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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
CPC OF AMERICA, INC.
(Name of Small Business Issuer in its charter)
Nevada 11-3320709
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1133 Fourth Street
Suite 200
Sarasota, Florida 34236
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE 941-906-9546
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SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None N/A
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
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(TITLE OF CLASS)
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
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CPC of America, Inc. (the "Company") was formed under the laws of the State
of Nevada on April 11, 1996 and was established to operate in three primary
health care areas. First, the Company intends to manufacture and distribute
external counterpulsation devices for the treatment of coronary artery disease.
The Company intends to provide counterpulsation treatment through Company-owned
and joint-venture clinical facilities. Second, the Company intends to acquire
existing management service organizations ("MSO"s) to provide management
assistance and other services to specialty medical groups, including those in
the cardiology field. Finally, the Company will enter into joint ventures with
third-parties, called "co-sourcing" arrangements, to provide cardiology services
and support to hospitals, health maintenance organizations ("HMO"s), preferred
provider organizations ("PPO"s), and other physician groups. As of the date of
this Registration Statement, the Company has completed design of a
counterpulsation unit and has submitted this unit to the FDA for 510(k)
premarket notification clearance. As of the date of this Registration Statement,
the Company has not acquired any MSOs or established any cardiology co-sourcing
relationships.
The Company's operations to date have consisted of the design and
development of its counterpulsation unit and the raising of capital. Between
March 1997 and February 1998, the Company conducted a private placement of units
("Units") of its securities, each Unit consisting of 10,000 shares of the
Company's $.001 par value common stock ("Common Stock") and common stock
purchase warrants ("Unit Warrants") entitling its holders to purchase up to
20,000 shares of Common Stock at an exercise price of $3.50 per share. The Unit
Warrants are exercisable at any time commencing on February 10, 1999 and
expiring on December 31, 2000. All sales of Units in the private placement were
made pursuant to Rule 504 under the Securities Act of 1933. In that offering,
the Company sold 34 Units at a price of $29,000 per Unit for the gross proceeds
of $986,000. Proceeds from the sale of the Units were applied towards the
development of the Company's counterpulsation units and towards working capital.
On July 25, 1997, the Company entered into a Stock Purchase Agreement with
John P. Colonna, a technical and engineering consultant to the Company, to
purchase eighty percent (80%) of the voting stock of DSDS Group, Inc., a Florida
corporation ("DSDS"). The sole assets of DSDS consist of two patents relating to
a self-destructing single-use syringe. The patents have approximately 16 years
remaining before expiration. The Company purchased its interest in DSDS for a
total price of $61,000, of which $25,000 was paid in cash at closing and $36,000
was to be paid by the Company in 18 equal monthly installments. As of March 31,
1998, there is $18,000 remaining to be paid by the Company pursuant to this
Agreement.
The Company's executive offices are located at 1133 Fourth Street, Suite
200, Sarasota, Florida 34236; telephone number (941) 906-9546.
Business of the Issuer
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GENERAL
The Company intends to operate in three primary health care areas. First,
the Company will manufacture and distribute external counterpulsation devices
for the treatment of coronary artery disease. Counterpulsation is a non-
invasive, atraumatic and non-toxic treatment of certain coronary disease states.
This technique offers advantages over invasive treatment in terms of ease, risk
and expense to the patient seeking relief from the symptoms of coronary artery
narrowing. The Company initially intends to provide counterpulsation treatment
through Company-owned and joint-venture clinical facilities.
Second, the Company intends through the acquisition of existing MSOs, to
establish MSOs that will provide a wide range of professional and administrative
services, including accounts receivable systems and collections, negotiations of
and participation under managed care contracts, financial services, including
payroll, bonus and
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pension plan management and financial reporting, medical information management
services, marketing and business development, and executive management and
support. Each client of the MSO will be able to contract for any or all of these
services. The Company's MSOs will also assist cardiology groups with purchasing,
financing and upgrading equipment and other technical services. The Company will
work with contracted facilities to audit and assess technology needs, uncover
cost-reduction opportunities, consolidate overlapping service contracts, and
craft and implement a multi-year strategic plan to anticipate changes in capital
requirements.
Third, the Company will enter into joint ventures with third-parties,
called "co-sourcing" arrangements, to provide cardiology services and support to
hospitals, HMOs, PPOs, and other physician groups. A typical cardiology co-
sourcing arrangement will partner the professional assistance of the Company or
a related MSO with third-party technological and equipment resources to offer
clients a complete array of cardiology services. The Company believes that
through these co-sourcing arrangements, the Company can supply hospitals and
other medical service providers with more efficient and cost-effective
cardiology services.
