFICE LEASE
This Lease, dated January 5, 1995 is made by and between Natron Limited
Partnership (the "Landlord"), and Electronic Transmission Corp. ("ETC"), (the
"Tenant").
1. BASIC LEASE PROVISIONS
The description and amounts set forth below are qualified by their usage
elsewhere in this Lease, including those Sections referred to in parentheses
following such descriptions;
1.1 Tenant's address and telephone number on occupancy. (Section 19):
Tenant Name: Electronic Transmission Corp.
Doing Business As (DBA): Same
Address: 5025 Arapaho Road, Suite 515 Addison, Texas 75248
1.2 Tenant's address and telephone number prior to occupancy. (Section
19):
Building Name:
Address:
1.3 Premises. (Section 2.1) 4,152 rentable sq. ft. -----
1.4 Total Building Area. (Section 2.1): 116,403 rentable sq. ft. -------
1.5 Tenant's Pro-Rata Share of Building Area. (Section 2.1): 3.57 percent
(3.57%). ---- -----
1.6 Lease Term. (Section 3.1): Five (5) years
1.7 Commencement Date. (Section 3.1): March 1, 1995
1.8 Expiration Date. (Sections 3.1, 3.2): February 28, 2000
1.9 Base Rent for Lease Term. (Section 4.1): $282,595.50
1.10 Base Rent, Monthly Installments.
(Sections 4.1, 5.2)
Month Monthly Amount Per Annum
01 - 03 $ -0- $ -0-
04 - 12 $4,411.50 $52,938.00
13 - 24 $4,671.00 $56,052.00
25 - 36 $4,930.50 $59,166.00
37 - 48 $5,190.00 $62,280.00
49 - 60 $5,449.50 $65,394.00
1.11 Address of Landlord for rent payments and notices.
(Sections 4.1, 4.2): 5025 Arapaho Road, Suite 400
Addison, Texas 75248
Address of Tenant for notices (Sections 6.3, 19): (c)
5025 Arapaho Road, Suite 515
Addison, Texas 75248
1.12 Geographic Area for CPI Calculation. (Section 5.2): None
1.13 Base Month for CPI Calculation. (Section 5.2): None
1.14 Landlord's Share of Operating Expenses. (Section 6.2): Base Year 1995
--------------
<PAGE>
1.15 Landlord's Share of Real Estate Taxes. (Section 6.2): Base Year 1995
1.16 Security Deposit. (Section 7): $5,449.50
1.17 Use. (Section 8.1): General Office
1.18 Brokers. (Section 25.20): Ensearch Management Company
1.19 Addendum(s). (Sections __________): The following addendum(s) are
attached to this Lease:
This Lease consists of 26 articles on 28 pages, plus Exhibits A, B, C, D, E, F
and ZERO additional page(s) of Addendum(s).
LANDLORD: Natron Limited Partnership, by its
General Partner, Metro K.L.S., Inc.
BY: /s/ Rodman W. Jordan
NAME: Rodman W. Jordan
TITLE: President
DATE: 1-13-95
TENANT: Electronic Transmission Corp.
BY: /s/ L. Cade Havard
NAME: Cade Havard
TITLE: CEO
DATE: 1-13-95
2. PREMISES.
2.1 Definition. Landlord hereby leases to Tenant and Tenant leases from
Landlord for the term, at the rent, and upon all of the conditions set forth
herein, that portion of the real property described in and consisting of the
approximate amount of rentable square feet specified in Section 1.3 hereof, and
which is referred to herein as the Premises. The Premises are located in an
office building presently consisting of the total number of rentable square feet
specified in Section 1.4 hereof, which office building, the real property on
which it is situated (the legal description of which is attached hereto as
Exhibit "A"), and any parking facilities or structures appurtenant thereto are
hereinafter collectively referred to as the "Building". The Premises are
depicted in Exhibit "B" attached hereto and incorporated herein by this
reference, but the depiction of possible tenants or locations on Exhibit "B"
shall not be construed to be a warranty or representation by Landlord that any
such tenants or locations presently exist or will continue to exist. Tenant's
share of the total amount of square feet of the Building is equal to the
pro-rata share specified in Section 1.5 hereof, and said percentage shall
hereinafter be referred to as the Tenant's "Pro-Rata Share".
2.2 Public Areas. As long as this Lease remains in effect and Tenant is
not in default hereunder, Tenant shall have the nonexclusive right, in common
with the Landlord, other tenants, subtenants and invitees, to use the public
areas of the Building which consist of the entrance foyer and lobby of the
Building, the common corridors on the floors of the Building on which the
Premises are situated and other areas appurtenant to or servicing the elevators,
shipping and receiving areas and lavatories in the Building, provided that
Landlord shall have the right at any time and from time to time to exclude
therefrom such areas as Landlord may determine so long as access to the Premises
is not unreasonably denied.
3. TERM.
3.1 Term. The term of this Lease for the Premises shall be the term
specified in Section 1.6 hereof, commencing on the Commencement Date specified
in Section 1.7 hereof and ending on the Expiration Date specified in Section 1.8
hereof unless sooner terminated pursuant to any provision of this Lease.
3.2 Delay in Commencement. Notwithstanding said Commencement Date, if
for any reason Landlord cannot deliver possession of the Premises to Tenant on
said date, Landlord shall not be subject to any liability therefor nor shall
such failure affect the validity of this Lease or the obligations of Tenant
hereunder. However, in such case Tenant shall not be obligated to pay rent until
possession of the Premises is tendered to Tenant, which date shall be the new
Commencement Date, and the Expiration Date shall remain unchanged. Upon
Landlord's request, the parties agree to execute in writing a Commencement Date
Memorandum to certify the Commencement Date and Expiration Date hereof.
3.3 Early Possession. In the event that the Initial Premises are ready
for occupancy and a certificate of occupancy has been issued prior to the
Commencement Date, Landlord shall permit Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be subject to all of the provisions
of this Lease but rent shall abate and not be payable until the Commencement
Date. Said early possession shall not advance the Expiration Date of this Lease.
<PAGE>
3.4 Delivery of Possession. Tenant shall be deemed to have taken
possession of the Premises when the earliest of any of the following occur: (a)
three (3) business days after Landlord or Landlord's agent, architect or
contractor notifies Tenant that the Premises are ready for occupancy; or (b)
Tenant commences to occupy or otherwise make use of the Premises. If Tenant is
notified pursuant to Section 3.4(a), Tenant agrees to occupy the Premises within
five (5) business days thereafter. As used in this Lease, "business days" shall
mean Mondays through Fridays, excluding holidays generally recognized by
landlords of comparable buildings in the geographic area.
3.5 Holding Over. If Tenant remains in possession of the Premises or
any part thereof after the expiration of the term hereof, such occupancy shall
be a tenancy from month to month at a monthly rent equal to 150% of the Base
Rent for the last month of the term, plus additional rent. The foregoing
provisions of this Section 3.5 shall neither be construed as consent from
Landlord to any holdover nor give Tenant any right to remain in possession of
the Premises or any part thereof after the expiration of the term hereof and
Landlord does not waive any of its rights under this Lease to collect any
damages to which is may be entitled, whether direct or consequential as a result
of any holdover without Landlord's consent.
4. RENT.
4.1 Base Rent. The Base Rent for the Premises for the entire term of
this Lease shall be as specified in Section 1.9, in advance, on the first day of
each month of the term hereof. Tenant shall pay Landlord upon the execution of
this Lease the sum specified in Section 1.10 as the installment of Base Rent for
the first full calendar month of the term of the Lease. If the Commencement Date
does not occur on the first day of a calendar month, the aforesaid payment shall
be for the initial thirty (30) days of the Lease and the next monthly
installment of Base Rent shall be due on the first day of the first full
calendar month of the term but shall be prorated to cover only those days of
said calendar month not previously paid by the Tenant by its initial payment.
Base Rent for any period during the term hereof which is less than one calendar
month shall be a pro rata portion of the monthly installment based upon the
actual number of days the Lease is in effect during said calendar month.
4.2 Additional Rent:
Rent. Both Tenant and Landlord expressly understand and agree that all
other sums, excepting Base Rent, which may from time to time become due under
this Lease shall be deemed Additional Rent. Additional Rent shall include, but
not be limited to, late charges, interest, Shared Expenses as described in
Section 6, attorneys' fees, security deposits and any cash bonds which may by
circumstance be required to be posted hereunder. Both Tenant and Landlord
expressly understand and agree that all monies paid by Tenant hereunder shall be
first credited to Additional Rent (and allocated among different items of
Additional Rent as Landlord may determine), and only then to Base Rent. The term
"rent" as used in this Lease shall mean Base Rent and additional rent. All
payments of rent shall be in lawful money of the United States of America, shall
be paid without any deduction, offset or abatement, and shall be payable to
Landlord at the address stated in Section 1.11(a) or to such other persons or at
such other places as Landlord may designate in writing. The obligation to make
payments of rent hereunder shall be an independent covenant.
4.3 Parking and Storage. Tenant agrees to pay to Landlord the amount of
Additional Rent for parking as set forth in any Parking Addendum incorporated in
this Lease, and the amount of Additional Rent for storage as set forth in any
Storage Space Addendum incorporated in this Lease, in advance for each month on
the first day of each month of the term hereof. Unless Tenant executes a Parking
Addendum or Storage Space Addendum, Tenant shall have no right to use any
parking facilities or storage facilities of the Building, respectively.
4.4 Acceptance of Rental Payments. No acceptance by Landlord of a
lesser sum than the rent then due shall be deemed to be other than on account of
the earliest amount of such rent due (unless Landlord elects otherwise), nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction or compromise and
settlement, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such payments due or to pursue any
other remedy as provided in this Lease.
5. INTENTIONALLY OMITTED.
6. SHARED EXPENSES.
6.1 Determination. The monthly obligations for any Additional Rent
resulting from Shared Expenses shall be adjusted annually in accordance with the
provisions of Section 6.2 below. The term "Shared Expenses" shall mean the
amount by which Operating Expenses (hereinafter defined) and Real Estate Taxes
(hereinafter defined) incurred in any period exceed the amount of Landlord's
obligation for the same as specified in Section 1.14 and 1.15.
<PAGE>
6.2 Escalations. (a) Landlord agrees to expend as its share of
Operating Expenses paid for and sustained by the Landlord during any calendar
year an amount not greater than that specified in Section 1.14. Said sum shall
constitute the maximum payable by Landlord as its contribution toward Operating
Expenses. The term "Operating Expense" means the total amounts paid or payable,
whether by the Landlord or otherwise on behalf of the Landlord, in connection
with the ownership, leasing, management, maintenance, repair and operation of
the Building, other than those expenses described in the last sentence of this
Section 6.2(a). Operating Expense shall include, without limiting the generality
of the foregoing, the aggregate of the amount paid for heating, air
conditioning, and providing electricity and water and sewer charges to the
Building, other than that paid by individual tenants, the amount paid to any
persons or entities for all labor and/or wages (including the cost to Landlord
of workmen's compensation and disability insurance, payroll taxes, welfare and
fringe benefits) for services rendered, and materials provided to the Building;
administrative expenses related to the Building; any costs incurred for any
capital improvements or structural repairs to the Building to effect labor
savings or otherwise reduce Operating Expenses, or required by law or by any
governmental or quasi-governmental authority having jurisdiction over the
Building, which costs shall be amortized over the useful life of the applicable
capital improvements or structural repairs; fees for management (not to exceed
5% of the gross revenues from the Building), legal, accounting, inspection and
consulting services pertaining to the Building; any cost of guards and other
protection services; and the amount paid for premiums for all insurance procured
by Landlord to insure the Building as may be required or permitted under this
Lease (including, without limitation, business interruption insurance, and if
there is a mortgage or deed of trust on the Building, such insurance as may be
required by the holder of such mortgage or deed of trust). Notwithstanding the
foregoing, Operating Expenses shall not include the costs of special services
rendered to tenants (including Tenant) for which a special or separate charge is
made, any costs of preparation of space for new tenants in the Building, any
costs borne directly by Tenant under this Lease or reimbursed directly by
insurance or other tenants, leasing commissions, depreciation or interest
payments, or debt service payments made to a mortgagee.
