UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: June 8, 1999
DOWNSTREAM INCORPORATED - DSI
(Exact name of registrant as specified in its charter)
UTAH 333-06440 87-0567618
(State of incorporation) (Commission File Number) (IRS Employer ID No.)
Frohnkamp 18, Monheim, Germany
(Address of principal executive offices)
40789
(Zip Code)
(011) 49-2173-330-3630
Registrant's telephone number, including area code
6337 Highland Drive, Salt Lake City, Utah 84121
(Former name or former address, if changed since last report)
-------------------------
<PAGE>
Item 1.Changes in Control of Registrant.
(a) On May 24, 1999 the former Officers and Directors of the Registrant
resigned their positions and new Officers and Directors were elected.
i) Barry A. Ellsworth resigned as President, Treasurer and as a Director;
James G. Slater resigned as Secretary and as a Director; and Richard
S. Cutler resigned as Vice President and as a Director.
ii) Philipp Kriependorf was elected a Director of the Registrant and its
President; Philip Kamp was elected a Director, Vice President and the
Registrant's Treasurer; Olaf Cordt was elected a Director and the
Registrant's Secretary.
iii) Philipp Kriependorf was issued two million, six hundred thirty three
thousand, three hundred thirty four (2,633,334) shares of the
Registrant's common stock as consideration for his stock ownership in
Q-Seven Systems, Inc., a Nevada corporation, and a now wholly owned
subsidiary of the Registrant, and for the rights acquired the
following day by Q-Seven Systems, Inc., from Q-Seven Systems GmbH of
Monheim, Germany, to sell, license and market, on an exclusive,
world-wide basis, Q-Seven Systems GmbH's User Management System. These
transactions took place on May 24 and 25, 1999, and made Mr.
Kriependorf the owner of approximately twenty one percent (21%) of the
Registrant's common stock.
iv) Philip Kamp was issued two million, six hundred thirty three thousand,
three hundred thirty three (2,633,333) shares of the Registrant's
common stock as consideration for his stock ownership in Q-Seven
Systems, Inc., a Nevada corporation, and a now wholly owned subsidiary
of the Registrant, and his 50% ownership in X-Real Intertainment Inc.
Ltd., a Bahamian corporation, that was acquired the following day by
Q-Seven Systems, Inc., a Nevada corporation, that is now a wholly
owned subsidiary of the Registrant. These transactions took place on
May 24 and 25, 1999, and made Mr. Kamp the owner of approximately
twenty one percent (21%) of the Registrant's common stock.
v) Olaf Cordt was issued two million, six hundred thirty three thousand,
three hundred thirty three (2,633,333) shares of the Registrant's
common stock as consideration for his stock ownership in Q-Seven
Systems, Inc., a Nevada corporation, and a now wholly owned subsidiary
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<PAGE>
of the Registrant, and his 50% ownership in X-Real Intertainment Inc.
Ltd., a Bahamian corporation, that was acquired the following day by
Q-Seven Systems, Inc., a Nevada corporation that is now a wholly owned
subsidiary of the Registrant. These transactions took place on May 24
and 25, 1999, and made Mr. Cordt the owner of approximately twenty one
percent (21%) of the Registrant's common stock.
vi) The total number of common shares issued to the new Officers and
Directors of the Registrant was: Seven million, nine hundred thousand
(7,900,000).
vii) The issuance of these new shares brings the total number of shares
issued and outstanding to: Twelve million, five hundred thousand
(12,500,000) shares. The three new shareholders mentioned above (who
are also the new officers and directors of the Registrant) currently
own approximately sixty three percent (63%) of the Registrant's common
stock, as a group.
Item 2. Acquisition or Disposition of Assets.
(a) On May 24, 1999, the Registrant acquired Q-Seven Systems, Inc., a Nevada
corporation, in exchange for the issuance of the aforementioned 7,900,000
shares of the Registrant's common stock that was issued the following day
to Mr. Philipp Kriependorf, Mr. Philip Kamp and Mr. Olaf Cordt, making
Q-Seven Systems, Inc., a Nevada corporation, a wholly owned subsidiary of
the Registrant. The 7,900,000 shares were held in escrow until the
exclusive, world-wide rights to market Q-Seven Systems GmbH's, of Monheim,
Germany, User Management Software were acquired by Q-Seven Systems, Inc. of
Nevada, a wholly owned subsidiary of the Registrant, as well as the
ownership of X-Real Intertainment Inc. Ltd., a Bahamian corporation, making
X-Real a wholly owned subsidiary of Q-Seven Systems, Inc. of Nevada, which
is now a wholly owned subsidiary of the Registrant. The acquisition of the
sales and licensing rights to the software, and the acquisition of X-Real
Intertainment Inc. Ltd. were both completed on May 25, 1999.
(i) The Registrant believes that the rights to market Q-Seven
Systems GmbH's User Management Software will add value to the
Registrant. Portions of the software are still being developed and
no sales of the software have yet been made. However, sales are
pending. The software is a modularized suite offering users an
extremely sophisticated system for the backend administration of
various types of e-commerce sites on the internet, including but not
limited to, online gaming, adult entertainment, and online shopping.
The software gives frequent and accurate feedback concerning clients
and their activities to the owners of the business, yet is extremely
easy to use and non-computer professionals can administer the
system. The software also allows for secure online billing over the
internet.
(ii) The acquisition of X-Real Intertainment added tangible value
and income to the Registrant's business. X-Real owns six online
adult entertainment pay sites that had sales of approximately
$340,293 USD during 1998, with net profits of approximately $72,010
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<PAGE>
USD (21%) on sales. Sales have grown steadily and significantly
during the first one and a half quarters of 1999, and the sites
continue to be profitable. It is believed that said sites will give
the Registrant a firm financial base to carry out its business
plans.
(iii) The principle followed in determining the consideration to be
paid for the above assets was one of negotiation based on the
percentage of ownership in the assets acquired, prior to the
acquisitions, that the former owners of said assets were willing to
give up for ownership in a public company and the benefits they
would realize by having access to the public markets.
(iv) The rights to sell, license and market Q-Seven Systems GmbH's
User Management Software were acquired from Q-Seven Systems GmbH, a
limited liability company, in Monheim, Germany, whose principles are
Philipp Kriependorf, Philip Kamp and Olaf Cordt.
(v) Ownership in X-Real Intertainment Inc. Ltd. was acquired from
Olaf Cordt and Philip Kamp who each owned 50% of the Bahamian
corporation prior to its being acquired by Q-Seven Systems, Inc. of
Nevada, which was at the time of said acquisition a wholly owned
subsidiary of the Registrant.
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Item 7. Financial Statements and Exhibits.
(a) The audited financial statements of X-Real GbR, a German partnership, for
the 12 month period ended December 31, 1998, are attached hereto as
"Exhibit I".
(b) Pro forma financial information for X-Real Intertainment Inc. Ltd, a wholly
owned subsidiary of Q-Seven Systems, Inc., a Nevada Corporation and a
wholly owned subsidiary of Registrant, are attached hereto as "Exhibit II".
(c) The Agreement and Plan of Share Exchange between Downstream Incorporated -
DSI and Q-Seven Systems, Inc. is attached hereto as "Exhibit III".
(d) The Asset Purchase Agreement between X-Real GbR and X-Real Intertainment
Inc. Ltd., a Bahamian corporation, is attached hereto as "Exhibit IV".
(e) The Stock Transfer/Purchase Agreement between Olaf Cordt and Philip Kamp,
the owners of X-Real Intertainment Inc. Ltd., a Bahamian corporation, and
Q-Seven Systems, Inc., a Nevada corporation is attached hereto as "Exhibit
V".
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: June 8, 1999
(Registrant) DOWNSTREAM INCORPORATED - DSI.
By:/s/ Philipp Kriependorf
-----------------------------
Philipp Kriependorf
President and CEO
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EXHIBITS
1. The audited financial statements of X-Real GbR, a German partnership, for
the 12 month period ended December 31, 1998, are attached hereto as
"Exhibit I".
2. Pro forma financial information for X-Real Intertainment Inc. Ltd, a wholly
owned subsidiary of Q-Seven Systems, Inc., a Nevada Corporation and a
wholly owned subsidiary of Registrant, are attached hereto as "Exhibit II".
3. The Agreement and Plan of Share Exchange between Downstream Incorporated -
DSI and Q-Seven Systems, Inc. is attached hereto as "Exhibit III".
4. The Asset Purchase Agreement between X-Real GbR and X-Real Intertainment
Inc. Ltd., a Bahamian corporation, is attached hereto as "Exhibit IV".
5. The Stock Transfer/Purchase Agreement between Olaf Cordt and Philip Kamp,
the owners of X-Real Intertainment Inc. Ltd., a Bahamian corporation, and
Q-Seven Systems, Inc., a Nevada corporation is attached hereto as "Exhibit
V".