BACKGROUND
Coronary Artery Disease and Treatment
Coronary artery disease is the most common cause of death in industrial
nations. The coronary arteries serve the heart with oxygen and other nutrients.
The progressive narrowing of these coronary arteries by increasing layers of
fatty atherosclerotic plaque leads to heart attacks, brain failure and
eventually death. It is estimated that coronary artery disease causes 700,000
deaths per year in the United States, approximately one-third of all mortality.
The cost of coronary disease is great in terms of treatment expense, loss of
earnings and productivity and incalculable in terms of pain, suffering and
limited lifestyles.
Over 1.5 million people in the United States each year now undergo invasive
intravascular analysis for coronary artery narrowing by the technique of
angiography or through artery bypass surgery. Coronary angioplasty is an
invasive process whereby a small balloon attached to a catheter is inserted into
a clogged artery. The balloon is then inflated to compress plaque and to open
the narrowed artery. The estimated cost per successfully-treated patient using
the angioplasty method approaches $16,000 and many patients fail multiple
attempts at angioplasty. Coronary artery bypass surgery involves supplementing
the original arteries on the surface of the heart with additional conduits, or
bypasses, which carry the blood around areas of blockage or narrowing. These
bypasses or detours are frequently created by using veins harvested from the
patient's leg or arteries harvested from the chest wall. This invasive procedure
requires more lengthy hospitalization than angioplasty, carries a higher risk of
complications, and can cost up to $50,000 per patient. Many bypass conduits
close in the years following surgery requiring a return to medications,
angioplasty, or repeat bypass attempts. There were at least 450,000 bypasses
performed in the United States in 1996.
Counterpulsation Technology
Counterpulsation is significantly less invasive than both angioplasty and
artery bypass surgery and is designed to reduce the need for these more
complicated and costly procedures. Counterpulsation involves the rhythmic
inflation and deflation of sets of balloons or cuffs, wrapped around the muscles
of the calves, thighs and buttocks. Inflation and deflation occurs in a
sequential manner, progressing from the calves to the lower and upper thighs and
then to the buttocks. The sequence of cuff inflation and deflation compresses
the vascular beds and is timed to the beating of the patient's own heart through
synchronization with the patient's electrocardiogram, so that increased blood
flow and pressure will reach the coronary vessels during diastole, at the time
of lowest intracardiac resistance. Each deflation of the series of cuffs, which
occurs just before the heart squeezes, reduces the pressure against which the
heart must pump, allowing it to eject blood more efficiently and completely.
Each inflation of the series of cuffs allows the circulation to receive an
additional pressurized pulsation, which propels blood into the heart's own
coronary arteries with increased efficiency and force during a time when the
heart is normally resting between beats. The combination of increased ease of
work during the contraction phase and increased blood flow during the relaxation
phase of the cardiac cycle has been shown to eliminate or reduce angina in over
80% of the patients studied to date in the U.S.
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Patients are typically treated with counterpulsation therapy during 35 one-
hour outpatient visits or sessions, spanning four to seven weeks. During their
treatments, the patients remain outside the hospital and are free to pursue work
and other scheduled activities. Treatment success is observed by relief of
symptoms, possible reduction in medication, increased exercise capacity on the
treadmill, and elimination of areas of poor cardiac circulation. A course of
counterpulsation treatments, with a total cost of $10,000 or less, compares
favorably with the higher risk, expense, pain, and lost productivity time
associated with the invasive angioplasty and coronary bypass procedures.
Management Service Organizations
Health care in the United States historically has been delivered by a
fragmented system of health care providers, including hospitals, individual
physicians and small groups of specialists and primary care physicians. The
American Medical Association reports that approximately 565,000 physicians are
actively involved in patient care in the United States, with a growing number
participating in multi-specialty or single-specialty groups. Expenditures
directly attributable to physicians are estimated at $246 billion, and national
health care spending has been estimated by the Health Care Financing
Administration to be in excess of $1 trillion in 1995.