(b) Landlord agrees to expend as its share of Real Estate Taxes paid
for and sustained by the Landlord during any calendar year in an amount not
greater than that specified in Section 1.15. Said sum shall constitute the
maximum payable by Landlord as its contribution toward Real Estate Taxes. The
term "Real Estate Taxes" shall mean any and all general and special taxes,
assessments, duties and levies, charged and levied upon or assessed against the
Building and/or any improvement situated on the real property on which the
Building stands, any leasehold improvement, fixtures, installations, additions
and equipment used in the maintenance or operation of the Building, excluding
those paid directly by the Tenant. Further, if at any time during the term of
this Lease, in addition to and/or in lieu of the current method of taxation,
there is levied, assessed or imposed upon Landlord, wholly or partially, a
capital levy or otherwise, or a tax on, or measured by the rents received from
the Building, then such new or altered taxes shall be deemed to be included
within the term "Real Estate Taxes" for purposes of this paragraph. The
reference to "Building" in this subparagraph shall include, as allocated by the
Landlord, improvements or facilities utilized in common by the Building and
other buildings upon or adjacent to the real property on which the Building
stands.
(c) Commencing on the first day of January 1996, and continuing
thereafter during the term of this Lease, Tenant shall pay to Landlord monthly
in advance on the first day of each month, as Additional Rent, one-twelfth
(1/12th of the amount of the Tenant's Pro-Rata Share of the Shared Expenses as
estimated by Landlord to be incurred for the then current calendar year in which
the monthly payments are to be made. From time to time during any calendar year
after calendar year 1995, Landlord may estimate and re-estimate Tenant's Pro
Rata Share of any Shared Expenses. Thereafter, the monthly installments shall be
appropriately adjusted in accordance with such estimations so that by the end of
the calendar year in question, Tenant shall have paid all of Tenant's Pro Rata
Share of Shared Expenses as estimated by Landlord. If the Expiration Date is not
December 31, the monthly payments owing hereunder during the last partial
calendar year of the Lease shall be appropriately adjusted.
(d) Following the close of each calendar year after calendar year 1995,
Landlord shall send to Tenant a Landlord's Statement setting forth the actual
amount of Operating Expenses and Real Estate Taxes for the prior calendar year
and Tenants's Pro Rata Share of any Shared Expenses. If the Landlord's Statement
reveals that Tenant paid more than Tenant's Pro Rata Share of Shared Expenses
for the prior calendar year, then Landlord shall credit or reimburse Tenant for
such overpayment within thirty (30) days of the date of such Landlord's
Statement. If the Landlord's Statement shows that Tenant paid less than Tenant's
Pro Rata Share, then Tenant shall pay to Landlord such deficiency as Additional
Rent within thirty (30) days of the date of Landlord's Statement with respect to
any period shall not constitute a waiver by landlord of its right to Tenant's
Pro Rata Share of any Shared Expenses for this period.
(e) In the event the Building is less than one hundred percent (100%)
occupied during all or any portion of a calendar year, the Operating Expenses
for that year shall be allocated by the Landlord, in his sole judgment, between
the occupied and unoccupied areas of the Building, provided, further, in the
case of a partial calendar year, Operating Expenses shall be annualized on the
basis of a full calendar year before being allocated. In such event, the
Tenant's Additional Rent for Shared Expenses shall be determined by: (i)
determining the Operating Expenses allocable to the occupied space in the
Building;
<PAGE>
(ii) subtracting the portion of the Landlord's obligation for the same as
specified in Section 1.14 and 1.15 allocable to the occupied space in the
Building; (iii) multiplying by the Tenant's Pro-Rata Share as specified in
Section 1.5. In the event the Building is one hundred percent (100%) occupied
during the entire calendar year, all the Basic Costs shall be allocated to the
occupied areas of the Building. Landlord, upon Tenant's written request, will
provide Tenant with a statement reflecting the allocated Operating Expenses to
the occupied areas of the Building and the computation of Tenant's share for any
calendar year during the Term in which Operating Expenses exceeds the Landlord's
Share.
(f) Notwithstanding any provisions of this Lease to the contrary, the
maximum liability of Tenant for controllable Operating Expenses shall not exceed
8% compounding cumulative.
6.3 Statements. Upon written notice to Landlord of not less than
fifteen (15) business days, Tenant shall have the right to review the
documentation relied upon by Landlord relating to the computation of Shared
Expenses, which review shall occur at the location specified in Section 1.11(b).
All Shared Expenses shall be computed on the actual basis. In computing Shared
Expenses, no cost or expense may be accounted more than once, any expenses which
are paid by the proceeds of insurance shall be excluded, and any expenses which
are separately metered or billed directly to and separately paid by any other
tenant shall be excluded. Tenant shall have the right to cause an audit to be
made of Landlord's computation of Shared Expenses, at the location of the
Corporate Office in Dallas, Texas, at Tenant's sole expense, not more frequently
than once per calendar year. Tenant shall not be entitled to withhold or deduct
any portion of Base Rent or Additional Rent during the pendency of any such
audit. Any errors disclosed by such audit shall be promptly corrected, provided
that Landlord shall have the right to cause another independent audit to be made
of such computations, and in the event of a disagreement between the auditors,
the mid-point between the closest two audits shall be conclusively deemed to be
correct.
7. SECURITY DEPOSIT.
Tenant shall deposit with Landlord upon execution hereof the sum
specified in Section 1.16 as security for Tenant's faithful performance of
Tenant's obligations hereunder. If Tenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provisions of this Lease,
Landlord may without notice to Tenant use, apply or retain all or any portion of
the security deposit for the payment of any rent or any other sum owed to
Landlord by Tenant under the provisions of this Lease or to compensate Landlord
for any loss or damage which Landlord may suffer thereby. If Landlord uses or
applies all or any portion of the security deposit, Tenant shall within five (5)
days after written demand therefor deposit cash with Landlord in an amount
sufficient to restore the security deposit to the full amount hereinabove
stated. Landlord shall not be required to keep the security deposit separate
from its general accounts and Tenant shall not be entitled to interest on the
security deposit. If Tenant performs all of Tenant's obligations hereunder, the
security deposit or so much thereof as had not theretofore been applied by
Landlord, shall be returned, without payment of interest, to Tenant (or, at
Landlord's option, to the last assignee, if any, of the Tenant's interest
hereunder) within sixty (60) days after either the expiration of the term hereof
or after Tenant has vacated the Premises, whichever is later. Landlord shall
deliver the funds deposited herein by Tenant to the purchaser of the Building in
the event the Building is sold (or give such purchaser a credit against the
purchase price in the amount of the security deposit), and thereupon Landlord
shall be discharged from all further liability with respect to the security
deposit. If Tenant shall fail to make any payments of Base Rent, Additional Rent
or any other payment required to be made by Tenant hereunder when due on more
than three (3) occasions in any twelve (12) month period, irrespective of
whether or not failure is cured, then the security deposit shall, within ten
(10) days after written demand by Landlord, be increased by Tenant to an amount
equal to the greater of: (i) two (2) times the amount specified in Article 1.16;
(ii) two (2) months' fixed rent; or (iii) as may be otherwise required by
Landlord.
8. USE.
8.1 Use. The Premises shall be used and occupied only for the uses
specified in Section 1.17 hereof, provided that the foregoing shall not be
construed as a representation or guarantee by the Landlord that such business
may lawfully be conducted on the Premises.
8.2 Waste and Nuisance. Tenant shall not commit, suffer or permit any
waste, damage, disfiguration or injury to the Premises, the common areas in the
Building, or the fixtures and equipment located therein or thereon. Tenant shall
not permit or suffer any overloading of the floors thereof, and shall not place
therein any heavy business machinery, safes, computers, data processing
machines, or other items heavier than customarily used for general office
purposes without first obtaining the written consent of Landlord. Tenant shall
not use or permit to be used any part of the Building for any dangerous, noxious
or offensive trade or business, and shall not cause or permit any nuisance,
noise, action, or disturbance of other tenants or Landlord, in, at or on the
Premises.
<PAGE>
8.3 Conditions of Premises: Compliance with Law. Tenant hereby accepts
the Initial Premises in their condition existing as of the Commencement Date and
the Expansion Premises in their condition existing as of the Expansion Premises
Commencement Date, subject to all applicable zoning, municipal, county and state
laws, ordinances and regulations governing and regulating the use of the
Premises, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Tenant shall at Tenant's expense,
comply promptly with all applicable laws, statutes, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the term or any part of the term hereof regulating the use or occupancy of the
Premises by Tenant.
8.4 Insurance Cancellation. No use shall be made or permitted to be
made of the Premises, nor acts done which will cause the cancellation of any
insurance policy covering said Premises or the Building, and if Tenant's use of
the Premises causes an increase in said insurance rates, Tenant shall pay any
such increase as Additional Rent, which, together with interest on any amount
paid therefor by Landlord, shall be payable by Tenant on the next succeeding
date on which a Base Rent payment is due.
8.5 Landlord's Rules and Regulations. Tenant shall faithfully observe
and comply with the reasonable rules and regulations that Landlord shall from
time to time promulgate, including without limitation any rules and regulations
attached to this Lease, which are hereby incorporated wherein by this reference.
Landlord reserves the right from time to time to make reasonable modifications
to said rules and regulations. The additions and modification to those rules and
regulations shall be binding upon Tenant upon Landlord giving notice of them to
Tenant. Landlord shall not be responsible to Tenant for the nonperformance of
any of said rules and regulations by any other tenants or occupants.
9. LANDLORD SERVICES.
9.1 Basic Services. Subject to any law, rule or governmental order or
regulation, and further subject to any circumstance beyond the control of
Landlord, Landlord shall furnish the following services:
(a) Air conditioning and heat, whichever be required, from 8 a.m. to 6
p.m., Monday through Friday and 8 a.m. through 1 p.m. on Saturday, excluding
holidays. If Tenant desires air conditioning and heat other than at the times
designated, such service shall be supplied to Tenant upon prior written request
of Tenant delivered before 3:00 p.m. on the business day required or before 3:00
p.m. on the business day prior to any weekend day or holiday, and Tenant shall
pay to Landlord the cost of such service within ten (10) days after delivery of
an invoice to Tenant therefor;
(b) Hot and cold water for lavatory purposes. If a further supply of water
is required by Tenant, then at Tenant's expense, Landlord shall have the option
to install and maintain a water meter to register such consumption, and Tenant
shall pay as Additional Rent for water consumed, at the cost to Landlord, and
for sewer rents and all other rents and charges based upon such consumption of
water;
(c) Security Services in manor and fashion as shall from time to time be
determined in Landlord's sole judgment as may be reasonable for the Building.