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Exhibit I
4 X-REAL GbR
FINANCIAL STATEMENTS
December 31, 1998
<PAGE>
C O N T E N T S
Independent Auditors' Report............................................ 3
Balance Sheet........................................................... 4
Statement of Income and Partners' Capital............................... 5
Statement of Cash Flows................................................. 6
Notes to the Financial Statements....................................... 7
2
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INDEPENDENT AUDITORS' REPORT
Partners
X-Real GbR
Monheim, Germany
We have audited the accompanying balance sheet of X-Real GbR as of December 31,
1998 and the related statements of income and partners' capital and cash flows
for the year 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
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of X-Real GbR as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
April 29, 1999
3
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<TABLE>
<CAPTION>
X-REAL GbR
Balance Sheet
ASSETS
December 31,
1998
CURRENT ASSETS
<S> <C>
Cash in bank $ 4
Accounts receivable (Note 2) 102,286
-----------------
Total Current Assets 102,290
TOTAL ASSETS $ 102,290
=================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accrued expenses $ 24,522
-----------------
Total Current Liabilities 24,522
PARTNERS' CAPITAL
Partners' capital 133,435
Note receivable - related party (Note 3) (55,667)
-----------------
Total Partners' Capital 77,768
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 102,290
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
X-REAL GbR
Statement of Income and Partners' Capital
December 31,
1998
<S> <C>
NET SALES $ 340,293
COST OF SALES 77,008
GROSS PROFIT 263,285
EXPENSES
General and administrative 192,633
Total Expenses 192,633
INCOME FROM OPERATIONS 70,652
OTHER INCOME
Interest income 1,358
Total Other Income 1,358
NET INCOME 72,010
BEGINNING BALANCE PARTNERS' CAPITAL 5,000
CAPITAL CONTRIBUTIONS 56,425
ENDING BALANCE PARTNERS' CAPITAL $ 133,435
===================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
X-REAL GbR
Statement of Cash Flows
For the
Year Ended
December 31,
1998
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net income $ 72,010
Change in assets and liabilities:
Increase in accounts receivable (102,286)
Increase (decrease) in accrued expenses 24,522
Net Cash Used in Operating Activities (5,754)
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES -
CASH FLOWS FROM FINANCING ACTIVITIES
Related party loans made (55,667)
Capital contributed 56,425
Net Cash Provided by Financing Activities 758
-------------------
NET INCREASE (DECREASE) IN CASH (4,996)
CASH AT BEGINNING OF PERIOD 5,000
CASH AT END OF PERIOD $ 4
===================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR:
Interest $ -
Income taxes $ -
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
X-REAL GbR
Notes to the Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
X-Real GbR, a general partnership was organized November 4, 1997
under the provisions of a general partnership agreement between
Olaf Cordt and Philip Kamp for the purpose of creating and
operating internet pay sites. Profits and losses of the
Partnership are shared equally between the two partners.
b. Accounting Method
The Partnership's financial statements are prepared using the
accrual method of accounting. The Partnership has elected a
December 31 year end.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership
considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
d. Allowance for Losses
The Partnership uses the specific write-off method to provide for
doubtful accounts since experience and management's estimation
indicates an adequate allowance for such accounts is immaterial.
e. Income Taxes
Income of the Partnership is not taxable as such, but is
includible in the income of the partners. Therefore, no provision
for income taxes is reflected in the accompanying financial
statements.
f. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
The Partnership conducts all of its business on the internet, and
all revenues are collected by electronic means. All revenue
collections and refunds are managed by a corporation with which
the partnership has a service agreement (Note 4). Collected funds
are held by the service company for 60 days before they are
released to the company. Funds collected in 1998 and released to
the partnership in 1999 are classified as accounts receivable. The
costs of sales related to the receivables are deducted from the
amount released to the receivables are deducted from the amount
released to the Partnership. These costs are classified as accrued
liabilities.
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<PAGE>
X-REAL GbR
Notes to the Financial Statements
December 31, 1998
NOTE 3 - NOTE RECEIVABLE - RELATED PARTY
During 1998, the partnership loaned $54,309 to a partnership
related through common control. An additional $1,358 of interest
was accrued on the note as of December 31, 1998. Due to the nature
of the relationship, this note is classified as a reduction in
partners' capital.
NOTE 4 - SERVICE AGREEMENT
The Partnership owns several internet pay sites which are managed
by a corporation (the provider). The provider assumes
responsibility for the costs of operating the sites. In exchange,
the provider receives 35% of the gross revenues of the sites as a
service fee. The agreement can be terminated any time with a
notice of 180 days.
NOTE 5 - SUBSEQUENT EVENTS
On April 13, 1999, the Partnership entered into a letter of intent
to be acquired by Q-Seven Systems, Inc. which will be
simultaneously acquired by Downstream Incorporated which is a
publically traded U.S. company.
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Exhibit II
DOWNSTREAM INCORPORATED AND SUBSIDIARIES
CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
December 31, 1998
<PAGE>
C O N T E N T S
Consolidated Proforma Balance Sheet......................................... 3
Consolidated Proforma Statement of Operations............................... 5
Statement of Assumptions and Disclosures.................................... 6
2
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED AND SUBSIDIARIES
Consolidated Proforma Balance Sheet
December 31, 1998
(Unaudited)
ASSETS
Proforma
X-Real Adjustments
Downstream Q-Seven Entertainment Increase Proforma
Incorporated Systems, Inc. Ltd. (Decrease) Consolidated
------------- -------------- -------------- -------------- ---------------
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash $ 8,896 $ 4 $ - $ - $ 8,900
Accounts receivable, net - 102,286 - - 102,286
------------- -------------- -------------- -------------- ---------------
Total Current Assets 8,896 102,290 - - 111,186
------------- -------------- -------------- -------------- ---------------
FIXED ASSETS
Furniture and equipment 1,359 - - - 1,359
Accumulated depreciation (511) - - - (511)
------------- -------------- -------------- -------------- ---------------
Total Fixed Assets 848 - - - 848
------------- -------------- -------------- -------------- ---------------
TOTAL ASSETS $ 9,744 $ 102,290 $ - $ - $ 112,034
============= ============== ============== ============== ===============
See Summary of Assumptions and Disclosures.
3
<PAGE>
DOWNSTREAM INCORPORATED AND SUBSIDIARIES
Consolidated Proforma Balance Sheet (Continued)
December 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Proforma
X-Real Adjustments
Downstream Q-Seven Entertainment Increase Proforma
Incorporated Systems, Inc. Ltd. (Decrease) Consolidated
------------- -------------- -------------- -------------- ---------------
CURRENT LIABILITIES
<S> <C> <C> <C> <C> <C>
Accounts payable $ 117 $ - $ - $ 25,000 $ 25,117
Accrued expenses - 24,522 - 24,522
------------- -------------- -------------- -------------- ---------------
Total Current Liabilities 117 - 24,522 25,000 49,639
------------- -------------- -------------- -------------- ---------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 50,000,000
shares authorized of $0.001
par value, 12,400,000 shares
issued and outstanding 4,500 - - 7,900 12,400
Additional paid-in capital 133,004 - - 44,868 177,872
Partners' capital - - 133,435 (133,435) -
Note receivable - related party - - (55,667) 55,667 -
Deficit accumulated during
the development stage (127,877) - - - (127,877)
------------- -------------- -------------- -------------- ---------------
Total Stockholders' Equity 9,627 - 77,768 (25,000) 62,395
------------- -------------- -------------- -------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,744 $ - $ 102,290 $ - $ 112,034
============= ============== ============== ============== ===============
</TABLE>
See Summary of Assumptions and Disclosures.
4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED AND SUBSIDIARIES
Consolidated Proforma Statement of Operations
December 31, 1998
(Unaudited)
Proforma
X-Real Adjustments
Downstream Q-Seven Entertainment Increase Proforma
Incorporated Systems, Inc. Ltd. (Decrease) Consolidated
------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 104,017 $ - $ 340,293 $ - $ 444,310
COST OF SALES 45,473 - 77,008 - 122,481
------------- -------------- -------------- -------------- ---------------
GROSS PROFIT 58,544 - 263,285 - 321,829
------------- -------------- -------------- -------------- ---------------
OPERATING EXPENSES
Depreciation and amortization 513 - - - 513
General and administrative 150,375 - 192,633 - 343,008
------------- -------------- -------------- -------------- ---------------
Total Operating Expenses 150,888 - 192,633 - 343,521
------------- -------------- -------------- -------------- ---------------
OPERATING (LOSS) INCOME (92,344) - 70,652 - (21,692)
------------- -------------- -------------- -------------- ---------------
OTHER INCOME
Interest income - - 1,358 - 1,358
Other income 904 - - - 904
------------- -------------- -------------- -------------- ---------------
Total Other Income 904 - 1,358 - 2,262
------------- -------------- -------------- -------------- ---------------
LOSS BEFORE INCOME TAXES (91,440) - 72,010 - (19,430)
INCOME TAXES - - - - -
------------- -------------- -------------- -------------- ---------------
NET (LOSS) INCOME $ (91,440) $ - $ 72,010 $ - $ (19,430)
============= ============== ============== ============== ===============
</TABLE>
See Summary of Assumptions and Disclosures.
5
<PAGE>
DOWNSTREAM INCORPORATED AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Organization
Downstream Incorporated (the Company) was incorporated under the
laws of the State of Utah on November 26 1996 to engage in the
business of financial consulting.
Q-Seven Systems, Inc. (Q-7) was incorporated under the laws of the
State of Nevada on May 18, 1999 for the purpose of acquiring
marketing rights to a certain internet user management software
program, and to acquire X-Real Entertainment, Ltd., which owns six
internet pay sites.
X-Real Entertainment, Ltd. (formerly X-Real GbR) (X-Real) was
incorporated under the laws of the Bahamas on April 23, 1999.
X-Real was originally organized as a partnership under the laws of
the Federal Republic of Germany to engage in various forms of
internet commerce.
Effective May 24, 1999, the Company entered into an agreement and
plan of reorganization whereby the Company acquired 100% of the
issued and outstanding shares of Q-7 and X-Real for 7,900,000
shares of its common stock. The acquisition is accounted for as a
recapitalization of X-Real since the shareholders of Q-7 control
the Company after the reorganization. Accordingly, there is no
adjustment to the carrying values of assets or liabilities of
X-Real. The acquisition of X-Real by Q-7 was also accounted for as
a recapitalization because the partners of X-Real became the
shareholders of Q-7.
1. Record purchase of Q-Seven Systems, Inc.
and X-Real Entertainment Ltd. through the
issuance of 7,900,000 shares of common
stock:
Additional paid-in capital $ (7,900)
Common stock 7,900
-----------------
Total $ -
=================
2. Record estimated costs of the merger:
Accounts payable $ 25,000
Additional paid-in capital (25,000)
-----------------
Total $ -
=================
3. Eliminate the equity of Q-Seven
Systems, Inc. and X-Real
Entertainment Ltd.:
Additional paid-in capital $ 77,768
Partners' capital (133,435)
Note receivable - related party 55,667
-----------------
Total $ -
=================
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Exhibit III
AGREEMENT AND PLAN OF SHARE EXCHANGE
This Agreement and Plan of Share Exchange (hereinafter the "Agreement")
is entered into effective as of this 24th day of May 1999, by and among
Downstream Incorporated - DSI, a Utah corporation (hereinafter "DSI") and
Q-Seven Systems, Inc. a Nevada corporation (hereinafter "Q-7").