The focus on cost containment has placed many sole medical practitioners,
small to mid-sized physician groups and single specialty group practices at a
significant disadvantage because they typically have high operating costs
relative to revenue and little purchasing power with vendors of supplies. These
physician practices often lack the capital to purchase new clinical equipment
and technologies, such as information systems, necessary to enter into
sophisticated risk sharing contracts with payors. Additionally, these
physicians generally have neither formal ties with other providers nor the
ability to offer coordinated care across a variety of specialties, thus reducing
their ability to compete with larger medical care providers.
Concerns over the cost of health care has resulted in the rapid growth of
managed care in the past several years. As markets evolve from traditional fee-
for-service medicine to managed care, HMOs and health care providers confront
market pressures to provide high-quality health care in a cost-effective manner.
Employer groups have begun to bargain collectively in an effort to reduce
premiums and to bring about greater accountability of HMOs and providers with
respect to accessibility, choice of providers, quality of care and other matters
that are fundamental to consumer satisfaction.
Given these changes in the health care systems, many payors and their
intermediaries, including governmental entities and HMOs, are looking to outside
providers of physician management services to develop and maintain quality
outcome management programs and patient care data.
Cardiology Co-Sourcing
As a result of managed care and cost-containment programs, hospitals and
other medical care providers that have turned to MSOs and outsourcing techniques
frequently establish and maintain contracts with numerous service providers in
order to purchase equipment and manage physicians, as well as for administrative
and other non-medical support needs. However, the third-party manager or
outsourcing firm's profitability is independent of the medical care provider;
thus, conflict often occurs in this paradigm between managers and outsourcers
who focus solely on practice profitability and care providers who must be
responsive to the quality of care given to patients.
In an effort to bridge the gap between the practice of medicine and the
methods of cost-containment and efficiency, medical care providers have turned
to a relationship called co-sourcing. In a typical cardiology co-sourcing
arrangement, an MSO or other service provider creates a joint venture with a
particular medical care facility, such as a hospital, clinic or private
practice, which will provide cardiology care to the particular provider's
patients. The joint venture will own and operate various aspects of the
cardiology practice, depending on the level of the co-sourcing relationship.
Professional co-sourcing requires the managing entity to be responsible for
attracting, employing and retaining qualified cardiology physicians and
professional support staff. In a technological co-sourcing relationship, the
management entity owns, purchases, maintains and upgrades the cardiology lab
equipment. A global co-sourcing arrangement combines both technical and
professional assistance. Thus, the key
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element present in the co-sourcing relationship is cooperation between the care
manager and the care provider and the sharing of both the overall
responsibilities and results of the practice.
The primary benefits of co-sourcing relationships are similar to those
sought after by other traditional methods of medical cost-containment: to lessen
the costs of providing medical care, to increase profitability of the care
provider and to increase the quality of the care generally. By utilizing the
MSOs resources, health care providers are able to lower operating costs and
spread the cost of providing medical care to other parties. Depending on the
co-sourcing relationship utilized, the practice could also reduce or eliminate
the need for additional investments in fixed infrastructure and equipment, as
well as additional personnel needed to perform administrative functions such as
billing, payroll, accounts receivable collection and other similar tasks. The
overall objective is to allocate limited practice resources to the related goals
of providing quality medical care and generating additional practice revenues.
However, the significant difference between co-sourcing and traditional
outsourcing and other practice management systems is that the medical practice
or hospital avoids the adversarial relationships that can develop between care
providers and MSO's or equipment suppliers. Because the MSO and the practice
share both the costs of and, where permitted by applicable law, the revenues
generated from the practice, the success or failure of the entire venture is
equally dependent upon the ability of the MSO and the practice to work together.
Thus, both sides have an interest in cooperating with one another to ensure that
the practice is efficient and quality-driven at the same time.
COUNTERPULSATION TECHNOLOGY MARKET
The target market for counterpulsation technology is vast. There are a
reported 3.5 million people in the United States suffering from angina pectoris,
with approximately another 500,000 diagnosed each year. Cardiovascular disease
claimed 930,477 lives in 1990, representing 43% of all deaths. Approximately 7
million people are alive today who have a history of heart attack, angina
pectoris or chest pain. This year, as many as 1,500,000 Americans are expected
to have a heart attack, approximately 450,000 of which will die as a result of
the heart attack. An estimated 450,000 coronary bypass procedures were
performed in 1995. Of the current population of approximately 260 million
people in the United States approximately 70 million people suffer from some
form of cardiovascular disease.