Notwithstanding and subject to the Hold Harmless and Indemnity provisions of
Sections 13.5 and 13.6, Landlord makes no warranty as to the effectiveness of
such security services and assumes no liability for any failure thereof as
provided hereby.
(d) General day-to-day janitorial service (excluding carpet shampooing and
hard surface floor waxing) five days a week, and elevator service during the
same hours for which air conditioning and heating services are provided as set
forth above.
(e) Whenever heat generating machine, or equipment are used by Tenant in
the Premises which affect the temperature otherwise maintained by the air
conditioning system, as determined by Landlord, Landlord reserves the right to
install supplementary air conditioning units in the Premises, and the costs
therefor, including the cost of installation, operation and maintenance thereof,
shall be paid by Tenant to Landlord upon demand by Landlord. If Tenant, as
determined by Landlord, requires electric current in excess of that usually
furnished or supplied to the Premises, Landlord may, at its election, either
cause an electric meter to be installed in the Premises to measure the electric
current consumed for such excess use or determine the value of such excess use
by causing an independent electrical engineer or consulting firm, selected by
Landlord, to conduct a survey of Tenant's use of electric current and to certify
such determination in writing to Landlord and Tenant. The cost of any such meter
or survey, as the case may be, and of the installation, and maintenance or
survey, as the cause may be indicates such excess use by Tenant of electric
current, Tenant agrees to pay to Landlord, as Additional Rent, promptly upon
demand therefor by Landlord, the amount determined to be due for the electric
current consumed by Tenant, as shown by said meter or as indicated in said
survey, as the case may be, at the rate charged for such service by the local
public authority or the local
<PAGE>
public utility, as the case may be, furnishing the same, plus any additional
expenses incurred by Landlord in keeping account of the electric current
consumed.
(f) Electric current for lighting the Premises and for ordinary office
appliances and office machines only, provided that Tenant shall not use any
electrical equipment which in Landlord's opinion will overload the wiring
insulations or interfere with the electrical use in the remainder of the
Building by Landlord or any other tenant in the Building.
9.2 Initial Construction. Landlord agrees to perform the work and make
such installations in the Premises as set forth in the Work Letter Addendum
which, if attached hereto as indicated in Section 1.19, constitutes additional
provisions of this Lease which are hereby incorporated by reference. Tenant
acknowledges that it will examine the Premises before taking possession
hereunder and agrees that unless Tenant furnishes Landlord with a notice in
writing specifying any apparent defect in the construction within thirty (30)
days after such taking of possession, it shall be conclusively deemed that
Tenant has accepted the Premises as being in good order and that Landlord had
satisfactorily completed the work it agreed to perform. Tenant agrees that there
is no promise, representation, or undertaking by or binding upon Landlord with
respect to any construction, alteration, remodeling or redecorating in or to the
Premises except as expressly set forth in the Work Letter Addendum.
9.3 Interruption of Services. Landlord reserves the right from time to
time to install, use, maintain, repair, replace and relocate service to the
Premises and other parts of the Building, and to alter or relocate any other
facility in the Building. Interruption or curtailment of any service maintained
in the Building, if caused by strikes, mechanical difficulties, actions of the
Landlord under the first sentence of this Section 9.3, or for any other reason
beyond Landlord's control, shall not entitled Tenant to any claim against
Landlord or to any abatement in rent, nor shall the same constitute constructive
or partial eviction or breach of any implied warranty. Unless due to the gross
negligence of Landlord, Landlord shall not be liable to Tenant for any injury or
damage resulting from defects in the plumbing, heating, or electrical systems in
the Building or for any damage resulting from water seepage into the Building or
for any act or failure to act by any other Tenants at the Building or for any
damage resulting from wind storm, hurricane or rain storm.
10. MAINTENANCE, REPAIRS AND ALTERATIONS.
10.1 Landlord's Obligations. Subject to the provisions of Section 14,
and except for damage caused by any negligent or intentional act or omission of
Tenant, Tenant's agents, employees, representatives, customers or invitees, in
which event Tenant shall repair the damage, at its sole expense, Landlord shall
keep in good order, condition and repair the structural portions of the Building
and those portions of the Building which are not occupied or leased by any
tenant, and all costs incurred by Landlord in making any such repairs or
performing such maintenance shall be Operating Expenses as defined in Section
6.2, provided that Landlord shall have no obligation to perform any act which is
the obligation of Tenant or any other tenant in the Building. Tenant expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Tenant the right to make repairs at Landlord's expense or to
terminate this Lease because of Landlord's failure to keep the Premises in good
order, condition and repair. Other than as specifically provided in this Section
10.1, Landlord shall not be obligated to make any repairs or improvements of any
kind, in, upon, about, or to the Premises or the Building.
10.2 Tenant's Obligations. Subject to the provisions of Section 14,
Tenant, at Tenant's expense, shall keep in good order, condition and repair the
Premises and every part thereof including, without limiting the generality of
the foregoing, all plumbing, electrical and lighting facilities and equipment
within the Premises, fixtures, interior walls and interior surfaces of exterior
walls, ceilings, windows, doors, plate glass and skylights located within the
Premises. All repairs made by the Tenant shall be at least of the same quality,
design and class as that of the original work. All damage or injury to the
Building or to the Premises, fixtures, appurtenances and/or equipment caused by
the Tenant moving property in or out of the Building or the Premises or by
Tenant's installation or removal of furniture, fixtures, or other property, or
from any other cause of any kind or nature whatsoever due to carelessness,
omission, neglect, improper conduct, or other cause of the Tenant, its agents,
employees, invitees, contractors or subcontractors shall be repaired, restored,
or replaced promptly by the Tenant at its sole cost and expense to the
satisfaction of the Landlord. In the event that the Tenant fails to keep the
Premises in good order, condition and repair, then upon ten (10) day's prior
written notice from Landlord (except in an emergency when no prior notice shall
be necessary) if Tenant fails to repair, restore or replace, then Landlord may
repair, restore and replace to cause the Premises to be in good order and
condition and make such repairs without liability to Tenant for any loss or
damage that may accrue to Tenant's property or business by reason thereof, and
upon completion thereof Tenant shall pay to Landlord upon demand and as
Additional Rent the cost of any such repairs, restoration or replacement,
together with interest thereon from the date paid.
10.3 Surrender. On the last day of the term hereof or on any sooner
termination or date on which Tenant ceases to possess the Premises, Tenant shall
surrender the Premises to Landlord in good and clean condition, ordinary wear
and tear excepted. Prior to such surrender Tenant shall repair any damage to the
Premises occasioned by its removal of trade fixtures,
<PAGE>
furnishings and equipment, which repair shall include the patching and filling
of holes and repair of structural damage. Tenant agrees to indemnify Landlord
and hold Landlord harmless from and against any liability (including reasonable
attorneys' fees) of Landlord to third parties resulting from Tenant's failure to
timely comply with the provisions of this Section 10.3.
10.4 Alterations and Additions. (a) Tenant shall not, without
Landlord's prior written consent, make any alterations, improvements or
additions (referred to collectively herein as "Alterations") in, on or about the
Premises. Should tenant make any Alterations without the prior approval of the
Landlord, Landlord may require that Tenant immediately remove any or all of such
items and/or Landlord may declare a default by Tenant under this Lease.
Furthermore, Landlord may require that Tenant remove any or all of said
Alterations at the expiration of the term or such other time at which Tenant
ceases to possess the Premises, and restore the Premises to their prior
condition. Tenant shall not place any holes in any part of the Premises, and in
no event shall Tenant place any exterior or interior drapes, blinds, or similar
items visible from the outside of the Premises without the prior written
approval of Landlord.
(b) Any Alterations in, on or about the Premises that Tenant shall
desire to make shall be presented to Landlord in written form with proposed
detailed plans. If Landlord shall give its consent, the consent shall be deemed
conditioned upon Tenant acquiring a permit to do the work from appropriate
governmental agencies, the furnishing of a copy thereof to Landlord prior to the
commencement of the work and the compliance by Tenant with all conditions of
said permit and with all specifications in the plans in a prompt and expeditious
manner. Tenant shall not permit any of the construction work to be performed by
persons not currently licensed under any applicable licensing laws or
regulations pertaining to the types of work to be performed. Landlord shall not
be deemed unreasonable in the exercise of its discretion for withholding
approval of any Alterations which involve or might affect any structural or
exterior element of the Building, any area or element outside of the Premises,
or any facility serving any area of the Building outside of the Premises, or
which will require unusual expense to readapt the Premises to normal office use
on the termination or expiration of the Lease, unless in the latter case Tenant
either desires to or is required to make repairs or Alterations in accordance
with this Lease, Landlord may require Tenant, at Tenant's sole cost and expense,
to obtain and provide to Landlord a performance and completion bond (or such
other applicable bond as determined by Landlord) in an amount equal to one and
one-half (1-1/2) times the estimated cost of such improvements, to insure
Landlord against liability including but not limited to liability for mechanic's
and materialmen's liens and to insure completion of the work.
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or the Building. Tenant shall give
Landlord not less than ten (10) days notice prior to the commencement of any
work in, on or about the Premises, and Landlord shall have the right to post
notices of nonresponsibility in, on or about the Premises as may be provided by
law. Tenant shall have no power or authority to do any act or make any contract
which may create or be the basis for any lien upon the interest of the Landlord,
the Premises or the Building, or any portion thereof. If any mechanics or other
lien or any notice of intention to file a lien shall be filed or delivered with
respect to the Premises or the Building, based upon any act of the Tenant or of
anyone claiming through the Tenant, or based upon work performed or materials
supplied allegedly for the Tenant, Tenant shall cause the same to be canceled
and discharged of record within fifteen (15) days after the filing or delivery
thereof. If Tenant has not so canceled the lien within fifteen (15) days as
required herein, Landlord may pay such amount, and the amount so paid together
with interest thereon from the date of payment and all legal costs and charges,
including attorneys fees, incurred by Landlord in connection with said payment
and cancellation of the lien or notice of intent shall be Additional Rent and
shall be payable on the next succeeding date on which a Base Rent installment is
due. Landlord may, at its option and without waiving any of its rights set forth
in the immediately preceding sentence, permit Tenant to contest the validity of
any such lien or claim, provided that in such circumstances the Tenant shall at
its expense defend itself and Landlord against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Landlord, the Premises or the Building, provided
further that Landlord may at any time require the Tenant to deposit with the
court exercising jurisdiction over such claim, such amount as may be necessary
under applicable statutes to cause the release and discharge of the lien, and if
Tenant shall not immediately make such payment upon the request of Landlord,
Landlord may make said payment and the amount so paid, together with interest
thereon from the date of payment and all legal costs and charges, including
attorneys fees, incurred by Landlord in connection with said payment shall be
deemed Additional Rent and shall be payable on the next succeeding date on which
a Base Rental installment is due. In addition, Landlord may require Tenant to
pay Landlord's attorney fees and costs in participating in such action if
Landlord shall decide it is in its best interest to do so. Nothing herein
contained shall be construed as a consent on the part of Landlord to subject the
interest and estate of Landlord to liability under any lien law of the state in
which the Premises are situated, for any reason or purpose whatsoever, it being
expressly understood that Landlord's interest and estate shall not be subject to
such liability and that no person shall have any right to assert any such lien.