RECITALS:
WHEREAS, the Q-7 Stockholders own all of the issued and outstanding
common stock of Q-7 (the "Common Stock"). DSI desires to acquire the Common
Stock solely in exchange for voting common stock of DSI, making Q-7 a wholly
owned subsidiary of DSI; and
WHEREAS, the Q-7 Stockholders (as set forth on the attached Exhibit
"A") desire to acquire voting common stock of DSI in exchange for their Common
Stock, as more fully set forth herein.
NOW THEREFORE, for the mutual consideration set out herein and other
good and valuable consideration, the legal sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Reorganization. It is hereby agreed that all of the Q-7
Common Stock shall be acquired by DSI in exchange for common voting stock of DSI
(the "DSI Shares"). It is the intention of the parties hereto that all of the
issued and outstanding shares of capital stock of Q-7 shall be acquired by DSI
in exchange solely for DSI common voting stock and that this entire transaction
qualify as a corporate reorganization under Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended, and related or other applicable sections
thereunder.
2. Exchange of Shares. Q-7 and DSI stockholders agree that on the
Closing Date, or at the Closing as hereinafter defined, the Q-7 Common Stock
shall be delivered at Closing to DSI in exchange for the DSI Shares as follows:
(a) At Closing, DSI shall, subject to the conditions set forth herein,
issue an aggregate of Seven Million Nine Hundred Thousand
<PAGE>
(7,900,000) Shares of DSI's common voting stock to be held in
escrow for the Q-7 Stockholders. The stock shall be issued to the
three shareholders of Q-Seven Systems, Inc. as follows:
Philipp Kriependorf: 2,633,334 Shares of Common Stock
Philip Kamp: 2,633,333 Shares of Common Stock
Olaf Cordt: 2,633,333 Share of Common Stock
(b) Unless otherwise agreed by DSI this transaction shall close only
in the event DSI is able to acquire all issued and outstanding
shares of Q-7 outstanding Common Stock.
(c) The Seven Million Nine Hundred Thousand (7,900,000) shares of DSI
Common Stock to be issued at the Closing for the benefit of the
DSI Stockholders shall be held in escrow with William Renwick (the
"Escrow Agent") at, 1854 E. Sycamore Lane, Salt Lake City, Utah
84117, until such time as Q-7 has acquired One Hundred Percent
(100.00%) ownership of the six adult internet pay sites (either
directly or indirectly through the acquisition of X-Real
Intertainment, a Bahamian corporation) described in Section 3(a)
of the Agreement and documents have been signed making Q-7 the
sole and exclusive sales and licensing agent for Q-Seven Systems
GmbH's proprietary user management software, in its present form
and any and all other future forms, for perpetuity. At that time,
following written notification signed by Barry A. Ellsworth, DSI
and all of the Q-7 Stockholders, the Escrow Agent shall deliver
the DSI shares to the respective Q-7 Stockholders.
3. Pre-Closing Events. The Closing is subject to the completion of the
following:
(a) Since Q-7 is a newly formed corporation, it shall not be required
to have its books and records audited prior to Closing. However, Q-7 and/or the
Q-7 Stockholders shall have had the records audited of the six adult pay sites
known as Studentinnen.de; LoveCam.de; PeepCam.de; Teensex.de;
AmateurSexVideos.de; and Erotikweb.de; which are owned by Q-7's wholly owned
subsidiary, X-Real Intertainment, by an accounting firm that is a member of the
SEC Practices Committee. Said audit shall include annual balance sheets, income
statements, cash flow statements and related footnotes from inception and
unaudited quarterly balance sheets, income statements, and cash flow statements
for each calendar quarter of 1999, prior to Closing;
2
<PAGE>
(b) DSI shall demonstrate that it has, to the reasonable satisfaction
of Q-7, no material assets and no liabilities, contingent or fixed.
4. Exchange of Securities. As of the Closing Date each of the following
shall occur:
(a) All shares of Q-7 Common Stock issued and outstanding immediately
prior to the Closing Date shall be exchanged for Seven Million, Nine Hundred
Thousand (7,900,000) Shares of DSI's Common Stock to be issued in the amounts
and to the persons outlined in Item 2(a) above and delivered to the Escrow Agent
at the Closing. All such outstanding Shares of Q-7 Common Stock shall be deemed,
after Closing, to be owned by DSI. The holders of such certificates previously
evidencing shares of Q-7 Common Stock outstanding immediately prior to the
Closing Date shall cease to have any rights with respect to such shares of Q-7
Common Stock except as otherwise provided herein or by law;
(b) Any shares of Q-7 Common Stock held in the treasury of Q-7
immediately prior to the Closing Date shall automatically be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto;
(c) The Seven Million Nine Hundred Thousand (7,900,000) shares of DSI
Common Stock to be issued at the Closing for the benefit of the DSI Stockholders
shall be held in escrow with William Renwick (the "Escrow Agent") at, 1854 E.
Sycamore Lane, Salt Lake City, Utah 84117, until such time as Q-7 has acquired
One Hundred Percent (100.00%) ownership of the six adult internet pay sites
(either directly or indirectly through the acquisition of X-Real Intertainment,
a Bahamian corporation) described in Section 3(a) of the Agreement and documents
have been signed making Q-7 the sole and exclusive sales and licensing agent for
Q-Seven Systems GmbH's proprietary user management software, in its present form
and any and all other future forms, for perpetuity. At that time, following
written notification signed by Barry A. Ellsworth, DSI and all of the Q-7
Stockholders, the Escrow Agent shall deliver the DSI shares to the respective
Q-7 Stockholders.
5. Other Events Occurring at Closing. At Closing, the following shall
be accomplished:
(a) The resignation of the existing DSI's officers and directors and
the appointment of new officers and directors as described in Section 13 (f)
hereof.
6. Other Matters.
(a) Except as otherwise described herein, there shall be no cash
dividend, stock dividend, stock split, re-capitalization, or exchange of shares
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with respect to or rights issued in respect of, DSI's capital stock after the
date hereof and there shall be no dividends paid on Q-7's after the date
hereof, in each case through and including the Closing Date.
(b) DSI shall have received all requisite director and shareholder
approval of all matters set forth herein, and no shareholder of DSI shall have
exercised any dissenter's rights under applicable corporate law.
(c) Q-7 shall have received all requisite shareholder approval of the
matters set forth herein.
7. Post-Closing Matters. After the closing Date, the following shall be
accomplished:
(a) The Q-7 stockholders agree that they shall cause DSI to prepare and
file a report on form 8-K with the U.S. Securities and Exchange Commission with
fifteen (15) calendar days following the closing, in which DSI shall report the
Closing of the transaction contemplated in this Agreement, including the change
in control of DSI under Item 1, the acquisition of Q-7 under Item 2, the audited
financial statements of the business(es) acquired by DSI under Item 7, and such
other information as required by form 8-K;
(b) The Q-7 Stockholders agree that they shall not cause DSI to effect
any reverse split of the issued and outstanding shares of DSI Common Stock at
any time within two (2) years following the Closing Date within the written
consent of Barry A. Ellsworth;
(c) The Q-7 Stockholders agree that they shall call a Special Meeting
of the Stockholders of DSI within ninety (90) days following the Closing for the
purpose of voting to amend the Articles of Incorporation of DSI to change the
name of DSI to "Q-Seven Systems, Inc." (or such other name acceptable to Barry
A. Ellsworth if the name of Q-Seven Systems, Inc. is not available), and that
the Q-7 Stockholders shall vote all of their shares of DSI Common Stock in favor
of said name change;
(d) The Q-7 Stockholders (who after the Closing will become the
principal shareholders of DSI) agree herewith that if at any time during the
first eighteen (18) months after the Closing, the business of Q-7 or any
successor company should fail or be discontinued, they shall at that time,
return all of the shares of DSI Common Stock then owned by them to DSI to be
canceled without receiving any additional consideration therefor;
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(e) If at any time during the first two (2) years after the Closing,
one or more of the Q-7 Stockholders terminates his relationship with Q-7, or its
successor, or sells or otherwise relinquishes control of DSI, or its successor,
they individually and collectively agree not to compete with or against the
business of Q-7 in any way for a period of two (2) years from the date of their
departure from DSI, Q-7, or their successors.
8. Delivery of Shares. On the Closing Date, the Q-7 Stockholders will
surrender for cancellation, certificates representing all of their shares of Q-7
Common Stock, in exchange for delivery of certificates representing the DSI
Shares to the Escrow Agent for which the shares of Q-7 Common Stock are to be
exchanged at Closing.
9. Representations of Q-7 Stockholders. The Q-7 Stockholders hereby
represent and warrant, each only as to his own Q-7 Common Stock, the following
to be true and correct as of this date and as of the Closing Date:
(a) The Q-7 Common Stock owned by each Q-7 Stockholder is free and
clear from all claims, liens, security interests or other encumbrances, and at
the Closing Date the Q-7 Stockholders will have good title and the unqualified
right to transfer and dispose of all of the issued and outstanding shares of Q-7
Common Stock;
(b) Each Q-7 stockholder, respectively, is the sole owner of the issued
and outstanding shares of Q-7 Common Stock described as being owned by him in
Exhibit "A" opposite his name, and that the shares of Q-7 Common Stock listed on
Exhibit "A" represent all of the issued and outstanding shares of Q-7 Common
Stock as of the Closing;
(c) Each Q-7 Stockholder is acquiring his portion of the DSI Shares
with investment intent, and not with a view to sell, transfer or dispose of said
shares, and no Q-7 Stockholder has the present intent to sell or dispose of any
of the DSI Shares and no Q-7 Stockholder is under a binding obligation, formal
commitment, or existing plan to sell or otherwise dispose of the DSI Shares.