PRODUCTS AND SERVICES
Counterpulsation Technology
The Company has designed and subject to FDA approval, intends to
manufacture and market a counterpulsation device under the name CPCA 2000, as
well as a mobile version of its counterpulsation device under the name CPCA
2000M. (See "Government Regulation and Supervision" for a more detailed
discussion of the FDA approval process.) Distribution of the CPCA 2000 and CPCA
2000M will be conducted through joint ventures between the Company's sales
groups and health care providers. In addition, joint-venture treatment centers
will be organized and linked via an MSO which will provide central management
services.
Management Service Organizations
The Company's goal is to position itself as a cardiology and specialty
practice management company. The Company intends to assist medical care
facilities in realizing immediate cost-savings and developing strategic
technology plans. The Company will work with the administration of each medical
center to audit and assess technology needs, uncover cost-reduction
opportunities, consolidate overlapping service contracts, and craft and
implement a multi-year strategic plan to anticipate changes in capital
requirements. Through technology management services, the Company believes it
will be able to determine a hospital's true cost of maintaining, servicing and
acquiring clinical technology. This knowledge will lead to immediate cost-
savings and the development of a "road map" for the future which can help
facilities reduce operating expense budgets and accurately assess their current
and future technology needs.
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The Company's strategy is to acquire an existing MSO, using outside
financing to fund the acquisition. The MSO will be designed to own, operate
and/or manage the technical and professional aspects of a hospital's or
practice's cardiology services. The MSO would manage various aspects of these
services, including billing and accounts receivable, collection, managed care
contracts, human resources and payroll services. The MSO would also provide
pension and benefits expertise, equipment and technical expertise, information
management and, if applicable, growth management and executive support. By
rendering these support and management functions, the Company believes that it
will enable physicians to spend a higher proportion of their time with patients,
thereby improving patient care and enhancing revenue. Although the Company's
strategy is to acquire an existing MSO, there can be no assurances that the
Company will be able to find a suitable candidate for acquisition or that the
Company will be able to secure the financing necessary for the acquisition.
Cardiology Co-Sourcing
The Company's initial strategy is to seek only professional co-sourcing
relationships through joint ventures with existing health care providers. In
establishing these relationships, the Company anticipates creating joint
ventures with hospitals, HMOs, PPOs or other care providers which offer or seek
to offer cardiology care and related services. The Company and the care
providers will divide the cost of establishing and/or maintaining a location,
professional and support staff, billing services and other functions as may be
agreed upon by the parties. In return, where permitted by applicable law, the
Company will receive a portion of the care provider's revenue from cardiology
services. The Company's co-sourcing venture may elect to utilize the resources
of the Company's MSO subsidiary to assist the hospital or practice in meeting
its professional and administrative needs.
MARKETING AND DISTRIBUTION
The Company intends to engage third parties, through original equipment
manufacturing ("OEM") relationships, to manufacture the CPCA 2000 and the CPCA
2000M under the Company's own label. The Company intends to commence marketing
and distribution of its counterpulsation unit by establishing relationships with
key providers and referring physicians across the nation, in geographically
strategic locations. Potential joint venture partners would include selected
community and university hospitals, private practice cardiology groups, managed
care organizations including HMOs, diagnostic imaging centers, cardiac
rehabilitation centers, and preventive cardiology centers.
Distribution and marketing of the units will be accomplished through joint
ventures between the Company's sales groups and clinics and institutions that
will be purchasing its units. The Company's strategy is to sell one or more of
its counterpulsation units to physicians, clinics and hospitals, with the
Company receiving revenues from the proceeds of the sale as well as from
licensing fees. The Company anticipates that it will need to employ
approximately 10 full-time employees to develop and enhance the Company's sales,
marketing and distribution efforts. The Company intends to grow its
distributorship network through:
. Major cardiology groups
. HMO groups
. Major payor groups and insurance companies
. Other existing diagnostic and therapeutic companies and centers
. Co-sourcing relationships with major hospital chains
GOVERNMENT REGULATION AND SUPERVISION
Counterpulsation Technology
Clinical testing, manufacture and sale of the CPCA 2000 and CPCA 2000M is
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state and foreign regulatory agencies. Pursuant to the
federal Food, Drug and Cosmetic Act, and the regulations promulgated thereunder,
the FDA regulates the clinical testing, manufacturing, labeling, distribution
and promotion of medical devices. Under the Medical Device Act of 1976, all
medical devices are classified by the FDA into one of three classes, called
Class I, II, or III, on the basis of the controls deemed necessary by the FDA to
reasonably ensure their safety and
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effectiveness. Class I devices are subject only to general controls (e.g.,
labeling, premarket notification and adherence to Good Manufacturing Practices
("GMP"). Class II devices are subject to general controls and performance
standards established by the FDA, including postmarket surveillance, patient
registries and FDA guidelines. Class III devices must receive premarket approval
by the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to legally marketed devices). Both the CPCA
2000 and the CPCA 2000M are considered by the FDA to be a Class III device.