(d) Unless Landlord requires their removal, as set forth in Section
10.4(a), all Alterations which may be made on the Premises shall, at the
expiration of the term or such other time at which Tenant ceases to possess the
Premises, become
<PAGE>
the property of Landlord and remain upon and be surrendered with the Premises.
Notwithstanding the provisions of this Section 10.4(d), Tenant's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Tenant and may be removed by Tenant subject to all provisions of Section 10.3
hereof and provided that Tenant is not in default under this Lease at the time
Tenant ceases to possess the Premises.
11. TENANT'S USE OF PUBLIC AREAS.
Tenant's non-exclusive use of the public areas described in Section 2.2
shall be subject to such reasonable Rules and Regulations promulgated by
Landlord pursuant to Section 8.5. Tenant agrees to repair at its cost all
deteriorations or damages to the public areas occasioned by its negligence or
intentional misconduct or that of its officers, agents, representatives,
customers, employees or invitees.
12. TAXES AND TELEPHONE.
12.1 Personal Property Taxes. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon leasehold improvements, fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or elsewhere. If Tenant shall cause said leasehold improvements,
trade fixtures, furnishings, equipment and all other personal property to be
assessed with Landlord's real property, Tenant shall pay Landlord the taxes
attributable to Tenant within (10) days after receipt of a written notice from
Landlord setting forth the taxes applicable to Tenant's property, and if Tenant
fails to do so, Landlord may make such payment and the amount so paid, together
with interest thereon from the date paid, shall be Additional Rent and shall be
due and payable to Landlord on the next succeeding date on which a Base Rental
installment is due.
12.2 Evidence of Payment. Tenant shall promptly deliver to Landlord,
upon Landlord's written request, receipts for payments of all taxes, charges,
dues, assessments and licenses in respect of all improvements, equipment and
facilities of the Tenant on or in the Premises which were due and payable within
a period up to one year prior to Landlord's making such request.
12.3 Telephone. Tenant shall separately arrange and pay for the
furnishing of and use of all telephone services as Tenant may deem necessary for
its use of the Premises, and Landlord shall have no liability in connection
therewith. Any telephone contractor shall, however, contact Landlord prior to
making any installation in the Premises or to equipment maintained elsewhere in
the Building.
13. INSURANCE AND INDEMNITY.
13.1 Liability Insurance. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease a policy of commercial general
liability; insuring against claims for bodily injury and property damage and
arising out of the use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be in an amount not less than
$2,000.000.00 combined single limit. The limits of said insurance shall not,
however, limit the liability of Tenant hereunder. Tenant shall also obtain and
keep in force during the term of this Lease, at Tenant's expenses, "all risk",
including fire and extended coverage insurance upon the property of every
description and kind owned by the Tenant and located in the Building or for
which Tenant is legally liable, or installed by or on behalf of the Tenant,
including without limitation, furniture, fittings, installations, alternations,
additions, partitions, fixtures and anything in the nature of leasehold
improvements in an amount sufficient to enable Tenant to rebuild and carry on
its business after such a loss. All insurance hereunder shall insure the Tenant
and Landlord, and in the event that there shall be a dispute as to the amount
which comprises the full replacement cost. The decision of the Landlord shall be
conclusive. If Tenant shall fail to procure and maintain the insurance required
hereunder, Landlord may but shall not be required to procure and maintain the
same, and any amount so paid by Landlord for such insurance shall be Additional
Rent which, together with interest thereon from the date paid, shall be due and
payable by Tenant on the next succeeding date on which a Base Rent installment
is due. If in the opinion of Landlord the amount of liability insurance required
hereunder becomes materially less than that customarily provided by tenants in
space comparable to that by leased by Tenant hereunder, then Tenant shall
increase said insurance coverage to correspond with customary levels so provided
by other comparable tenants as required by Landlord. The failure of Landlord to
require any additional insurance coverage shall not be deemed to relieve Tenant
from any obligations under this Lease.
13.2 Property Insurance. Landlord shall obtain and keep in force during
the term of this Lease fire and extended coverage on the Building (including
Building standard leasehold improvements). Landlord may also, but shall not be
required to, procure any other insurance policies respecting the Premises or
Building which Landlord deems necessary.
<PAGE>
13.3 Insurance Policies. Insurance required by Tenant hereunder shall
be primary and not require contribution from insurance carried by Landlord and
shall be carried with companies rated A+/XI or better in "Best's Insurance
Guide". Tenant shall deliver to Landlord prior to taking possession of the
Premises copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with loss payable clauses reasonably
satisfactory to Landlord. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days' prior
written notice to Landlord. Tenant shall, within thirty (30) days prior to the
expiration of such policies, furnish Landlord with renewals thereof, or Landlord
may order such insurance and charge the cost thereof to Tenant, which amount,
together with interest thereon, shall be Additional Rent and shall be payable by
Tenant on the next succeeding date on which a Base Rent payment is due. Tenant
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in Section 13.1. Tenant shall forthwith, upon Landlord's
demand, reimburse Landlord for any additional premiums attributable to any act
or omission or operation of Tenant causing an increase in the cost of insurance.
13.4 Waiver of Subrogation. As long as their respective insurers so
permit, Tenant and Landlord each waives any and all rights of recovery against
the other, or against the officers, employees, agents and representatives of the
other for loss or damage to such waiving party or its property or the property
of others under its control, where such loss or damage is insured against under
any insurance policy in force at the time of such loss or damage. Tenant and
Landlord shall, upon obtaining the policies of insurance required hereunder,
give notice to the insurance carriers that the foregoing mutual waiver of
subrogation contained in this Lease and obtain policies of insurance, if
obtainable, which shall include a waiver by the insurer of all right of
subrogation against Landlord or Tenant in connection with any loss or damage
thereby insured against.
13.5 Hold Harmless. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, liabilities, damages and costs, including
attorneys fees, incurred by Landlord which arise from Tenant's use of the
Premises or the Building or from the conduct of its business or from any
activity, work or things which may be permitted or suffered by Tenant in, on or
about the Premises or the Building, and shall further indemnify, defend and hold
Landlord harmless from and against any and all claims, liabilities, damages and
costs, including attorneys fees, incurred by Landlord which arise from any
breach or default in the performance of any obligation on Tenant's part to be
performed under any provision of this Lease or which arise from any negligence
of Tenant or any of its agents, representatives, customers, employees or
invitees.
13.6 Exemption of Landlord from Liability. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom, or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, representatives, agents, invitees,
customers or any other person in, on or about the Premises or Building, nor
shall Landlord be liable for injury to the person of Tenant, Tenant's employees,
representatives, agents, customers, or invitees, whether any such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, and whether the said damage or injury results from
conditions arising upon the Premises or any other cause, and whether the said
damage or injury results from conditions arising upon the Premises or Building,
or from other sources or places, and regardless of whether the cause of such
injury or the means of repairing the same is inaccessible to Landlord or Tenant,
unless such injury, loss of income or damage is caused by the Landlord's gross
negligence. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the Building. Tenant hereby assumes all
risk of damage to property or injury to persons in, on or about the Premises or
the Building from any cause and Tenant hereby waives all claims in respect
thereof against Landlord, excepting where said damage arises out of the gross
negligence of Landlord.
14. DAMAGE OR DESTRUCTION.
14.1 Option to Terminate Lease. Except as provided in Section 14.2, if
the Premises or any material part (equal to 30% or more) thereof shall be
damaged or destroyed by fire or other casualty, Landlord may, at its option,
elect to terminate this Lease by giving notice to the Tenant within ninety (90)
days after Landlord receives actual notice of the fire or other casualty, and
thereupon the term of this Lease shall expire by lapse of time upon the tenth
(10th) day after such notice is given. Instead of exercising said option,
Landlord may elect to repair or restore the Premises to the same condition as
existed before such damage or destruction. Upon electing to repair or restore,
Landlord may proceed with reasonable dispatch to perform the necessary work, and
Base Rent and Additional Rent shall be abated in the portion of the Premises
which is unusable during the period of repair and restoration. However, there
shall be no abatement, apportionment or reduction in the rental obligations of
Tenant if the damage or destruction is caused by the Tenant or Tenant's agents,
representatives, employees, customers or invitees. Landlord shall not be liable
to Tenant for any delay which arises by reason of labor strikes, adjustments of
insurance or any other cause beyond Landlord's control, and in no event shall
Landlord be liable for any loss of profits or income.
14.2 Fault of Tenant. Landlord may exercise its option to repair or restore
as described in Section 14.1 even if such damage or destruction is due to the
fault or neglect of Tenant, Tenant's agents, representatives, employees,
customers or
<PAGE>
invitees, but in such event Landlord's election to repair or restore shall be
without prejudice to any other rights and remedies of Landlord under this Lease,
and there shall be no apportionment or abatement of any rent of any kind.
14.3 Obligations of Tenant. Except as provided in this Section 14, none
of Tenant's obligations under this Lease shall be affected by any damage or
destruction of the Premises by any cause whatsoever. Tenant hereby expressly
waives any and all rights it might otherwise have under any law, regulation or
statute which would act to modify the provisions of the immediately preceding
sentence.
14.4 Termination by Tenant. In the event that more than sixty percent
(60%) of rentable square feet of the Premises shall be damaged or destroyed by
fire or other casualty not caused by the Tenant or Tenant's agents,
representatives, employees, customers or invitees, Tenant may terminate this
Lease by giving notice to Landlord within thirty (30) days after the date of the
fire or other casualty, and upon such termination the rent and other obligations
of the Tenant shall be duly apportioned as of the date of the fire or other
casually, provided, however, that Tenant shall have no right to terminate the
Lease under this Section 14.4 if Tenant is in default of any of its obligations
under the Lease as of the date of the fire or other casualty.
15. CONDEMNATION.
If all or a portion of the Premises are taken under any public or
private power of eminent domain, or sold by Landlord under the threat of the
exercise of said power, or if any portion of the Building is so condemned so
that it would not be practical, in Landlord's judgment, to continue to maintain
the Building (all of which is herein referred to as "condemnation"), this Lease
shall terminate as of the date the condemning authority takes title or
possession, whichever occurs first. If only a portion of the Premises or
Building are so condemned and Landlord does not elect to terminate, the Lease
shall remain in full force and effect as to the portion of the Premises not so
taken, and Tenant's rental obligations shall be reduced proportionately to
reflect the number of rentable square feet remaining in the Premises, and such
rental reduction, if any, shall take effect as of the date which is thirty (30)
days after the date of which the condemning authority takes title or possession,
whichever first occurs. If repairs or restorations to that portion of the
Premises not so taken are deemed necessary by Landlord to render such portion
reasonably suitable for the purposes for which it was leased, as determined by
Landlord, Landlord shall perform such work at its own cost and expense but it no
event shall Landlord be required to expend any amount greater than the amount
received by Landlord as compensation for the portion of the Premises taken by
the condemnator. All awards for the taking of any part of the Premises or any
payment made under the threat of the exercise of power of eminent domain shall
be the property of Landlord, whether made as compensation for diminution of
value of the leasehold or for the taking of the fee or as severance damages.
(Remainder of paragraph omitted by agreement of parties.)