10. Representations of Q-7. Q-7 hereby represents and warrants as
follows, which warranties and representations shall be true and correct as of
the Closing Date:
(a) The Q-7 Stockholders listed on the attached Exhibit "A" are the
sole owners of record and beneficially of the issued and outstanding common
stock of Q-7;
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(b) Q-7 has no outstanding or authorized capital stock, warrants,
options or convertible securities other than as described in Exhibit "A",
attached hereto;
(c) The audited financial statements of Q-7's wholly owned subsidiary,
X-Real Intertainment, a Bahamian corporation, as of and for the period ended
December 31, 1998, which have been delivered to DSI (hereinafter referred to as
the "Q-7 Financial Statements") are complete and accurate and fairly present the
financial condition of Q-7 as of the date thereof and the results of its
operations for the periods covered. There are no material liabilities or
obligations of Q-7 or its subsidiaries, either fixed or contingent, not
disclosed in the Q-7 Financial Statements or in any exhibit thereto or notes
thereto other than contracts or obligations subsequently incurred in the
ordinary course of business; and no such contracts or obligations incurred in
the ordinary course of business constitute liens or other liabilities which
materially alter the financial condition of Q-7 as reflected in the Q-7
Financial Statements. Q-7 or its subsidiaries have good title to all assets
shown on the Q-7 Financial Statements (which includes the assets of its wholly
owned subsidiary, X-Real Intertainment and the user management software) subject
only to dispositions and other transactions subsequently incurred in the
ordinary course of business, all of which are disclosed in the Q-7 Financial
Statements. The Q-7 Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied (except as may be
indicated therein or in the notes thereto);
(d) Since the date of the Q-7 Financial Statements, there have not been
any material adverse changes in the financial position of Q-7 except changes
arising in the ordinary course of business, which changes will in no event
materially and adversely affect the financial position of Q-7 or its
subsidiaries as disclosed in the Q-7 Financial Statements;
(e) Q-7 and/or its subsidiaries are not a party to any material pending
litigation or, to Q-7's best knowledge, any governmental investigation or
proceeding, not reflected in the Q-7 Financial Statements, and to Q-7's best
knowledge, no material litigation, claims, assessments or any governmental
proceedings are threatened against Q-7 and/or its subsidiaries;
(f) Q-7 and its subsidiaries are in good standing in their respective
jurisdictions of incorporation, and are in good standing and duly qualified to
do business in each jurisdiction where required to be so qualified except where
the failure to so qualify would have no material negative impact on Q-7 and/or
its subsidiaries;
(g) Q-7 and its subsidiaries have (or, by the Closing Date, will have
filed) all material tax, governmental and/or related forms and reports (or
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extensions thereof) due or required to be so qualified except where the failure
to so qualify would have no material negative impact on Q-7 and/or its
subsidiaries;
(h) Q-7 and its subsidiaries have not materially breached any material
agreement to which any one of them is a party. Q-7 has previously given DSI
copies or access thereto of all material contracts, commitments and/or
agreements to which Q-7 and/or any of its subsidiaries is a party including all
relationships or dealings with related parties or affiliates;
(i) Q-7 has no subsidiary corporations except for X-Real Intertainment,
a Bahamian corporation, and except as otherwise described in writing to DSI.
(j) Q-7 has made all material corporate financial records, minute
books, and other corporate documents and records of Q-7 and its subsidiaries
available for review to present management of DSI prior to the Closing Date,
during reasonable business hours and on reasonable notice;
(k) The execution of this Agreement does not materially violate or
breach any material agreement or contract to which Q-7 or any of its
subsidiaries is a party and has been duly authorized by all appropriate and
necessary corporate action under Nevada corporate law and Q-7, to the extent
required, has obtained all necessary approvals or consents required by any
agreement to which Q-7 and/or any of its subsidiaries is a party;
(l) All information regarding Q-7 or any of its subsidiaries or their
assets and liabilities which has or will be delivered to DSI for use in
connection with the transaction (the "Acquisition") described herein is true,
complete and accurate in all material respects.
11. Representations of DSI. DSI hereby represents and warrants as
follows, each of which representations and warranties shall continue to be true
as of the Closing Date:
(a) As of the Closing Date, the DSI Shares, to be issued and delivered
to the Q-7 Stockholders hereunder will, when so issued and delivered,
constitute, duly authorized, validly and legally issued Shares of DSI's Common
Stock, fully-paid and nonassessable;
(b) DSI has the corporate power to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of DSI. The execution and performance of
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this Agreement will not constitute a material breach of any kind agreement,
indenture, mortgage, license or other instrument or document to which DSI is a
party and will not violate any judgment, decree, order, writ, rule, statute, or
regulation applicable to DSI or its properties. The execution and performance of
this Agreement will not violate or conflict with any provision of the Articles
of Incorporation or by-laws of DSI;
(c) DSI has delivered to Q-7 a true and complete copy of its audited
financial statements for the years ended December 31, 1997 and 1998, (the "DSI
Financial Statements"). The DSI Financial Statements are complete, accurate and
fairly represent the financial condition of DSI as of the dates thereof and the
results of its operations for the periods then ended. There are no material
liabilities or obligations either fixed or contingent not reflected therein. The
DSI Financial Statements have prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
DSI as of the dates thereof and the results of its operations and changes in
financial position for the periods then ended;
(d) Since December 31, 1998, there have not been any material adverse
changes in the financial condition of DSI except with regard to disbursements to
pay reasonable and ordinary expenses in connection with maintaining its
corporate status and pursuing the matters contemplated in this Agreement. Prior
to Closing, all accounts payable and other liabilities of Downstream shall be
paid and satisfied in full. Immediately prior to the Closing, DSI shall have no
assets and no liabilities;
(e) DSI is not a party to or the subject of any pending litigation,
claims or governmental investigation or proceeding not reflected in the DSI
Financial Statements or otherwise disclosed herein, and there are no lawsuits,
claims, assessments, investigations, or similar matters, to the best knowledge
of DSI, threatened or contemplated against or affecting DSI, its management or
its properties;
(f) DSI is duly organized, validly existing and in good standing under
the laws of the State of Utah; has the corporate power to own its assets and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to so
qualify would have no material negative impact on it;
(g) DSI has filed all federal, state, county and local income, excise,
property and other tax, governmental and/or related returns, forms, or reports,
which are due or required to be filed by it prior to the date hereof, except
where the failure to do so would have no material adverse impact on it, and has
paid or made adequate provision in the DSI Financial Statements for the payment
of all taxes, fees, or assessments which have or may become due pursuant to such
returns or pursuant to any assessments received. DSI is not delinquent or
obligated for any tax, penalty, interest, delinquency or charge;
(h) There are no existing options, calls, warrants, preemptive rights
or commitments of any character relating to the issued or unissued capital stock
or other securities of DSI, except as contemplated in this Agreement;
(i) DSI has not breached, nor is there any pending, or to the knowledge
of management, any threatened claim that DSI has breached, any of the terms or
conditions of any agreements, contracts or commitments to which it is a party or
by which it or its assets are bound. The execution and performance hereof will
not violate any provisions of applicable law or any agreement to which DSI is
subject. DSI hereby represents that it is not a party to any material contract
or commitment other than appointment documents with its transfer agent, and that
it has disclosed to Q-7 all relationships or dealings with related parties or
affiliates;
(j) The corporate financial records, minute books, and other documents
and records of DSI have been made available to Q-7 prior to the Closing;
(k) DSI's Common Stock is currently approved for quotation on the OTC
Bulletin Board and there are no stop orders in effect with respect thereto.
12. Closing. The Closing of the transactions contemplated herein shall
take place on such date (the "Closing") as mutually determined by the parties
hereto when all conditions precedent have been met and all required documents
have been delivered, which closing shall be no later than June 30, 1999, unless
extended by mutual consent of all parties hereto. The "Closing Date" of the
transactions described herein (the "Acquisition"), shall be that date on which
all conditions set forth herein have been met and the DSI Shares are issued to
the Escrow Agent in exchange for the Q-7 Common Stock.
13. Conditions Precedent to the Obligations of Q-7 and the Q-7
Stockholders. All obligations of Q-7 and the Q-7 Stockholders under this
Agreement are subject to the fulfillment, prior to or as of the Closing and/or
the Closing Date, as indicated below, of each of the following conditions:
(a) the representations and warranties by or on behalf of DSI contained
in this Agreement or in any certificate or document delivered pursuant to the
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provisions hereof shall be true in all material respects at and as of the
Closing and Closing Date as though such representations and warranties were made
at and as of such time;
(b) DSI shall have performed and complied with all covenants,
agreements, and conditions set forth in and shall have executed and delivered
all documents required by this Agreement to be performed or complied with or
executed and delivered by it prior to or at the Closing;
(c) On or before the Closing, the board of directors of DSI shall have
approved in accordance with applicable state corporation law the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein;
(d) On or before the Closing Date, DSI shall have delivered to Q-7
certified copies of resolutions of the board of directors of DSI approving and
authorizing the execution, delivery and performance of this Agreement and
authorizing all of the necessary and proper action to enable Q-7 to comply with
the terms of this Agreement including the appointment of Q-7's nominees to the
Board of Directors of DSI and all matters outlined herein;
(e) Applicable law shall permit the Acquisition and DSI shall have
sufficient shares of its capital stock authorized to complete the Acquisition;
(f) At Closing, the existing officers and directors of DSI shall have
resigned in writing from all positions as directors and officers of DSI
effective upon the election and appointment of the Q-7 nominees;
(g) The shares of restricted DSI capital stock to be issued to Q-7
Stockholders at Closing will be validly issued, nonassessable and fully-paid
under Utah corporation law and will be issued in compliance with all applicable
U.S. federal and state corporation and securities laws;
(h) Q-7 and the Q-7 Stockholders shall have received the advice of
their respective tax advisors, if deemed necessary by them, as to all tax
aspects of the Acquisition.