Before a new medical device can be introduced to the market, the
manufacturer generally must obtain FDA clearance through either a "510(k)
premarket notification" or through a premarket approval application ("PMA").
Although Class III devices normally require FDA clearance through the PMA
process, because counterpulsation devices are already on the market, newer
versions, similar to the CPCA 2000, have been permitted to be marketed pursuant
to the 510(k) premarket notification procedure. However, there is no assurance
that the Company will continue to be eligible to utilize the 510(k) premarket
notification process in the future or that the FDA will not in the future
require the Company to submit a PMA, which would be a more costly, lengthy and
uncertain approval process.
Generally, 510(k) premarket notification clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device, or to a
preamendment Class III medical device for which the FDA has not called for PMAs.
The FDA has recently been requiring a more rigorous demonstration of substantial
equivalence than in the past, for example, by more frequently requiring clinical
data. It generally can take from four to 12 months or longer from submission to
obtain 510(k) premarket clearance. The FDA may determine that a proposed device
is not substantially equivalent to a legally marketed device or that additional
data is needed before a substantial equivalence determination can be made. A
"not substantially equivalent" determination, or a request for additional data,
could delay the market introduction of new products that fall into this category
and could have a material adverse effect on the Company's business, financial
condition and results of operations. For any of the Company's devices that are
cleared through the 510(k) process, modifications or enhancements that could
significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device will require a new
510(k) submission. There can be no assurance that the Company will obtain 510(k)
premarket clearance within the above time frames, if at all, for any of the
devices for which it may file a 510(k).
Further, once FDA approval is obtained, the CPCA 2000 will be subject to
pervasive and continuing regulation by the FDA, including various record keeping
requirements and the requirement to report adverse experiences with the use of
the device. The Company is also subject to inspection on a routine basis for
compliance with the FDA's GMP regulations. These regulations impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing and quality assurance activities. The FDA has recently finalized
changes to GMP requirements that, among other things, add requirements for
purchasing and pro-production design controls and maintenance of service
records, which changes may therefore increase the cost of compliance.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances on a timely basis or at all, and delays in
receipt of or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, there are federal and state laws which regulate the financial
relationships between manufacturers of medical devices and hospitals, physicians
and other potential purchasers of medical devices. The federal Medicare and
Medicaid anti-kickback statute prohibits financial relationships designed to
induce the purchase, or arranging for or recommending the purchase, of items or
services for which payment may be made under Medicare, Medicaid, or other
federally funded state health care programs. The anti-kickback statute contains
exceptions for, among other things, properly reported discounts and compensation
for bona fide employees. In addition, federal regulations establish certain
"safe harbors" from liability under the anti-kickback statute, including further
refinements of the exceptions for discounts and employee compensation. The
Company's future practices, in some cases, may not meet all of the criteria for
a safe harbor from anti-kickback law liability. Other provisions of state and
federal law provide civil and/or criminal penalties for presenting or causing to
be presented for payment claims
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that are fraudulent or for items or services that were not provided as claimed.
Because of the breadth of the statutory provisions described above, it is
possible that some of the Company's business practices could be subject to
scrutiny and challenge under one or more such laws. Such a challenge could have
a material adverse effect on the business, financial condition and results of
operations of the Company.
Management Service Organizations and Cardiology Co-Sourcing
Various state and federal laws regulate the relationship between providers
of health care services, physicians and other clinical services. As a business
in the health care industry, the Company will be subject to these laws and
regulations. Moreover, as a result of the Company's intention to provide both
physician practice management services and medical support services, the Company
may be the subject of more stringent review by the regulatory authorities. As a
result, there can be no assurance that a review of the Company's or the
affiliated physicians' businesses by courts or regulatory authorities will not
result in a determination that could adversely affect the operations of the
Company or the affiliated physicians.