16. ASSIGNMENT AND SUBLETTING.
16.1 Transfers: Consent. Tenant shall not, without the prior written
consent of Landlord (which Landlord shall not be unreasonably withheld): (a)
assign, transfer, or encumber this Lease or any estate or interest herein,
whether directly or by operation of law, (b) permit any other entity to become
Tenant hereunder by merger, consolidation, or other reorganization (c) if Tenant
is an entity other than a corporation whose stock is publicly traded, permit the
transfer fifty percent (50%) or more of the ownership interest in Tenant so as
to result in a change in the current control of Tenant, (d) sublet any portion
of the Premises, (e) grant any license, concession, or other right of occupancy
of any portion of the Premises, or (f) permit the use of the Premises by any
parties other than Tenant (any of the events listed in Sections 16.1(a) through
16.1(f) being a "Transfer"). If Tenant requests Landlord's consent to a
Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to determine
the proposed transferee's creditworthiness and character. Tenant stall reimburse
Landlord for its attorneys' fees and other expenses incurred in connection with
considering any request for its consent to a Transfer and also pay to Landlord
an administrative fee of $200.00 in connection with Landlord's consideration. If
Landlord consents to a proposed Transfer, then the proposed transferee shall
deliver to Landlord a written agreement whereby it expressly assumes the
Tenant's obligations hereunder; however, any transferee of less than all of the
space in the Premises shall be liable only for obligations under this Lease that
are property allocable to the space subject to the Transfer, and only to the
extent of the rent it has agreed to pay Tenant therefor. Landlord's consent to a
Transfer shall not release Tenant from performing its obligations under this
Lease, but rather Tenant and its transferee shall be jointly and severally
liable therefor. Landlord's consent to any Transfer shall not waive Landlord's
rights as to any subsequent Transfers. If an Event of Default occurs while the
Premises or any part thereof are subject to a Transfer, then Landlord, in
addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against the rent due under
this Lease. Tenant authorizes its transferees to make payments of rent directly
to Landlord upon receipt of notice from Landlord to do so. Notwithstanding the
foregoing, Landlord
<PAGE>
hereby consents to the Transfer to Solo Petroleums, Ltd. of all or substantially
all outstanding stock of Tenant, provided that Tenant does not sell or transfer
any material assets of Solo Petroleums Ltd.
16.2 Cancellation. Landlord may, within thirty (30) days after
submission of Tenant's written request for Landlord's consent to a Transfer,
cancel this Lease (or, as to a subletting or assignment, cancel as to the
portion of the Premises proposed to be sublet or assigned) as of the date the
proposed Transfer was to be effective. If Landlord cancels this Lease as to any
portion of the Premises, then this Lease shall cease for such portion of the
Premises and Tenant shall pay to Landlord all rent accrued through the
cancellation date relating to the portion of the Premises covered by the
proposed Transfer. Thereafter, Landlord may lease such portion of the Premises
to the prospective transferee (or to any other person) without liability to
Tenant.
16.3 Additional Compensation. Tenant shall pay to Landlord, immediately
upon receipt thereof, all compensation received by Tenant for a Transfer that
exceeds the Base Rent and Tenant's Pro Rata Share of Shared Expenses allocable
to the portion of the Premises covered thereby.
16.4 Right to Collect Rent. The acceptance of rent by Landlord from any
person other than Tenant shall not be deemed to be a waiver by Landlord of any
provision of this Lease. If the Premises are sublet or occupied by anyone other
than Tenant and Tenant is in default hereunder, or this Lease is assigned by
Tenant, then, in any such event, Landlord may collect rent from the assignee,
subtenant or occupant and apply the net amount collected to the rent reserved in
this Lease, but no such collection shall be deemed a waiver of the covenant in
this Lease against assignment and subletting or the acceptance of such assignee,
subtenant or occupant as tenant, or a release of Tenant from further performance
of the covenants contained in this Lease.
17. DEFAULTS; REMEDIES.
17.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant; or
(b) The failure by Tenant to make any payment of Base Rent, Additional
Rent or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten (10) days after being
due; or
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue
for a period of ten (10) business days after written notice thereof from
Landlord to Tenant; provided, however, that if the nature of Tenant's default as
determined by Landlord is such that more than ten (10) business days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure as soon as possible within said ten (10)
business day period and thereafter diligently prosecutes such cure to
completion, and in any case completes said cure within thirty (30) days after
the aforesaid written notice; or
(d) (i) The insolvency of the Tenant or the execution by the Tenant of
an assignment for the benefit of creditors, or the convening by Tenant of a
meeting of its creditors, or any class thereof, for the purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of the
Tenant to generally pay its debts as they mature; or (ii) the filing by or for
reorganization or arrangement under any law relating to bankruptcy (unless in
the case of a petition filed against Tenant, the same is dismissed within sixty
(60) days); or (iii) the appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
17.2 Remedies in Default. Upon an event of default, Landlord may, in
addition to any other rights or remedies afforded Landlord hereunder or by law
or equity, take any of the following actions.
Terminate this Lease in which event Tenant shall immediately surrender
the Premises to Landlord, and if Tenant fails to do so, Landlord may, without
prejudice to any other remedy which it may have for possession or arrearages in
rent, enter upon and take possession and expel or remove Tenant and any other
person who may be occupying said Premises or any part hereof without being
liable for prosecution of any claim of damages thereof; and Tenant agrees to pay
to Landlord, as hereinafter
<PAGE>
set forth, on demand the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to relet the Premises
on satisfactory terms or otherwise, including the loss of rental for the
remainder of the lease term.
Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying the Premises or any part
thereof without being liable for such prosecution or any claim for damages
therefor, and if Landlord so elects, relet the Premises on such terms as
Landlord shall deem advisable and receive the rent therefor; and Tenant agrees
to pay Landlord on demand any deficiency that may arise by reason of such
reletting for the remainder of the term.
Enter upon the Premises without being liable for prosecution or any
claim for damages therefor, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any
expenses which Landlord may incur in thus effecting compliance with Tenant's
obligations under this lease, and Tenant further agrees that Landlord shall not
be liable for any damages resulting to the Tenant for such action.
Alter all locks and security devices at the Premises without being
obligated to return the key to Tenant in the event Landlord has elected either
to terminate this Lease under (a) above or permanently repossess the Premises
under (b) above. If Landlord alters all locks and security devices at the
Premises without electing either to terminate this Lease or permanently
repossess the premises, then Landlord shall return the key to Tenant only during
the regular business hours of Landlord's property manager and only in the event
Tenant has paid the rent or otherwise performed the obligations necessary to
cure its default under the Lease and, further, Tenant provides reasonable
assurances to Landlord evidencing Tenant's ability to perform its remaining
obligations under this Lease. In the event Landlord alters the locks and the
keys are not returned to Tenant, then, upon the prior written request of Tenant
accompanied by such releases and waivers as Landlord may require, Landlord, at
its option, may (i) escort Tenant to the Premises to retrieve personal
belongings and other property not subject to any lien of Landlord, or (ii)
obtain from Tenant a list of such personal belongings and personal property and
advise Tenant of a time and place where such items will be made available to
Tenant. If Landlord elects the latter option, then Tenant shall reimburse to
Landlord the cost of moving and/or storing the items prior to Landlord's making
same available.
No re-entry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease, unless a written
notice of such intention shall be given to Tenant. Notwithstanding any such
reletting or re-entry or taking possession, Landlord may at any time thereafter
elect to terminate this Lease for a previous default. Landlord shall not have
any obligation to relet the Premises. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies provided in this Lease
or any other remedies provided by law. The specific remedies to which Landlord
may resort under this Lease are cumulative and are not intended to be exclusive
of any other remedies to which Landlord may be lawfully entitled in case of a
breach or threatened breach of the Lease. In addition to any other remedies
provided in the Lease, Landlord shall be entitled to seek injunctive relief to
restrain any violation or threatened violation of the covenants, conditions or
provisions of this Lease or to compel specific performance. The pursuit of any
remedy provided in this Lease shall not constitute a forfeiture or waiver of any
rent due to Landlord under this Lease or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants contained
in this Lease. Landlord's acceptance of rent following an event of default
hereunder shall not be construed as Landlord's waiver of such event of default.
No waiver by Landlord of any violation or breach of any of the terms,
provisions, and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions, and covenants herein contained. Forbearance by Landlord to enforce
one or more of the remedies herein provided upon an event of default shall not
be deemed or construed to constitute a waiver of any other violation of default.
The loss or damage that Landlord may suffer by reason of termination of
this Lease or the deficiency from any reletting as provided for above shall
include the expense of repossession and any repairs or remodeling undertaken by
Landlord following repossession. Should Landlord at any time terminate this
Lease for an event of default, in addition to any other remedy Landlord may
have, Landlord shall recover from Tenant and, Tenant shall be liable and pay to
Landlord, a sum equal to (i) the costs of recovering the Premises, (ii) the
unpaid rent and other charges accrued to the date of termination, (iii) an
amount equal to the difference between (A) the total rent reserved hereunder
(e.g., Base Rent and Tenant's) from the date of termination for the remainder of
the Lease term, and (B) the fair rental value of the Premises for such period
(such value determined at the time of the award hereunder), discounted to
present value using the Federal Reserve Bank of Dallas Discount Rate plus one
percent (1%) on the date of the award, and (iv) all other damages owing by
Tenant to Landlord at the time of the award. Landlord may estimate Tenant's Pro
Rata Share of Shared Expenses for future periods based on actual amounts due and
owing for prior years.
Should Landlord re-enter and take possession of the Premises, Landlord
shall also have the right to remove from the Premises (without the necessity of
obtaining a distress warrant, writ of sequestration or other legal process) all
or any portion of such furniture, fixtures, equipment and other personal
property located on the Premises and place same in storage at any
<PAGE>
location within the county in which the Premises is located and, in such event,
Tenant shall be liable to Landlord for costs incurred by Landlord in connection
with such removal and storage and shall indemnify and hold Landlord harmless
from all loss, damage, cost, expense and liability in connection with such
removal and storage. Landlord shall also have the right to relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person claiming to be entitled to possession thereof. The rights of
Landlord herein stated shall be in addition to any and all other rights which
Landlord has or may hereafter have a law or in equity, and Tenant stipulates and
agrees that the rights herein granted Landlord are commercially reasonable.
Landlord and Tenant hereby irrevocably waive, to the extent permitted
by law, any right to trial by jury in any lawsuit, action, proceeding, or
counterclaim brought by either party hereto against the other on any matter
arising out of or connected with this Lease, the acts or omissions of Landlord
or Tenant in connection with this Lease, or Tenant's occupancy and use of the
Premises and the property of which the Premises are a part.
17.3 Default by Landlord. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within thirty (30)
days after written notice by Tenant to Landlord and to any party which Landlord
has advised Tenant holds any mortgage or deed of trust covering the Premises,
specifying the manner in which Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance as determined by Landlord,
then Landlord shall not be in default if Landlord commences performance within
such thirty day period and thereafter diligently prosecutes the same to
completion; provided, further, that Landlord's obligation to perform any act
under this Lease shall be excused for any period of time during which Landlord
is prevented from performing because of any circumstances beyond Landlord's
control. Tenant's remedies upon Landlord's default are further limited by
Section 18.3 and 25.2 below.