14. Conditions Precedent to the Obligations of DSI. All obligations of
DSI under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:
(a) The representations and warranties by Q-7 and the Q-7 Stockholders
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material respects at and as of the
Closing as though such representations and warranties were made at and as of
such time;
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(b) Q-7 and the Q-7 Stockholders shall have performed and complied
with, in all material respects, all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing;
(c) Q-7 shall deliver on behalf of each of the Q-7 Stockholders a
letter commonly known as an "Investment Letter," signed by each of said
shareholders, in substantially the form attached hereto as Exhibit "B",
acknowledging that the DSI Shares are being acquired for investment purposes;
(d) On or before the Closing Date, the board of directors of Q-7 shall
have approved in accordance with applicable state corporation law the execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein;
(e) On or before the Closing Date, Q-7 shall have delivered to DSI
certified copies of resolutions of the board of directors of Q-7 approving and
authorizing the execution, delivery and performance of this Agreement and
authorizing all of the necessary and proper action to enable Q-7 to comply with
the terms of this Agreement;
(f) Applicable law shall permit the Acquisition; and
(g) DSI shall have received the advice of its tax advisor, if deemed
necessary by it, as to all tax aspects of the Acquisition.
15. Indemnification. For a period of one year from the Closing, Q-7 and
the Q-7 Stockholders jointly and severally agree to indemnify and hold harmless
DSI, and DSI agrees to indemnify and hold harmless Q-7 and the Q-7 Stockholders,
at all times after the date of this Agreement against and in respect of any
liability, damage or deficiency, all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses including attorney's fees incident to
any of the foregoing, resulting from any material misrepresentations make by an
indemnifying party to an indemnified party, an indemnifying party's breach of
covenant or warranty or an indemnifying party's nonfulfillment of any agreement
hereunder, or from any material misrepresentation in or omission from any
certificate furnished or to be furnished hereunder.
16. Nature and Survival of Representations. All representations,
warranties and covenants made by any party in this Agreement shall survive the
Closing and the consummation of the transactions contemplated hereby for one
year from the Closing. All of the parties hereto are executing and carrying out
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the provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement and not upon
any investigation upon which it might have made or any representation, warranty,
agreement, promise or information, written or oral, made by the other party or
any other person other than as specifically set forth herein.
17. Documents at Closing. At the Closing, the following documents shall
by delivered:
(a) Q-7 will deliver, or will cause to be delivered, to DSI the
following:
(i) a certificate executed by the President and Secretary of
Q-7 to the effect that all representations and warranties made by Q-7 under this
Agreement are true and correct as of the Closing, the same as though originally
given to DSI on said date;
(ii) a certificate from the jurisdiction of incorporation of
Q-7 dated within thirty (30) days prior to the Closing to the effect that Q-7 is
in good standing under the laws of said jurisdiction;
(iii) investment letters in the form attached hereto as
Exhibit "B" executed by each Q-7 Stockholder;
(iv) such other instruments, documents and certificates, if
any, as are required to be delivered pursuant to the provisions of this
Agreement;
(v) certified copies of resolutions adopted by the directors
of Q-7 authorizing this transaction; and
(vi) all other items, the delivery of which is a condition
precedent to the obligations of DSI as set forth herein.
(b) DSI will deliver or cause to be delivered to Q-7 (or in the case of
the DSI Shares, to the Escrow Agent):
(i) stock certificates representing the DSI Shares to be
issued as a part of the stock exchange as described herein;
(ii) a certificate of the President of DSI, to the effect that
all representations and warranties of DSI made under this Agreement are true and
correct as of the Closing, the same as though originally given to Q-7 on said
date;
(iii) certified copies of resolutions adopted by DSI's Board
of Directors authorizing the Acquisition and all related matters described
herein;
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(iv) certificate from the jurisdiction of incorporation of DSI
dated within thirty (30) days of Closing Date that DSI is in good standing under
the laws of said state;
(v) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement;
(vi) the resignations of the existing officers and directors
of DSI, effective as of the Closing;
(vii) all corporate and financial records of DSI; and
(viii) all other items, the delivery of which is a condition
precedent to the obligations of DSI, as set forth in Section 14 hereof.
18. Finder's Fees. DSI, represents and warrants to Q-7 and the Q-7
Stockholders, and Q-7 and the Q-7 Stockholders represent and warrant to DSI that
neither of them, or any party acting on their behalf, has incurred any
liabilities, either express or implied, to any "broker" or "finder" or similar
person in connection with this Agreement or any of the transactions contemplated
hereby. In this regard, DSI, on the one hand, and Q-7 and the Q-7 Stockholders
on the other hand, will indemnify and hold the other harmless from any claim,
loss, cost or expense whatsoever (including reasonable fees and disbursements of
counsel) from or relating to any such express or implied liability.
19. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after the
Closing Date, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Agreement;
(b) Waiver. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed;
(c) Termination. All obligations hereunder may be terminated at the
discretion of either party's board of directors if (i) the closing conditions
specified in Sections 13 and 14 are not met, or (ii) any if the representations
and warranties made herein have been materially breached;
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(d) Amendment. This Agreement may be amended only in writing as agreed
to by all parties hereto;
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or sent by
prepaid first class registered or certified mail, return receipt requested;
(f) Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement;
(g) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
[Continued on page 14. The remainder of this page has intentionally
been left blank.]
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which together shall constitute one and the same instrument;
(h) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the
State of Utah;
(i) Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns;
(j) Entire Agreement. This Agreement and the attached Exhibits
constitute the entire agreement between the parties covering everything agreed
upon or understood in the transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof;
(k) Time. Time is of the essence;
(l) Severabilty. If any part of this Agreement is deemed to be
unenforceable, the balance of the Agreement shall remain in full force and
effect;
(m) Responsibility and Cost. All fees, expenses and out-of-pocket costs
and expenses, including, without imitation, fees and disbursements of counsel,
advisors and accountants, incurred by the parties hereto shall be borne solely
and entirely by the party that has incurred such costs and expenses.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written above.
Q-SEVEN SYSTEMS, INC.
By: /s/ Philip Kriependorf
-----------------------------
President
By: /s/ Olaf Cordt
-----------------------------
Secretary
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DOWNSTREAM INCORPORATED - DSI
By: /s/ Barry A. Ellsworth
-----------------------------
President
By: /s/ James G. Slater
-----------------------------
Secretary
Q-7 STOCKHOLDERS:
/s/ Philipp Kriependorf
-----------------------------
Philipp Kriependorf
/s/ Olaf Cordt
-----------------------------
Olaf Cordt
/s/ Philip Kamp
-----------------------------
Philip Kamp
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EXHIBIT "A"
List of All Q-7 Stockholders, the Number of Shares of Q-7 Common Stock
Each Owns, and the Number of Shares of DSI Common Stock Each Will Receive in
Exchange for His Shares of Q-7 Common Stock
No. of Shares of DSI
Common Stock to be Issued
No. of Shares of in Exchange for Q-7
Name of Q-7 Stockholder Q-7 Common Stock Owned Common Stock
- ----------------------- ---------------------- ------------
1. Philipp Kriependorf 250,000 2,633,334
2. Olaf Cordt 250,000 2,633,333
3. Philip Kamp 250,000 2,633,333
------- ---------
Total: 750,000 7,900,000
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EXHIBIT "B"
INVESTMENT INTENT LETTER
The undersigned hereby acknowledges that he is acquiring 2,500,000
shares (the "Shares") of restricted common stock of Downstream Incorporated-DSI,
a Utah corporation, pursuant to an Agreement and Plan of Share Exchange Between
Downstream Incorporated-DSI, Q-Seven Systems, Inc. and the Stockholders of
Q-Seven Systems, Inc., in a private transaction exemption from registration
under U.S. federal and state securities laws.
I represent that I am acquiring all of the Shares for my own account,
for investment purposes and not with a view to or for any distribution or
fractionalization thereof. I acknowledge that all the Shares are restricted for
purposes of Rule 144, and I understand that there are imposed substantial
restrictions on the resale, assignment or transfer of any of the Shares. I
further acknowledge that any of the Shares may only be sold, pledged, assigned,
hypothecated or otherwise transferred, with or without consideration, only if,
in the opinion of counsel satisfactory to Downstream Incorporated-DSI, the
proposed transfer may be effected without registration under the Securities Act
of 1933 and applicable state securities laws, unless the Shares are registered
under the Securities Act of 1933 and applicable state securities laws.
I acknowledge that each certificate evidencing such securities may be
stamped or otherwise imprinted with a conspicuous legend indicating that the
securities are restricted, have not been registered under U.S. federal and/or
state securities laws, and the Shares may not be sold, pledged, hypothecated or
otherwise transferred, whether or not for consideration, except upon
registration under the Securities Act of 1993 and appropriate state securities
laws, or unless Downstream Incorporated-DSI receives an opinion of counsel
satisfactory to Downstream Incorporated-DSI that such transfer shall not be in
violation of the Securities Act of 1933 and applicable state securities laws.
Dated: ________, 1999.
------------------------------
Signature of Stockholder
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Exhibit IV
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 19th
day of May, 1999, by and between Philip Kamp and Olaf Cordt, a German
Partnership ("Sellers"), and X-Real Intertainment, a Bahamian Corporation
("Buyer").
RECITALS
A. The Sellers are in the adult entertainment business on the internet
and are the owners of the Registered Domain Names http://www.studentinnen.de;
http://www.teensex.de; http://www.erotikweb.de; http://www.lovecam.de;
http://www.peepcam.de; and http://www.amatuersexmovies.de; (collectively, the
"RDNs") and the six Web Sites found thereat (the "Web Sites") and all
information contained thereat (the "Information"). The RDNs, (Registered Domain
Names) six Web Sites and Information are collectively and individually referred
to as the "Content and Database".