The laws of many states prohibit business corporations such as the Company
from practicing medicine as well as managing physicians. In those states where
the Company intends to manage physicians, it intends to establish operations
which it believes will be in material compliance with applicable laws. The
Company will not exercise any influence or control over the practice of medicine
by the physicians with whom it will manage. Accordingly, the Company believes
that once it begins to provide practice management and medical support services,
it will not be in violation of applicable state laws relating to the practice of
medicine. The laws in most states regarding the corporate practice of medicine
have been subjected to limited judicial and regulatory interpretation and,
therefore, no assurances can be given that the Company's activities will be
found to be in compliance, if challenged. In addition to prohibiting the
practice of medicine, numerous states prohibit entities like the Company from
engaging in certain health care related activities, such as fee-splitting with
physicians.
There are state and federal statutes imposing substantial penalties,
including civil and criminal fines and imprisonment, on health care providers
that fraudulently or wrongfully bill governmental or other third party payors
for health care services. The federal law prohibiting false billings allows a
private person to bring a civil action in the name of the United States
government for violations of its provisions. The Company believes it will be in
material compliance with such laws, but there can be no assurances that the
Company's activities, once commenced, will not be challenged or scrutinized by
governmental authorities. Moreover, technical Medicare and other reimbursement
rules affect the structure of physician billing arrangements. The Company
believes it will be in material compliance with such regulations, but upon
review, regulatory authorities could conclude otherwise, and in such event, the
Company may have to modify its relationship with its affiliated physician
groups. Noncompliance with such regulations may adversely affect the operations
of the Company and subject it and such physician groups to penalties and
additional costs.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-Kickback Amendments," prohibit the offer, payment, solicitation or receipt
of any form of remuneration either in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease or order of items or services
that are covered by Medicare or state health programs. The Anti-Kickback
Amendments are broad in scope and have been broadly interpreted by courts in
many jurisdictions. Read literally, the statute places at risk many otherwise
legitimate business arrangements, potentially subjecting such arrangements to
lengthy, expensive investigations and prosecutions initiated by federal and
state governmental officials. In particular, the Office of the Inspector General
of the U.S. Department of Health and Human Services has expressed concern that
the acquisition of physician practices by entities in a position to receive
referrals from such physicians in conjunction with the physicians' continued
practice in affiliation with the purchaser could violate the Anti-Kickback
Amendments.
In July 1991, in part to address concerns regarding the Anti-Kickback
Amendments, the federal government published regulations that provide
exceptions, or "safe harbors," for certain transactions that will be deemed not
to violate the Anti-Kickback Amendments. Among the safe harbors included in the
regulations were provisions relating to the sale of physician practices,
management and personal services agreements and employee relationships.
Additional safe harbors were published in September 1993 offering protections
under the Anti-Kickback
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Amendments to eight new activities, including referrals within group practices
consisting of active investors. Although the Company believes that it is not in
violation of the Anti-Kickback Amendments, some of its operations do not fit
within any of the existing or proposed safe harbors.
The Company believes that, although it intends to receive remuneration
under management services agreements, it does not intend to be in a position to
make or influence the referral of patients or services reimbursed under
government programs to the physician groups. In certain states, the Company will
be a separate provider of Medicare or state health program reimbursed services.
To the extent the Company is deemed by state or federal authorities to be either
a referral source or a separate provider under its management services
agreements, the financial arrangement under these agreements could be subject to
prosecution under the Anti-Kickback Amendments. Violation of the Anti-Kickback
Amendments is a felony, punishable by fines up to $25,000 per violation and
imprisonment for up to five years. In addition, the Department of Health and
Human Services may impose civil penalties, including the exclusion of violators
from participation in Medicare or state health programs.
Significant prohibitions against physician referrals were enacted, subject
to certain exemptions, by Congress in the Omnibus Budget Reconciliation Act of
1993. These prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" by dramatically enlarging the field
of physician-owned or physician-interested entities to which the referral
prohibitions apply. Effective January 1, 1995 and subject to certain exemptions,
Stark II prohibits a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest
or with which the physician has entered into a compensation arrangement,
including the physician's own group practice. The designated health services
include the provisions of radiology and other diagnostic services, radiation
therapy services, physical and occupational therapy services, durable medical
equipment, parenteral and enteral nutrients, certain equipment and supplies,
prosthetics, orthotics, outpatient prescription drugs, home health services and
inpatient and outpatient hospital services. The penalties for violating Stark II
include a prohibition on Medicaid and Medicare reimbursement and civil
penalties. A physician's ownership of publicly traded securities of a
corporation with equity exceeding $75 million as of the end of its most recent
fiscal year is not deemed to constitute an ownership or investment interest in
that corporation under Stark II.