17.4 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Base Rent, Additional Rent or any other sum
due from Tenant shall not be received by Landlord or Landlord's designee within
ten (10) days after paid amount is due, then Tenant shall immediately pay to
Landlord a late charge equal to ten percent (10%) of such overdue amount or the
sum of One Hundred Dollars ($100.00), whichever is greater. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
cost Landlord will incur by reason of late payment by Tenant and is in addition
to interest due under Section 25.4. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, or prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
18. RIGHTS OF MORTGAGEES.
18.1 Subordination. As used throughout this Section 18, the term
"mortgagee" shall refer to the holder of a Mortgage or deed of trust or the
ground lesser of a ground lease affecting the Premises. This Lease and the
rights of Tenant hereunder shall be and are hereby made subject and subordinate
to the provisions of any ground lease, mortgage or deed of trust affecting the
Premises, and to each advance made or hereafter to be made under the same, and
to all renewals, modifications, consolidations and extensions thereof and all
substitutions therefor. This Section 18 shall be self-operative and no further
instrument of subordination shall be required. However, in confirmation of the
provisions of this Section 18, Tenant shall execute and deliver promptly any
certification or instrument that Landlord or any mortgagee may request, and
failing to do so within ten (10) days after written demand, Tenant does hereby
make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact
and Tenant's name, place and stead, to do so, and/or Landlord may declare this
Lease to be in default. If any mortgagee shall elect to have this Lease prior to
the lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof. Tenant shall and does hereby agree to attorn to any mortgagee
or successor in title and to recognize such mortgagee or successor as its
Landlord in the event any such person or entity succeeds to the interest of
Landlord. Notwithstanding any other provision of this lease, in the event that
any mortgagee or its respective successor in title shall succeed to the interest
or Landlord hereunder, the liability of such mortgagee or successor shall exist
only so long as it is the owner of the Building, or any interest therein, or is
the tenant under said ground lease.
18.2 Mortgagee's Consent to Amendments. No assignment of this Lease and
no agreement to make or accept any surrender, termination or cancellation of
this Lease and no agreement to modify so as to reduce the rent, change the term,
or otherwise materially change the rights of Landlord under this Lease, or to
relieve Tenant of any obligation or liability under this Lease, shall be valid
unless consented to by Landlord's mortgagee(s) of record, if such is required by
the mortgagees, in
<PAGE>
writing. No Base Rent, Additional Rent, or any other charge (with the exception
of the security deposit described in this Lease) shall be paid more than ten
(10) days prior to the due date thereof and payments made in violation of this
provision (except to the extent that such payments are actually received by a
mortgagee) shall be a nullity as against any such mortgagees of record, and
Tenant shall be liable for the amount of such payments to such mortgagees.
18.3 Mortgagee's Right to Cure. No act or failure to act on the part of
Landlord which would entitle Tenant under the terms of this Lease, or by law, to
be relieved of Tenant's obligations hereunder or to terminate this Lease, shall
result in a release or termination of such obligations or termination of this
Lease unless (a) Tenant shall have first given written notice of Landlord's act
or failure to act to any party which Landlord has advised Tenant holds any
mortgage or deed of trust covering the Premises, specifying the act or failure
to act on the part of Landlord which could or would give basis to Tenant's
rights; and (b) such mortgagee(s), after receipt of such notice, have failed or
refused to correct or cure the condition complained of within a reasonable time
thereafter, provided that nothing contained in this Section shall be deemed to
impose any obligation on any such mortgagee(s) to correct or cure any condition.
As used herein, a "reasonable time" includes a reasonable time to obtain the
mortgaged premises if the mortgagee elects to do so and a reasonable time to
correct or cure the condition if such condition is determined to exist, but in
no event less than one hundred twenty (120) days from the date of the
mortgagees' receipt of the above described notice.
19. NOTICES.
Except as provided in Section 17.1(b) and 22, whenever under this Lease
provision demand is made for any notice or declaration of any kind, or where it
is deemed desirable or necessary by either party to give or serve any such
notice, demand or declaration to the other party, it shall be in writing and
served either personally or sent by certified United States mail, return receipt
requested, postage prepaid, addressed either to the address set forth in Section
1.1 or 1.11(b), or to such other address as may be given by a party to the other
by proper notice hereunder, or, in the case of notices to the Tenant, to the
Premises. The date of personal delivery or the date on which the certified mail
is deposited with the United States Postal Service shall be the date on which
any proper notice hereunder shall be deemed given. Whenever such circumstances
demand a response from the other party except as may be otherwise specifically
set forth herein), then the other party shall have five (5) days to respond to
the other.
20. RELOCATION.
(Paragraph omitted by agreement of parties.)
21. QUIET POSSESSION.
Upon Tenant paying the sums due hereunder and observing and performing
all of the covenants, conditions and provisions on Tenant's part to be observed
and performed hereunder, Tenant shall have quiet possession of the Premises for
the entire term hereof subject to all of the provisions of this Lease.
22. OPTIONS.
In the event that the Tenant, by addendum attached to this Lease, is
expressly given an option to renew or extend the term of this Lease, or any
option to purchase the Premises or Building or any right of first refusal to
purchase the Premises or other property of Landlord, then each of such options
and rights are personal to Tenant and may not be exercised by or assigned,
voluntarily or involuntarily, by or to anyone other than Tenant. No such option
described hereinabove may be exercised by the Tenant except in strict accordance
with the terms and provisions of the option and provided that Tenant is not in
default under this Lease either at the time Tenant gives notice of its intent to
exercise the option or at the time at which the option is to be exercised.
Notwithstanding the provisions of Section 19, notice of exercise of any option
shall be deemed given only when actually received by Landlord.
23. LANDLORD'S LIEN.
Tenant recognizes that Landlord has a statutory lien and other rights
in all furniture, fixtures, equipment, inventory, merchandise and other personal
property belonging to the Tenant and located in, on or about the Premises or
Building at any time while this Lease is in effect. (Remainder of paragraph
omitted by agreement of parties.)
<PAGE>
24. HAZARDOUS MATERIALS.
Tenant covenants not to introduce any hazardous or toxic materials onto
the Building, the Premises, or the grounds surrounding the Building, without (a)
first obtaining Landlord's written consent and (b) complying with all applicable
federal, state and local laws or ordinances pertaining to the transportation,
storage, use or disposal of such materials, including but not limited to
obtaining proper permits. If Tenant's transportation, storage, use or disposal
of hazardous or toxic materials on to the Building, the Premises, or the grounds
surrounding the Building results in contamination of the soil or the surface or
ground water or loss or damage to person(s) or property, then Tenant agrees to
respond as follows: (i) notify Landlord immediately of any contamination, claim
of contamination, or loss or damage claimed to result therefrom, (ii) after
consultation and approval by Landlord, remediate or remove any contamination and
(iii) indemnify, defend and hold Landlord harmless from and against any claims,
suits, causes of action, costs and fees, including attorney's fees, arising from
or connected with any such contamination, claim of contamination, loss or
damage. The term "hazardous or toxic materials" shall mean any material, waste
or substance (a) which requires special handling, investigation, removal,
transportation, closure, notification or other remedial action under any
environmental law or regulation, whether federal, state or local and (b) which
is, or becomes, defined as a "hazardous waste", "hazardous material", "hazardous
substance", pollutant or toxic substance under any environmental law.
This provision shall survive the termination of this Lease.
25. GENERAL PROVISIONS.
25.1 Estoppel Certificate. (a) Tenant shall at any time upon not less
than ten (10) days prior written notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing: (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification, identifying the instruments of modification and certifying
that this Lease, as so modified, is in full force and effect), and the date to
which the Base Rent, security deposit, Additional Rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, which are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser, encumbrancer or other transferee of
the Premises.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant: (i) that this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) that there
are no uncured defaults in Landlord's performance, and (iii) that no rent has
been paid in advance; and
(c) If Landlord desires to finance or refinance the Premises or the
Building, or any part thereof, Tenant hereby agrees to deliver to Landlord
and/or to any lender designated by Landlord such financial records of Tenant as
may be reasonably required by such lender. Such statements may include but not
be limited to the past three (3) years financial statements of Tenant. All such
financial statements shall be received by Landlord in confidence and shall be
used only for the purposes herein set forth.
25.2 Landlord's Interest and Liability. The term "Landlord" as used
herein shall mean only the owner or owners at the time in question of the fee
title or a tenant's interest in a ground lease of the real property on which the
improvements comprising the Building are situated. In the event of any transfer
of such title or interest, the Landlord herein named (and in case of any
subsequent transfers the then grantor), shall be relieved from and after the
date of such transfer of all liability with respect to Landlord's obligations
thereafter to be performed, provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer in which Tenant has an interest
shall be delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, except as aforesaid, be binding on Landlord's
successors and assigns only during their respective periods of ownership.
Notwithstanding anything to the contrary in this Lease, the liability of
Landlord for any default by Landlord under the terms of this Lease shall be
limited to Tenant's actual, direct, but not consequential, damages and Tenant
shall look solely to the estate and property of the Landlord in the Building for
the satisfaction of Tenant's remedies in the event of any default or breach by
the Landlord with respect to any of the terms, covenants and conditions of the
Lease to be observed and/or performed by the Landlord, and no other property or
assets of the Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of the Tenant's remedies and Landlord shall not
be personally liable for any deficiency.
25.3 Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
25.4 Interest on Past Due Obligations; Certified Funds. Except as may
expressly be provided in this Lease to the contrary, any amount due to Landlord
not paid when due shall bear interest at the rate of four percent (4%) per annum
over the prime rate of the First City Bank of Dallas, Texas as the same may
fluctuate from and after the date on which the payment was first due through the
date on which the payment is paid in full, provided, however, that the payment
of such interest shall
<PAGE>
in no event exceed the highest rate allowed under applicable law. Payment of
such interest shall not excuse or cure any default by Tenant under this Lease.
In the event that either Tenant is more than ten (10) days late in making any
payment due under the Lease, or any payment from Tenant to Landlord does not
clear the bank or is returned for insufficient funds, and either such condition
occurs on two or more occasions, or each occurs once, Landlord shall have the
right at any time thereafter to require that all succeeding monthly installments
of Base Rent and all succeeding payments of Additional Rent be paid to the
Landlord in certified funds drawn on a bank located in the metropolitan area in
which the Premises are located. Said right may be exercised by Landlord by
giving notice of such requirements to Tenant, but the giving of such notice and
the exercise of this right by Landlord shall not be construed to be a waiver of
any default by Tenant or any other right which Landlord may exercise under this
Lease.
25.5 Time of The Essence. Time is of the essence in the performance by
Tenant of its obligations hereunder.
25.6 Captions. Any captions contained in this Lease are not a part hereof,
are for convenience only, and are not to be given any substantive meaning in
construing this Lease.
25.7 Entire Agreement. This Lease contains the entire agreement and
understanding between the parties hereto. There are no oral understandings,
terms, or conditions, and neither party has relied upon any representations,
express or implied, not contained in this Lease. All prior understandings,
terms, or conditions are deemed merged in this Lease. No modification of this
Lease shall be binding unless such modification shall be in writing and signed
by the parties hereto. Tenant acknowledges that it has not been induced to enter
into this Lease by any promises or representatives not expressly set forth in
this Lease, and if any such representations were made prior to the execution of
this Lease, Tenant acknowledges that it has not relied on the same, and that
Landlord shall have no liability with respect to any such representations.