B. Sellers desire to sell to Buyer, and Buyer desires to buy from
Sellers, all assets of Sellers relating to the operation of the Content and
Database, upon the terms and conditions and subject to the limited exceptions
set forth herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements of the parties hereinafter set forth and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
Article I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets. Upon the terms and subject to the
condition of this Agreement, Buyer agrees to purchase, accept, and acquire from
Sellers, and Sellers agree to sell, transfer, assign, convey, and deliver to
Buyer, at the Closing Date (defined below), all right, title, and interest of
Sellers in and to all of the rights and assets, real, personal, and mixed,
tangible or intangible, in the Content and Database or otherwise relating to the
operation of the Content and Database, as owned or held by Sellers (the
"Assets"). Without in any way limiting the generality of the foregoing, the
Assets shall include all right and interest owned or held by Sellers in the
following:
<PAGE>
a. Registered Domain Names. The RDNs and all rights associated
therewith. Buyer and Sellers agree to execute such additional documents and take
such further actions as may be required to transfer ownership of the RDNs to
Buyer.
b. Copyright Interests. All interests and rights Sellers may own in
copyrights in the United States, Germany or any other state or country in the
world relating to the operation of the Content and Database, and any renewal or
extension thereof, together with all other copyright interests accruing by
reason of international copyright conventions and any moral rights pertaining
thereto, including the right to sue for, settle, or release any past, present,
or future infringement thereof ("Copyright Interests").
c. Trademark Interests. All interest and rights the Sellers may own in
the United States and any foreign registered and common law trademarks and
service marks, together with all other trademark or service mark interests
accruing by reason of international trademark conventions, accompanied by the
goodwill of all business connected with the use of and symbolized by such marks
including the right to sue for, settle, or release any past, present, or future
infringement thereof or unfair competition involving the same ("Trademark
Interests"). The Trademark Interest shall including the right to file for and
obtain registrations of the Trademark Interests anywhere in the world with the
right to base priority on Sellers' first date of use or on any application
and/or registration being assigned herein. Sellers covenants not to use or
display the Trademark Interests, or any mark confusingly similar thereto,
anywhere in the world and further covenants not to contest or challenge the
validity of the Trademark Interests, any applicable registrations thereof or the
ownership of the Trademark Interests by Buyer.
d. Technical Documentation. All technical and descriptive materials
relating to the acquisition, design, development, use, or maintenance of the
Content and Database (the "Technical Documentation").
e. Contracts. All contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of the Content and Database.
f. Leases. The entire leasehold or rental interest arising under leases
of telecommunications, computer and other equipment used to support the
operation of the Content and Database.
g. Business Records. All business and marketing records, including
accounting and operating records, customer lists, supplier lists, information
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and data respecting leased or owned equipment, files, correspondence and mailing
lists, advertising materials and brochures, and other business records used in
the operation of the Content and Database (the "Business Records").
h. Authorizations. All governmental approvals, authorizations,
certifications, consents, variances, permissions, licenses, and permits to or
from, or filings, notices, or recordings to or with, federal, state, local
governmental authorities, and other authorities relating to the operation of the
Content and Database.
i. Intellectual Property. All patents, trademarks, service marks, trade
names, and copyrights (including registrations, licenses, and applications
pertaining thereto), and all other intellectual property rights, trade secrets,
and other proprietary information, processes, and formulae used in the operation
of the Content and Database or otherwise necessary for the ownership and use of
the Assets (the "Intellectual Property").
j. Claims. All claims Sellers may have against any person relating to
or arising from the operation of the Content and Database or ownership of the
Assets, including rights to recoveries for damages or defective goods, to
refunds, insurance claims, and chooses in action ("Claims").
k. Business Interests, Participations, and Ownership Positions. All
interests, participations, and ownership positions held by Sellers in any
corporation, partnership, joint venture, co-marketing arrangement, or similar
enterprise or undertaking relating to the operation of the Content and Database.
l. Code. All coding, html, cgi script, SQL, and similar items
associated with the Web site.
Article II
ASSUMPTION OF LIABILITIES
2.1 No Liabilities Assumed. Buyer does not assume any liabilities of
Sellers relating to the operation of the Content and Database, the Assets or
otherwise.
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Article III
PRICE AND PAYMENT
3.1 Purchase Price. The purchase price shall be 2,500 Shares of the
Buyer's Common Stock to each partner (the "Purchase Price"), which shall be paid
by Buyer at closing.
Article IV
BUSINESS DOCUMENTS
4.1 Business Documents. Sellers shall deliver or cause to be delivered
to Buyer, at no cost or expense to Buyer, within three (3) days after the date
of this Agreement, copies of the following documents (collectively referred to
herein as the "Business Documents"):
a. Financial Statements. The Sellers' current and recent
financial statements, its operating and capital budgets,
and current business plan.
b. Business Interests Participations, and Ownership Positions.
All documents relating to interests, participations, and
ownership positions held by Seller in any corporation,
partnership, joint venture, co-marketing arrangement, or
similar enterprise or undertaking relating to the operation
of the Content and Database.
c. Research and Development. A description of any pending
research and development activity.
d. Security Interests. Security agreements, financing
statements, title retention agreements or other documents
creating, or purporting to create, any material lien,
security interest, encumbrance or similar interest in the
Assets.
e. Agreements Relating to Transfer. Agreements that restrict
the transfer, sale, exchange, or other disposition of any
of the Assets.
f. Material Agreements. All other material agreements that
relate to or affect the operation of the Content and
Database or by which any of its Assets may be bound.
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g. Ownership of Information. All records and documentation
maintained by the Sellers documenting the development,
authorship, or ownership of the Assets and related
technology.
h. Third Party Agreements Relating to Development. A list of
all agreements with third parties, whether now in effect or
terminated, for the design, development, programming,
enhancement, or maintenance of the Assets. To the extent
third parties have designed, developed, programmed,
enhanced, or maintained Assets without having executed any
agreement, a list of all such third parties and a
description of the work performed, and the period during
which such work was performed, by such party.
i. Other Third Party Agreements. A list of all licenses,
franchises, royalty agreements, marketing agreements,
distributorships, sales representative agreements, or
similar commitments or arrangements relating to the Assets
or related technology granted to third parties by the
Sellers or by any third party to the Sellers.
j. Third Party Rights to Assets. Agreements, options, or
other commitments giving anyone any rights to acquire any
right, title, or interest in the Content and Database
and/or Assets.
k. Trademarks. A list of all trademarks and trade names owned
or used in the operation of Database, showing the
registration number, date of registration, registrant, and
a copy of the Certificate of Registration, if any.
l. Patents. A list of all patents used in the operation of the
Content and Database, or owned by the Sellers, if any.
m. Copyrights. Copyright registrations (if any) issued or
pending relating to the Assets. Copies of all agreements
relating to unpatented designs, styles, know-how, or
technical assistance relating to the operation of the
Content and Database and/or the Assets.
n. Management Agreements. Copies of all consulting or
management agreements relating to the operation of the
Content and Database and/or the Assets.
o. Litigation. A description of all litigation or claims,
whether past, pending or threatened and whether settled or
not, that relate to the operation of the Content and
Database and/or the Assets.
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Article V
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer as follows:
5.1 Organization. Sellers are a partnership validly existing and in
good standing under the laws of Germany with the power and authority to conduct
their business (including the operation of the Content and Database) in the
State and Country in which they are operating said Content and Database and that
the partnership rightfully owns the properties and assets (including the
Assets).
5.2 Power and Authority. Sellers have the power and authority to
execute, deliver, and perform this Agreement and the other agreements and
instruments to be executed and delivered by it in connection with the
transactions contemplated hereby and thereby, has taken all necessary action to
authorize the execution and delivery of this Agreement and such other agreements
and instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement is, and any other agreement or instrument executed and
delivered by Sellers in connection with the transactions contemplated hereby
shall be, the legal, valid, and binding obligations of Sellers, enforceable in
accordance with their terms.
5.3 No Conflict. Neither the execution and delivery of this Agreement
and/or any related agreements and instruments that may be executed and delivered
in connection with the transactions contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, (1) will
violate or conflict with any provision of any charter, bylaw or other governing
or organizational instrument of Sellers, or (2) any license, instrument, trust,
contract, agreement, or other commitment or arrangement to which Sellers are a
party or by which Sellers or any of the Assets are bound.
5.4 Required Consents. No approval, authorization, certification,
consent, variance, permission, license, or permit to or from, or notice, filing,
or recording to or with, any person or entity is necessary for the execution and
delivery of this Agreement and the transactions contemplated herein by Sellers.
5.5 Title to Assets. Sellers own and have the power to convey to Buyer
on the Closing Date all of the Assets free and clear of any security interest or
lien relating thereto.
5.6 Litigation. There is no pending claim, action, suit, proceeding,
inquiry, hearing, arbitration, administrative proceeding, or investigation
(collectively, "Litigation") that, to Sellers' best knowledge, is threatened
against Sellers, affecting, involving, or relating to the operation of the
Content and Database or any of the Assets. Sellers know of no facts that could
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reasonably be expected to serve as the basis for Litigation against themselves
(or the Buyer upon acquisition of the Business), its present or former partners,
or employees, affecting, involving, or relating to the Content and Database or
the Assets.
5.7 Court Orders, Decrees, and Laws. There is no outstanding or, to
Sellers' best knowledge, threatened order, writ, injunction, or decree of any
court, governmental agency, or arbitration tribunal against Sellers affecting,
involving, or relating to the Content and Database or the Assets. Sellers are
not in violation of any applicable federal, state, or local law, regulation,
ordinance, zoning requirement, governmental restriction, order, judgment, or
decree affecting, involving, or relating to the Content and Database or the
Assets except where noncompliance has no material adverse effect upon the
financial condition, operation, or prospects of the Content and Database
(including under ownership by Buyer) or the Assets, and Sellers has received no
notices of any allegation of any such violation. The foregoing shall be deemed
to include laws and regulations relating to the federal and/or international
patent, copyright, and trademark laws, state trade secret and unfair competition
laws, and to all other applicable laws.