Many states have adopted similar prohibitions against payments intended to
induce referrals of Medicaid and other third party payor patients. The State of
Florida, for instance, enacted the Patient Self-Referral Act in April 1992 that
severely restricts patient referrals for certain services, prohibits mark-ups of
certain procedures, requires disclosure of ownership in a business to which
patients are referred and places other regulations on health care providers. The
Company believes it is likely that other states will adopt similar legislation.
Accordingly, operations in various jurisdictions may require the Company to
comply with such jurisdictions' regulations, which could lead to structural and
organizational modifications of the Company's relationships with physician
groups. Such changes, if any, could have an adverse effect on the Company.
Today, much of the revenue received by practices, and, in turn, by MSOs, is
derived from payments made by government sponsored health care programs
(principally, Medicare and Medicaid). As a result, any change in reimbursement
regulations, policies, practices, interpretations or statutes could adversely
affect the intended operations of the Company. Congress passed a fiscal year
1995 budget resolution that calls for reductions in the rate of spending
increases over the next seven years of $270 billion in the Medicare program and
$182 billion in the Medicaid program. Through the Medicare program, the federal
government has implemented a resource-based relative value scale ("RBRVS")
payment methodology for physician services. RBRVS is a fee schedule that, except
for certain geographical and other adjustments, pays similarly situated
physicians the same amount for the same services. The RBRVS is adjusted each
year and is subject to increases or decreases at the discretion of Congress. The
implementation of RBRVS may result in reductions in payment rates for procedures
provided by physicians which may be managed by the Company. RBRVS-type payment
systems have also been adopted by certain private third party payors and may
become a predominant payment methodology. A broader implementation of such
programs would reduce payments by private third party payors and could
indirectly reduce the Company's operating margins to the extent that the cost of
providing management services related to such procedures could not be
proportionately reduced. To the extent the Company's costs increase, the Company
may not be able to recover such cost increases from government reimbursement
programs. In addition, because of cost-containment measures and market changes
in nongovernmental insurance plans, the Company may not be able to shift cost
increases to
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<PAGE>
nongovernmental payors. The Company may experience over time a reduction in per
patient Medicare revenue received by certain of the physician groups which the
Company intends to manage; however, the Company does not believe such reductions
would, if experienced, result in a material adverse effect on the Company.
In addition to current governmental regulation, the Clinton administration
and several members of Congress have proposed legislation for comprehensive
reforms affecting the payment for and availability of health care services.
Aspects of certain of such health care proposals, such as reductions in Medicare
and Medicaid payments, if adopted, could adversely affect the Company. Other
aspects of such proposals, such as universal health insurance coverage and
coverage of certain previously uncovered services, could have a positive impact
on the Company's business. It is not possible at this time to predict what, if
any, reforms will be adopted by Congress or state legislatures, or when such
reforms would be adopted and implemented. As health care reform progresses and
the regulatory environment accommodates reform, it is likely that changes in
state and federal regulations will necessitate modifications to the Company's
agreements and operations. While the Company believes it will be able to
restructure in accordance with applicable laws and regulations, the Company
cannot be assured that such restructuring in all cases will be possible or
profitable.
COMPETITION
Counterpulsation Technology
At present, the Company is aware of only two other companies that are
currently producing and marketing or intending to market a counterpulsation
device similar to the CPCA 2000: Vasomedical, Inc. and Cardiomedics, an
affiliate of Trimedyne, Inc. The Company believes that these competitors'
involvement in the market at present is limited and that the market in general
for counterpulsation devices has largely been untapped. Management of the
Company estimates that counterpulsation therapy is presently used to treat only
a small percentage of all patients with coronary artery diseases.
The Company may also face limited competition from physicians and treatment
centers currently utilizing counterpulsation technology. There can be no
assurance that the Company will be able to compete initially or on a continual
basis with companies that are currently marketing counterpulsation devices or
those that presently seek to enter into the counterpulsation device market. The
inability of the Company to compete in the counterpulsation market would have a
material adverse effect on the Company.
The Company anticipates that the CPCA 2000 will also indirectly compete
with more mainstream cardiology treatment techniques, such as angiography,
coronary angioplasty, coronary artery bypass surgery and medication. While
counterpulsation does not replace the need for these services in all cases, a
percentage of coronary artery disease can be successfully treated using an
alternative to invasive procedures, such as counterpulsation treatment.