25.8 Waivers. No failure by either party to insist upon the strict
performance of any agreement, term, covenant or condition hereof or to exercise
any right or remedy consequent upon a breach thereof, and no acceptance of full
or partial rent or the continuance of any such breach, shall constitute a waiver
of any such breach of such agreement, term, covenant or condition or a
relinquishment of the right to exercise such right or remedy. No agreement,
term, covenant or condition hereof to be performed or complied with by either
party, and no breach thereof, shall be waived, altered or modified except by a
written instrument executed by the other party. No waiver of any breach shall
affect or alter this Lease, but each and every agreement, term, covenant or
condition hereof shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof. Notwithstanding any
termination of this Lease, the same shall continue in force and effect as to any
provisions of the Lease, including remedies, which require or permit observance
or performance of Landlord or Tenant subsequent to termination.
25.9 Recording. Tenant shall not record this Lease. Any such recordation by
Tenant shall be a breach of this Lease.
25.10 Cumulative Remedies. No remedy or election by Landlord hereunder
shall be deemed exclusive, but shall wherever possible be cumulative with all
other remedies at law or in equity to which Landlord may be entitled.
25.11 Covenants and Conditions. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
25.12 Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment, subletting or transfer by Tenant and subject to the
provisions of Section 25.2, this Lease shall bind the parties, their personal
representatives, heirs, successors and assigns. This Lease shall be governed by
the laws of the state where the Premises are located.
25.13 Attorneys Fees. In the event of litigation relating to this Lease,
the prevailing party shall be entitled to recover from the losing party any
costs or reasonable attorneys fees incurred by the prevailing party in
connection with such litigation. If Landlord utilizes the services of an
attorney to enforce any of its rights hereunder but which does not result in the
bringing of an action, Tenant shall immediately pay to Landlord upon demand
therefor the amount of such attorneys fees incurred.
25.14 Landlord's Access. Landlord and Landlord's agents, representatives
and designees shall have the right to enter the Premises as reasonably necessary
or desirable to Landlord for the purpose of inspecting the same, showing the
same to prospective purchasers, tenants, lenders or other transferees, making
such alterations, repairs, improvements or additions to the Premises or to the
Building as Landlord may deem necessary or desirable, or for any other
reasonable purpose as Landlord may determine. Landlord may at any time place in,
on or about the Premises any "For Sale", or "For Lease" or similar signs, all
without rebate of rent or liability to Tenant.
<PAGE>
25.15 Auctions. Tenant shall not conduct any auction, liquidation sale, or
going out of business sale in, on or about the Premises.
25.16 Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of the Landlord, terminate all or any existing subtenancies or may, at the
option of Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
25.17 Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
25.18 Signs. Landlord may prescribe a uniform pattern of identification
signs for tenants (including Tenant) to be placed on the outside of the doors
leading into their respective premises (including the Premises), and other than
such identification signs, Tenant shall not install, paint, display, inscribe,
place or affix, or otherwise attach, any sign, fixture, advertisement, notice,
lettering or direction on any part of the outside of the Building or in the
interior or other portion of the Building without obtaining the prior written
consent of the Landlord.
25.19 Brokers. The parties hereto acknowledge that the brokers named in
Section 1.18 were the sole real estate brokers that represented the Landlord
herein, and that no commissions are owed by Landlord to any other brokers
whatsoever, and Tenant agrees to indemnify Landlord from claims for commission
from any other brokers arising out of the execution of this lease.
25.20 Guarantor. In the event that there is a guarantor of this Lease, the
obligations of guarantor and Tenant shall be joint and several under this Lease.
25.21 Joint and Several Liability. If two or more individuals,
corporations, partnerships or other business associates (or any combination of
two or more thereof) shall sign this Lease as Tenant, the liability of each such
individual, corporation, partnership or other business association to pay rent
and perform all other obligations hereunder shall be deemed to be joint and
several, and all notices, payments and agreements given or made by, with or to
any one of such individuals, corporations, partnerships or other business
associations shall be deemed to have been given or made by, with or to all of
them. In like manner, if Tenant shall be a partnership or other business
association, the members of which are, by virtue of statute or federal law,
subject to personal liability, the liability of each such member be joint and
several.
25.22 No Joint Venture. Any intention to create a joint venture or
partnership relation between the parties hereto is hereby expressly disclaimed.
26.00 Renewal Option. If this lease is in full force and Tenant is not in
default hereunder at the time it desires to renew this lease, Tenant shall have
one (1) option to extend the original term of the lease for an additional five
(5) year period at a rental rate equal to the prevailing market rate. Such
option to extend must be exercised by written notice to Landlord, delivered by
Tenant no less than 120 days prior to the expiration of the then current term of
the lease.
The parties hereto have executed this Lease on the first page hereof on the
dates specified immediately below their respective signatures.
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "Amendment") is entered into on May
19, 1995, by and between Natron Limited Partnership ("Landlord"), acting by and
through Ensearch Holding Company (formerly known as Metro K.L.S., Inc.), its
general partner, and Electronic Transmission Corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into that certain Office Lease
(the "Lease") dated January 5, 1995, covering certain premises (the "Original
Premises") comprising 4,152 rentable square feet in the office building (the
"Building") known as Quorum North located at 5025 Arapaho Road, Dallas, Dallas
County, Texas 75248, such Original Premises being more particularly described in
the Office Lease and outline on Exhibit A attached hereto; and
WHEREAS, the term under the Lease was originally to commence on March
1, 1995, but the Original Premises was delivered by Landlord and accepted by
Tenant on April 1, 1995, so that the term commenced then and will expire on
February 29, 2000 (which was inadvertently set forth as February 28, 2000)
pursuant to an Acceptance of Premises Memorandum dated April 21, 1995; and
WHEREAS, Tenant and Landlord have agreed that Tenant will rent certain
additional premises (the "Additional Premises") comprising 785 rentable square
feet in the Building as outlined on Exhibit A attached hereto, all on certain
terms and conditions and pursuant to an amendment to the Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other good and valuable consideration, Landlord and
Tenant hereby amend the Lease as follows:
1. The premises demised under the Lease are amended to comprise the
Original Premises and the Additional Premises, so that the total area
rented by Tenant comprises 4,937 rentable square feet (collectively the
"Total Premises").
2. The commencement date of the lease of the Additional Premises to Tenant
will be August 1, 1995. Rent for the Additional Premises as set forth
in section 4 below shall commence on such delivery to Tenant.
3. Landlord will pay the costs not to exceed $3,729.00 of build-out which
Tenant in its discretion elects to have performed in the Additional
Premises, the Original Premises, or any other space in the Building
which Tenant may lease at a later date.
4. The Base Rent under the Lease, as amended, shall be as follows:
<TABLE>
<CAPTION>
Original Additional Total
Annual Premises Premises Premises
Month Date Area Rent/SF Monthly Rent Monthly Rent Monthly Rent
- ----- ---- ---- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
01 - 03 4/1/95 - 6/30/95 4152 0 0 0 0
04 7/1/95 - 7/31/95 4937 $12.75; 0 $4411.50 0 $4411.50
05 - 12 8/1/95 - 3/31/96 4937 $12.75 $4411.50 $834.06 $5245.56
13 - 24 4/1/96 - 3/31/97 4937 $13.50 $4671.00 $883.13 $5554.13
25 - 36 4/1/97 - 3/31/98 4937 $14.25 $4930.50 $932.19 $5862.69
37 - 48 4/1/98 - 3/31/99 4937 $15.00 $5190.00 $981.25 $6171.25
49 - 59 4/1/99 - 2/29/00 4937 $15.75 $5449.50 $1030.31 $6479.81
</TABLE>
EXCEPT AS HEREBY AMENDED, the Lease and all other provisions thereof
are hereby confirmed and ratified.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment on and effective as of the date first above written.
LANDLORD:
Natron Limited Partnership
by Ensearch Holding Company
its General Partner
By: /s/ Rodman W. Jordan
Rodman W. Jordan
President
Date: May __, 1995
TENANT:
Electronic Transmission Corporation
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and CEO
Date: May 19, 1995
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (this "Amendment") is entered into on April 29,
1996, by and between Natron Limited Partnership ("Landlord"), acting by and
through Ensearch Holding Company (formerly known as Metro K.L.S., Inc.), its
general partner, and Electronic Transmission Corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into that certain Office Lease dated
January 5, 1995, covering certain premises (the "Original Premises") comprising
4,152 rentable square feet and as amended by the First Amendment to Lease, dated
May 19, 1995 (collectively, the "Lease") in the office building (the "Building")
known as Quorum North located at 5025 Arapaho Road, Addison, Dallas County,
Texas 75248, such Original Premises being more particularly described in the
Lease and as delineated on the attached Exhibit A; and
WHEREAS, the term under the Lease was originally to commence on March 1, 1995,
but the Original Premises was delivered by Landlord and accepted by Tenant on
April 1, 1995, so that the term commenced then and will expire on February 29,
2000 (which was inadvertently set forth as February 28, 2000) pursuant to an
Acceptance of Premises Memorandum dated April 21, 1995; and
WHEREAS, Tenant and Landlord have agreed that Tenant will rent certain
additional premises (the "Additional Premises") comprising 7,239 rentable square
feet in the Building as outlined on Exhibit A attached hereto, all on certain
terms and conditions and pursuant to this amendment to Lease; and
WHEREAS, Tenant and Landlord have agreed that Tenant will release and give back
to Landlord certain premises (the "Released Premises") comprising 785 rentable
square feet in the Building as outlined on Exhibit A attached hereto, all under
certain terms and conditions pursuant to this Second Amendment to Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and for other good and valuable consideration, Landlord and Tenant hereby
amend the Lease as follows:
1. The term of the Lease shall be extended by 19 months to September 30,
2001.
2. The premises demised under the Lease are amended to comprise only the
Original Premises plus the Additional Premises with the abandonment of
the Released Premises; so that the total area rented by Tenant
comprises 11,391 rentable square feet (collectively the "Total
Premises").
3. The commencement date and rental payments due by Tenant as pertains to
the Additional Premises will be the earlier to occur of October 1,
1996, or at completion of construction/build-out process as defined
below.
4. At such time as Auto One vacates the Additional Space, Landlord will
grant access to same for the construction of tenant improvement.
Failure by Landlord to deliver the Additional Space due to Holdover or
other causes shall not constitute a default but rather give rise to the
implementation of the Provisions contained in Article 3.2 of the Lease.
5. The Base Rent under the Lease, as amended, shall be as follows:
<TABLE>
<CAPTION>
Original Additional Total
Annual Premises Premises Premises
Month Date Area Rent/SF Monthly Rent Monthly Rent Monthly Rent
- ----- ---- ---- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
01-03 04/1/95-06/30/95 4152 0 0 0 0
04 07/1/95-07/31/95 4937 $12.75; 0 $4411.50 0 $4411.50
05-12 08/1/95-03/31/96 4937 $12.75 $4411.50 $834.06 $5245.56
13 04/1/96-04/30/96 4937 $13.50 $4671.00 $883.13 $5554.13
14-18 05/1/96-09/30/96 4937 $0.00 $0.00 $0.00 $0.00
19-30 10/1/96-09/30/97 11391 $15.50 $5363.00 $9350.38 $14713.38
31-42 10/1/97-09/30/98 11391 $16.00 $5536.00 $9652.00 $15188.00
43-54 10/1/98-09/30/99 11391 $16.50 $5709.00 $9953.63 $15662.63
55-66 10/1/99-09/30/00 11391 $17.00 $5882.00 $10255.25 $16137.25
67-78 10/1/00-09/30/01 11391 $17.50 $6055.00 $10556.88 $16611.88
</TABLE>
<PAGE>
6. Landlord will pay an additional construction allowance not to exceed
$64,131.00 which will be governed in accordance with Exhibit F of the Original
Lease, dated January 5, 1995.