5.8 Disclosure. No representation, warranty, or statement made by
Sellers in this Agreement contains or will contain any untrue statement or omits
or will omit to state any fact necessary to make the statements contained herein
or therein not misleading. Sellers have disclosed to Buyer all facts known or
reasonably available to Sellers that are material to the financial condition,
operation, or prospects of the Content and Database and the Assets.
5.9 Truth at Closing. All of the representations, warranties, and
agreements of Sellers contained in this Article V shall be true and correct and
in full force and effect on and as of the Closing Date.
Article VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
6.1 Organization. Buyer is a corporation validly existing and in good
standing under the laws of the Bahamas with power and authority to conduct its
business and to own and lease its properties and assets.
6.2 Power and Authority. Buyer will have power and authority to
execute, deliver, and perform this Agreement and any other agreements and
instruments that may be executed and delivered by it in connection with the
transactions contemplated hereby and thereby, and Buyer has taken all necessary
action to authorize the execution and delivery of this Agreement and such other
agreements and instruments and the consummation of the transactions contemplated
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hereby and thereby. This Agreement is, and, when such other agreements and
instruments are executed and delivered, the other agreements and instruments to
be executed and delivered by Buyer in connection with the transactions
contemplated hereby and thereby shall be, the legal, valid, and binding
obligation of Buyer, enforceable in accordance with their terms.
6.3 Truth at Closing. All of the representations, warranties, and
agreements of Sellers contained in this Article VI shall be true and correct and
in full force and effect on and as of the Closing Date.
Article VII
OPERATION OF THE CONTENT
AND DATABASE PRIOR TO CLOSING
7.1 Operation of Business. From the date hereof, Buyer shall operate
and manage the Content and Database and shall have full power and authority to
make all business, operating and other decisions with respect thereto.
7.2 No Default. Sellers shall not perform any act or omit to perform
any act, or permit any act or omission, that will cause a breach or default of
any covenant, agreement, warranty, or representation in this Agreement.
Article XIII
CONDITIONS TO SELLERS' OBLIGATIONS
Each of the obligations of Sellers to be performed hereunder shall be
subject to the satisfaction (or waiver by Sellers) at or prior to the Closing
Date of each of the following conditions:
8.1 Representations and Warranties True at Closing Date. Buyer's
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date; Buyer shall have complied with the covenants and agreements set
forth herein to be performed by it on or before the Closing Date.
8.2 Performance. Buyer shall have performed and complied with all
agreements, obligations, and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
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Article IX
CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of Buyer to be performed hereunder shall be
subject to the satisfaction (or the waiver by Buyer) at or prior to the Closing
Date of each of the following conditions:
9.1 Representations and Warranties True at Closing Date. Sellers'
representations and warranties contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of such date; Sellers shall have complied with the covenants and agreements set
forth herein to be performed by it on or before the Closing Date.
9.2 Performance. Sellers shall have performed and complied with all
agreements, obligations, and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
9.3 Investigations. Neither any investigation of Sellers by Buyer, nor
any other document delivered to Buyer as contemplated by this Agreement, shall
have revealed any facts or circumstances that, in the sole, exclusive and
absolute discretion of Buyer, reflect in a material adverse way on the Assets or
the operations of the Content and Database.
Article X
CLOSING
10.1 Closing. Unless this Agreement is first terminated as provided
herein, the closing of the purchase and sale of the Assets shall take place on
the 19th day of May 1999, (the "Closing Date").
10.2 Actions at Closing. At Closing, Buyer and Sellers shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
a. Conveyance Instruments. Sellers shall deliver to Buyer such
bills of sale, assignments, and other instruments of conveyance and transfer as
Buyer may reasonably request to effect the assignment to Buyer of the Assets.
Specifically, the Sellers shall take the necessary steps to report and transfer
the ownership of the six RDNs with InterNIC.
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Article XI
COVENANTS OF SELLERS AND
BUYER FOLLOWING CLOSING
11.1 No-Compete. For a period of five (5) years after the Closing Date,
the Sellers and undersigned shareholders shall not engage in the business of
acquiring, developing, marketing, distributing, licensing, or maintaining
systems and applications having any function similar to, competitive with, or
substitutable for, the Content and Database, anywhere in the World, except with
Buyer's consent (which may be withheld in Buyer's sole discretion). The Sellers
and undersigned shareholders acknowledge and agree that the current market for
the Content and Database extends throughout the entire world, and it is
therefore reasonable to prohibit the Sellers and undersigned shareholders from
competing with Buyer anywhere in such territory. The Sellers and undersigned
shareholders further acknowledge and agree that the foregoing prohibition will
have no impact on the business and prospects of the Sellers and undersigned
shareholders and that the Sellers and undersigned shareholders shall not engage
in any such activities, directly or indirectly, on the Sellers and undersigned
shareholders' own behalf or by use of the services of or on behalf of others.
11.2 Maintenance of Server. The Sellers and undersigned shareholders
agree, at the Sellers and/or undersigned shareholders' expense, to arrange for
the leased hosting and basic maintenance of the server (or servers) supporting
the six aforementioned Web Sites at Cave Creek or another Internet Service
Provider for a period of one (1) year following the date hereof. Such
arrangement shall maintain the server (or servers) and Web Sites in the same
manner as heretofore conducted, and the Sellers and undersigned shareholders
shall not institute any new methods of operation relating to the support of the
server (or servers) and Web Sites without the prior approval of Buyer.
Specifically, Sellers and undersigned shareholders shall not be responsible for
maintaining the Web pages, doing design work relating to the Content and
Database or otherwise assisting in the operation and maintenance of the Content
and Database. The Sellers and undersigned shareholders also agree to maintain a
tape back-up of the Six Sites.
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Article XII
INDEMNITY
12.1 Indemnification by Sellers. Sellers shall indemnify, defend, and
hold harmless Buyer and its respective successors and assigns and the directors,
officers, employees, and agents of each (collectively, the "Buyer Group"), at,
and at any time after, the Closing Date, from and against any and all demands,
claims, actions, or causes of action, assessments, losses, damages, liabilities,
costs, and expenses, including reasonable fees and expenses of counsel, other
expenses of investigation, handling, and litigation, and settlement amounts,
together with interest and penalties (collectively, a "Loss" or "Losses"),
asserted against, resulting to, imposed upon, or incurred by the Buyer Group,
directly or indirectly, by reason of, resulting from, or arising in connection
with any of the following:
a. Breach of Obligation. Any breach of any representation,
warranty, or agreement of Sellers contained in or made pursuant to this
Agreement, including the agreements and other instruments contemplated
hereby.
b. Preexisting Liabilities. Any liabilities or obligations of
any kind or nature whatsoever, whether accrued, absolute, contingent,
or otherwise, known or unknown, arising out of or in connection with
the conduct of the Content and Database or the ownership or use of the
Assets prior to the Closing Date.
c. Infringement. Any liability or loss of any kind or nature
whatsoever, whether accrued, absolute, contingent, or otherwise, known
or unknown, arising out of or in connection with a claim or allegation
that the Assets infringe any patent, copyright, trade secret,
trademark, or other intellectual property right of any third party.
d. Incidental Matters. To the extent not covered by the
foregoing, any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses,
including reasonable fees and expenses of counsel, other expenses of
investigation, handling, and litigation, and settlement amounts,
together with interest and penalties, incident to the foregoing.
12.2 Notice of Claim. The party entitled to indemnification hereunder
(the "Claimant") shall promptly deliver to the party liable for such
indemnification hereunder (the "Obligor") notice in writing (the "Required
Notice") of any claim for recovery under this Article 12, specifying in
reasonable detail the nature of the Loss, and, if known, the amount, or an
estimate of the amount, of the liability arising therefrom (the "Claim"). The
Claimant shall provide to the Obligor as promptly as practicable thereafter
information and documentation reasonably requested by the Obligor to support and
verify the claim asserted, provided that, in so doing, it may restrict or
condition any disclosure in the interest of preserving privileges of importance
in any foreseeable litigation.
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12.3 Defense. If the facts pertaining to the Loss arise out of the
claim of any third party (other than a member of the Buyer Group or Sellers
Group, whichever is entitled to indemnification for such matter) available by
virtue of the circumstances of the Loss, the Obligor may assume the defense or
the prosecution thereof, including the employment of counsel or accountants, at
its cost and expense. The Claimant shall have the right to employ counsel
separate from counsel employed by the Obligor in any such action and to
participate therein, but the fees and expenses of such counsel employed by the
Claimant shall be at its expense. The Claimant shall have the right to determine
and adopt (or, in the case of a proposal by Obligor, to approve) a settlement of
such matter in its reasonable discretion, except that Claimant need not consent
to any settlement that (1) imposes any nonmonetary obligation or (2) Obligor
does not agree to pay in full. The Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent, which
shall not be unreasonably withheld. Whether or not the Obligor chooses to so
defend or prosecute such claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information, and
testimony, and attend such conferences, discovery proceedings, hearings, trials,
and appeals, as may be reasonably requested in connection therewith.
Article XIII
CONFIDENTIALITY
13.1 Confidentiality Obligation of Buyer Prior to Closing. Until
Closing Date (and, if this Agreement is terminated for any reason, forever
thereafter), Buyer shall, and shall use its best efforts to cause its personnel
and agents to, hold in strict confidence, not disclose to any person without the
prior written consent of Sellers, and not use in any manner except in connection
with the transactions contemplated hereby, any confidential business or
technical information obtained from Sellers in connection with the transactions
contemplated hereby concerning the Content and Database or the Assets. This
obligation shall cease to apply to Buyer upon the occurrence of Closing Date.
13.2 Confidentiality Obligation of Sellers Following Closing. Following
the occurrence of Closing Date, Sellers shall, and shall use their best efforts
to cause their personnel and agents to, hold in strict confidence, not disclose
to any person without the prior written consent of Buyer, and not use in any
manner whatsoever, any confidential business or technical information remaining
in its possession concerning the Content and Database or the Assets.