EXCEPT AS HEREBY AMENDED, the Lease and all other provisions thereof
are hereby confirmed and ratified.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment on and effective as of the date first above written.
LANDLORD:
Natron Limited Partnership
by Ensearch Holding Company
its General Partner
By: /s/ Rodman W. Jordan
Rodman W. Jordan
President
Date: April 29, 1996
TENANT:
Electronic Transmission Corporation
By: /s/ L. Cade Havard
L. Cade Havard
Chairman and CEO
Date: April 29, 1996
<PAGE>
EXHIBIT 16.1
<PAGE>
EXHIBIT 16.1
NOTICE OF CHANGE OF AUDITOR
TO: THE ALBERTA SECURITIES COMMISSION;
AND TO: HANS P. CREMERS, CHARTERED ACCOUNTANT
AND TO: SIMONTON, KUTAC & BARNIDGE, LLP, CERTIFIED PUBLIC ACCOUNTANTS
TAKE NOTICE THAT effective June 1, 1996, ETC Transaction Corporation (the
"Company") has appointed Simonton, Kutac & Barnidge, LLP, Certified Public
Accountants, (the "Successor Auditor") of Houston, Texas as auditor of the
Company for the fiscal year ending December 31, 1996. The former auditor, Hans
P. Cremers, Chartered Accountant (the "Former Auditor"), was not reappointed
after the expiry of his term of office in 1996 after he completed the Company's
December 31, 1995 annual audited financial statements. This notice is given
pursuant to National Policy No. 31.
There were no reservations in the Former Auditor's Report for the period
specified in paragraph 3.2 of National Policy No. 31.
The recommendation to appoint the Successor Auditor was considered and approved
by the Company's Board of Directors.
In the opinion of the Company, there were no reportable events occurring prior
to the termination of the Former Auditor in 1996.
DATED at Dallas, Texas this ______ day of June, 1996.
ETC TRANSACTION CORPORATION
per:
L. Cade Havard, President
<PAGE>
EXHIBIT 16.2
<PAGE>
EXHIBIT 16.2
HANS P. CREMERS
CHARTERED ACCOUNTANT
SUITE 550 PH: (403) 269-6080
525 - 11 AVE. S.W. FAX: (403) 269-8640
CALGARY, ALBERTA T2R 0C9
June 24, 1996
Alberta Securities Commission
410, 300 5th Avenue S.W.
Calgary, Alberta
T2P 3C4
Attention: Continuous Disclosure Section
Dear Sirs:
Re: ETC Transaction Corporation
Notice pursuant to National Policy No. 31
Change of Auditors
We have read the Notice of Change of Auditor of ETC Transaction Corporation
concerning our appointment as Auditors of the corporation.
In accordance with National Policy No. 31, we advise that we agree with the
information contained in the above mentioned Notice based upon our knowledge of
the information at this time.
Yours truly,
/s/ Hans P. Cremers
Hans P. Cremers
Chartered Accountant
<PAGE>
EXHIBIT 16.3
<PAGE>
EXHIBIT 16.3
SIMONTON, KUTAC & BARNIDGE, L.L.P.
2 Houston Center
909 Fannin, Suite 2050
Houston, Texas 77010
Phone: (713) 658-9755
Facsimile: (713) 658-0298
June 24, 1996
Alberta Securities Commission
410, 300 5th Avenue S.W.
Calgary, Alberta
T2P 3C4
Attention: Continuous Disclosure Section
Dear Sirs:
Re: ETC Transaction Corporation
Notice pursuant to National Policy No. 31
Change of Auditors
We have read the Notice of Change of Auditor of ETC Transaction Corporation
concerning our appointment as Auditors of the corporation.
In accordance with National Policy No. 31, we advise that we agree with the
information contained in the above mentioned Notice based upon our knowledge of
the information at this time.
Yours truly,
SIMONTON, KUTAC & BARNIDGE, L.L.P.
/s/ Simonton, Kutac & Barnidge, L.L.P.
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the use in this Registration Statement on Form S-4 of our
report dated April 3, 1996 relating to the financial statements of Solo
Petroleums, Ltd. for the years ended December 31, 1995 and 1994, and the
refernece of our firm under the captions "SELECTED FINANCIAL DATA" and
"EXPRERTS" in the Prospectus.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
June 26, 1996
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the use in this Registration Statement on Form S-4 of our
report dated April 30, 1996 relating to the financial statements of Electronic
Transmission Corporation for the years ended December 31, 1995 and 1994, and the
refernece of our firm under the captions "SELECTED FINANCIAL DATA" and
"EXPRERTS" in the Prospectus.
/s/ Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
June 26, 1996
EXHIBIT 24.1
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
"EXHIBIT 27.1"
<PAGE>
<ARTICLE> 5
<CIK> 0001017586
<NAME> ETC TRANSACTION CORPORATION
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 0
<CURRENT-LIABILITIES> 984 981
<BONDS> 0 0
0 0
0 0
<COMMON> 88 88
<OTHER-SE> (1,072) (1,068)
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 1
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3 93
<INCOME-PRETAX> (3) (94)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3) (94)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 392
<CHANGES> 0 0
<NET-INCOME> (3) (298)
<EPS-PRIMARY> 0.00 0.09
<EPS-DILUTED> 0.00 0.06
</TABLE>
EXHIBIT 99.1
<PAGE>
EXHIBIT 99.1
ETC TRANSACTION CORPORATION
PROXY
FOR THE COMBINED ANNUAL AND SPECIAL MEETING OF THE
SHAREHOLDERS TO BE HELD ON _____________ , 1996
SOLICITED BY MANAGEMENT
The undersigned, being a shareholder of ETC Transaction Corporation (the
"Corporation") hereby appoints L. Cade Havard, of Dallas, Texas, or failing him,
Douglas K.B. McLean, of Calgary, Alberta, or (to appoint some other person see
the accompanying Joint Proxy Statement/Prospectus/Information Circular dated ,
1996), _________________________________________________ as proxy with power of
substitution to attend, act and vote for me on my behalf at the Combined Annual
and Special Meeting of the shareholders of the Corporation to be held on June
20, 1996, and at any adjournment(s) thereof, and to vote:
1. For ( ) or withhold vote ( ) the resolution to elect the directors
nominated in the accompanying Joint Proxy Statement/Prospectus/Information
Circular of the Corporation.
2. For ( ) or withhold vote ( ) the resolution to elect the replacement
directors nominated in the accompanying Joint Proxy
Statement/Prospectus/Information Circular of the Corporation, to serve upon
completion of the Continuance and Merger, if approved.
3. For ( ) or withhold vote ( ) the resolution to appoint Simonton Kutac &
Barnidge, L.L.P., of Houston, Texas, as Auditors of the Corporation for the
year ending December 31, 1996, at a remuneration to be fixed by the Board
of Directors.
4. For ( ) or against ( ) the special resolutions approving the Continuance of
the Corporation from Alberta to Delaware, as described in the accompanying
Joint Proxy Statement/Prospectus/Information Circular.
5. For ( ) or against ( ) the special resolutions approving the Amalgamation
and Merger of the Corporation and Electronic Transmission Corporation, a
Texas Corporation, as described in the accompanying Joint Proxy
Statement/Prospectus/Information Circular.
6. For ( ) or against ( ) the special resolutions changing the name of the
Corporation to Electronic Transmission Corporation, as described in the
accompanying Joint Proxy Statement/Prospectus/Information Circular.
7. On such other business as may properly come before the meeting.
<PAGE>
- 2 -
The undersigned instructs the above-named proxy holder to act on each of the
matters itemized above as directed. If no direction is given, such proxy holder
shall vote for the matters in items 1 through 6 above. The undersigned hereby
confers a discretionary authority upon such proxy holder to vote, in accordance
with his best judgment, with respect to amendments or variations to the matters
outlined above and with respect to matters other than those listed in the notice
calling the meeting and which may properly come before the meeting.
The undersigned hereby revokes any proxy previously given.
DATED this _____ day of _______________, 1996.
--------------------------------------------------
Shareholder
(Please sign exactly as shares are registered. If the
shareholder is a corporation, its corporate seal must be
affixed to this Instrument)
--------------------------------------------------
Printed name
--------------------------------------------------
Number of shares owned
INSTRUCTIONS
1. This instrument appointing a proxy must be in writing
and shall be dated and executed by the shareholder or
his attorney authorized in writing, or, if the
shareholder is a corporation, under its corporate seal
by an officer or attorney thereof who has been duly
authorized. If the proxy is not dated above, it will be
deemed to bear the date on which it was mailed to the
shareholder.
2. A shareholder has the right to appoint a person to
attend and act for him and on his behalf at the meeting
other than the persons named above. Such person need
not be a shareholder. To exercise this right, insert
the name and city of residence of the person you wish
to be your nominee in the space provided above.
3. SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE MEETING ARE
REQUESTED TO COMPLETE THIS FORM OF PROXY AND RETURN IT
TO THE CORPORATION'S TRANSFER AGENT IN THE ENVELOPE
PROVIDED FOR THIS PURPOSE.
<PAGE>
EXHIBIT 99.2
<PAGE>
EXHIBIT 99.2
ELECTRONIC TRANSMISSION CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
JUNE _________, 1996
The undersigned hereby appoints L. Cade Havard with power of substitution,
as a proxy to vote all stock of Electronic Transmission Corporation (ETC-Texas)
owned by the undersigned at the Special Meeting of Shareholders to be held at
5025 Arapaho Road, Suite 515, Dallas, Texas 75248 at p.m. local time on , 1996,
and any adjournment thereof, on the following matters as indicated below and
such other business as may properly come before the meeting.
1. Proposal to merge with and into ETC Transaction Corporation, a
Delaware corporation, pursuant to the terms and conditions of the
Agreement and Plan of Merger, dated May 1, 1996.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of six (6) individuals to serve as directors of the
"Surviving Corporation" following the merger of ETC-Texas with and
into ETC-Transaction Corporation and until the next annual meeting of
the shareholders of the Surviving Corporation.
|_| FOR |_| WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES NAMED
Names of Nominees: L. Cade Havard, Elaine Boze, Timothy P. Powell,
David O. Hannah, Michael Eckstein, Rick L. Snyder
(Instruction: To withhold authority to vote for any individual
nominee, write the nominee's name on the following line.)
3. In his discretion, upon such other matters as may properly come before
the meeting or any adjournment thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
This Proxy is solicited on behalf of the ETC-Texas's Board
of Directors.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR the merger with and into ETC Transaction Corporation.
Please sign exactly as your name appears on this Proxy Card. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
DATED: __________________________, 1996
-------------------------------
Signature of Shareholder
----------------------------
Signature if held jointly
PLEASE mark, sign,date and return the Proxy Card promptly using the
enclosed envelope.
<PAGE>