13.3 Permitted Disclosures. Notwithstanding Sections 13.1 and 13.2,
either party may disclose confidential information (1) where necessary to any
regulatory authorities or governmental agencies pursuant to legal process or (2)
if required by court order or decree.
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13.4 Scope of Confidential Information. For purposes of this Agreement,
information shall not be deemed confidential (1) if such information is
available in full from public sources; (2) if such information is received from
a third party not under an obligation to keep such information confidential; or
(3) if the recipient can conclusively demonstrate that such information was
independently developed by the recipient.
Article XIV
MISCELLANEOUS
14.1 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof
14.2 Counterparts. This Agreement may be executed in one or more
counterparts which counterparts may be sent by facsimile, each of which shall
for all purposes be deemed to be an original and all of which shall constitute
the same instrument.
14.3 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
14.4 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party that is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).
14.5 Expenses. Sellers and Buyer shall each pay all costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
transactions contemplated hereby.
14.6 Notices. Any notice required or permitted to be given by one party
to the other may be given by personal service, facsimile, or mailing. If any
notice is deposited into the custody of Federal Express, United Parcel Service
or another overnight courier service, for overnight delivery, prepaid and
addressed to such party at the address hereinafter specified, such notice shall
be effective upon its deposit into the custody of such couriers. All other
notices shall be effective upon receipt. The addresses of the parties for all
purposes under this Agreement shall be:
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Buyer: X-Real Intertainment Inc. Ltd.
Suite B, Regent Centre East
PO Box F-42505
Freeport, Grand Bahama
With copies to:
Robert N. Wilkinson
Eagle Gate Building Suite 2002
60 East south Temple
Salt Lake City, Utah 84111
Fax (801) 533-9645
Sellers: Philip Kamp and Olaf Cordt
Frohnkamp 18
Monheim, Germany 40789
With copies to:
Robert N. Wilkinson
Eagle Gate Building Suite 2002
60 East south Temple
Salt Lake City, Utah 84111
Fax (801) 533-9645
Either party may change the address at which it desires to receive notice upon
written notice of such change to the other party.
14.7 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Nevada without giving effect to
the principles of conflicts of law thereof. Venue for any action under this
Agreement shall lie in Las Vegas, Nevada.
14.8 Third-Party Beneficiaries. With the exception of (1) the parties
to this Agreement and (2) the Buyer Group with respect to the matters inuring to
their benefit under Article XII, there shall exist no right of any person to
claim a beneficial interest in this Agreement or any rights occurring by virtue
of this Agreement.
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14.9 Survival of Agreements. All Covenants, agreements,
representations, and warranties made herein shall survive the execution and
delivery of this Agreement and the Closing Date.
14.10 Attorneys' Fees. In the event either party brings suit to enforce
or interpret this Agreement or for damages on account of the breach of a
covenant or representation contained herein, the prevailing party shall be
entitled to recover from the other party its reasonable attorneys' fees and
costs incurred in any such action, in addition to other relief to which the
prevailing party is entitled
14.11 Further Assurances. At and after the Closing Date, without
further consideration, Sellers shall take all such other action and shall
procure or execute, acknowledge, and deliver all such further certificates,
conveyance instruments, consents, and other documents as Buyer or its counsel
may reasonably request (1) to vest in Buyer, and perfect and protect Buyer's
right, title, and interest in, and enjoyment of, the Assets and the Content and
Database, or (2) to ensure more effectively the compliance of Sellers with its
agreements, covenants, warranties, and representatives under this Agreement.
[The remainder of this page has intentionally been left blank.]
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14.12 Severability. Whenever possible, each provision of this Agreement
and every related document shall be interpreted in such manner as to be valid
under applicable law; but, if any provision of any of the foregoing shall be
invalid or prohibited under said applicable law, such provision shall be
ineffective to the extent of such invalidity or prohibition without invalidating
the remainder of such provision or the remaining provisions of this document.
14.13 Saturday, Sunday and Legal Holidays. If the time for performance
of any of the terms, conditions and provisions hereof shall fall on a Saturday,
Sunday or legal holiday, then the time of such performance shall be extended to
the next business day thereafter
14.14 Acceptance. The execution of this Agreement by the Buyer
constitutes an offer to purchase the Assets. Unless this Agreement is executed
by the Sellers without modification within seven (7) days from the date of
execution of this Agreement by the Buyer, and a fully executed copy is delivered
to the Sellers within said time frame, then this contract shall be automatically
revoked and terminated.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf on the date indicated.
X-Real Intertainment Seller
By: /s/ Philip Kamp By: /s/ Philip Kamp
-------------------- -------------------
Philip Kamp Philip Kamp
By: /s/ Olaf Cordt By: /s/ Olaf Cordt
-------------------- -------------------
Olaf Cordt Olaf Cordt
Its SHAREHOLDERS
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Exhibit V
STOCK TRANSFER/PURCHASE AGREEMENT
In consideration of the mutual covenants and promises herein contained,
Philip Kamp and Olaf Cordt ("Transferors") and Q-Seven Systems, Inc., a Nevada
corporation ("Transferee") hereby enter into this Stock Transfer/Purchase
Agreement ("Agreement") effective this 26th day of May 1999, in accordance with
the terms and conditions set forth herein.
RECITALS
1. Transferors desire to transfer their ownership in, X-Real Intertainment
Inc. Ltd., a Bahamian corporation, to Q-Seven systems, Inc., a Nevada
corporation, that was a condition for them receiving their 250,000
shares of common stock in Q-Seven systems, Inc., and a condition for
their stock in Downstream Incorporated - DSI (that is being held in
escrow until this transfer is completed) being released to them.
2. Transferee desires to accept said transfer of ownership in X-Real
Intertainment Inc. Ltd.
AGREEMENT
1. Transfer of Securities. Each Transferor herewith transfers, Two
Thousand Five Hundred (2,500) shares of voting common stock in bearer
form of X-Real Intertainment Inc. Ltd., a Bahamian corporation
("X-Real" formerly X-Real Inc. Ltd.) to Transferee, in exchange for the
250,000 shares of Q-Seven Systems, Inc. common stock that has been
issued to them, and the 2,633,333 shares of Downstream Incorporated -
DSI, that has been issued to them and is being held in escrow until
this same transfer has been completed.
2. Representations, Warranties and Covenants of Transferors. Transferors
have previously, jointly and individually, represented, certified and
warranted several things concerning X-Real Intertainment Inc. Ltd.,
copies of which are attached hereto. They further represent, warrant
and certify the following to be true and correct:
(a) Transferors own all of the Shares which are the subject of this
Agreement, have good title thereto, and no one else has any claim
of ownership to any of the Shares.
(b) The Shares being acquired by Transferee hereunder are validly
issued and outstanding, fully paid and nonassessable, and are free
and clear from all liens and encumbrances.
<PAGE>
(c) Transferors have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits
and risks of this gift and transfer. Transferors are familiar with
the business of the Transferee since they are officers and
directors of the Transferee.
(d) The Shares represent all of shares of the common stock of X-Real
presently issued and outstanding. There is no other class of stock
of X-Real issued and outstanding. There are no options, warrants
or other rights to acquire any securities of X-Real outstanding.
(e) No lawsuits, threats of lawsuits or other contingent liabilities
exist against X-Real which have not previously been disclosed to
Transferee.
(f) X-Real owns all of the rights, title and interest in and to the
six adult internet sites described in the Asset Purchase Agreement
dated May 18, 1999 by and between Philip Kamp and Olaf Cordt, a
German Partnership and X-Real, a copy of which has previously been
provided to Transferee. The sale and purchase of the assets
contemplated by said Asset Purchase Agreement have already been
completed.
3. Miscellaneous.
a) Irrevocable Transfer and Binding Agreement. This Transfer shall be
irrevocable and this Agreement shall be binding upon and inure to
the benefit of each of the parties and their respective
successors, heirs, devisees, transferees and assigns.
b) Further Assurances and Additional Instruments. The stock
certificates of X- Real have already been signed by both
Transferors transferring said shares to the Transferee and will be
accepted by Transferee at the signing of this Agreement.
c) Entire Agreement. This Agreement and the related documents and
instruments called for herein comprise the entire agreement of the
parties and may not be amended or modified, except by written
agreement of the parties. No provision of the aforementioned
agreements may be waived, except in writing, and only in the
specific instance and for the specific purposes for which given.
2
<PAGE>
IN WITNESS WHEREOF, the Transferors and the Transferee have executed this
Agreement on the date set forth above.
Transferors Transferee
Q-Seven Systems, Inc.
/s/ Philip Kamp
- --------------------
Philip Kamp
By: /s/ Philipp Kriependorf
-------------------------
Philipp Kriependorf
President
/s/ Olaf Cordt
- ---------------------
Olaf Cordt
3
<PAGE>
ATTACHMENT
May 25, 1999
To the Board of Directors of Downstream Incorporated:
We, Olaf Cordt and Philip Kamp, herewith warrant and certify that by signing the
bearer certificates numbered 1 and 2 of X-Real Intertainment Inc. Ltd. (formerly
X-Real Inc. Ltd.) each signifying that the bearer of said certificate is the
owner of 2,500 shares of stock in X-Real Intertainment Inc. Ltd. (copies of
which are attached hereto) in the presence of Philipp Kriependorf (who has
signed the back of each certificate as witness to our signatures) it was, and
is, our intention to transfer our ownership in X-Real Intertainment Inc. Ltd.
and its assets (specifically the following six adult internet sites:
Studentinnen: www.studentinnen.de; Erotikweb: www.erotikweb.de; LoveCam:
www.lovecam.de; PeepCam: www.peepcam.de; Amateur Sex Movies:
www.amatuersexmovies.com; and Teensex: www.teensex.de) to Q-Seven Systems, Inc.,
a Nevada corporation.
/s/ Philip Kamp /s/ Olaf Cordt
- ------------------ --------------------
Philip Kamp Olaf Cordt
4