Management Service Organizations
The Company competes with numerous companies that provide practice
management through MSOs, including Mediphys, Phycor, Phymatrix Corp., Equimed,
Inc., U.S. Diagnostics Labs, Insight Health Services Corp., InPhynet Medical
Management, Inc., and other regional and national public and private companies.
These companies typically offer either technical, professional or global MSO
services to general, specialty and sub-specialty clinical services. As managed
care pressures force consolidation of technical and professional inpatient and
outpatient services, the market for MSOs is growing rapidly. Recently, however,
this growth trend has created the need for companies to provide specialty
practices, such as cardiology, radiology and oncology practices, with technical
and professional management services. However, even the larger MSOs, such as
Phycor, currently manage only a small fraction of all of the specialty practices
and independent practice associations in the U.S. The Company believes that the
current level of competition will allow the Company to pursue opportunities to
form or acquire MSOs to provide specialty practice management services on a
regional or national basis that will complement the Company's sales and
distribution of its counterpulsation devices.
-9-
<PAGE>
Cardiology Co-Sourcing
There are currently a limited number of public and private companies who
provide cardiology co-sourcing services, including Vivra and Raytel. However,
other companies have utilized the co-sourcing concept in other areas, such as
food service, pharmacies, emergency rooms, radiation therapy, oncology, physical
therapy, dialysis, laboratory services and surgical services. Some of these
companies include Marriott, Sodexho, Cardinal, Equimed, Inc., Dynecare and
National Surgery Centers. Many of these companies have established co-sourcing
relationships with hospitals as a point of service partner.
Other companies have specialized in developing radiology co-sourcing
relationships that are similar to cardiology co-sourcing arrangements, including
Siemens Medical, Kings Medical, HealthSouth, U.S. Diagnostics Labs and Insight
Health Services Corp. These relationships also provide technical inpatient and
outpatient services, as well as professional and employee services, through the
joint ownership and operation of the radiology practice. The Company believes
that co-sourcing will be a growing trend in managed health care and that it has
or will be able to establish the resources, management and relationships to
become the leader in cardiology co-sourcing.
PATENTS AND TRADEMARKS
At present, the Company has submitted applications to patent the CPCA 2000
and its counterpulsation technology and has already received a trademark on the
name "CPCA 2000." The Company's ability to compete successfully depends, in
part, on its ability to protect the proprietary technology contained in its
products. The Company will rely upon a combination of patent, trade secret,
copyright and trademark laws, together with non-disclosure agreements, to
establish and protect proprietary rights in its counterpulsation devices and
other technology, as well as its trade names and other similar property. The
Company also intends to enter into confidentiality and/or license agreements
with its employees, manufacturers, distributors, customers and suppliers, and
will limit access to and distribution of its proprietary information. If and
when implemented, these measures will only afford the Company limited
protection, as there can be no assurance that any steps taken by the Company to
protect these proprietary rights will be adequate to prevent misappropriation of
its technology or the independent development by others of similar technology.
In addition, although the Company believes that there currently are no
infringement claims against the Company and no grounds for the assertion of such
claims, the cost of responding to any such assertion could be significant.
CUSTOMERS
Counterpulsation Technology
At present, the Company has not begun marketing or producing the CPCA 2000
or the CPCA 2000M, as the Company is prohibited from doing so until receiving
clearance from the FDA.
Management Service Organizations.
At present, the Company currently has not established any MSO
relationships. When and if such relationships are established, however, the
Company's MSO-related revenues will be primarily generated from contract
services and patient services. Contract services revenues are generally earned
from services billed to a hospital or other health care providers which include:
(i) fee-for-service arrangements in which revenues are based upon a contractual
rate per procedure, (ii) equipment rental in which revenues are generally based
upon a fixed monthly rental, and (iii) management fees. Patient service revenues
are services billed directly to patients or third party payors (generally
managed care organizations and commercial insurance carriers).
The Company's MSO operations will be principally dependent on its ability
(either directly or indirectly through its hospital customers) to attract
referrals from physicians and other health care providers representing a variety
of specialties. The Company's eligibility to provide service in response to a
referral will often be dependent on the existence of a contractual arrangement
with the referred patient's insurance carrier (primarily if the insurance is
provided by a managed care organization). Managed care contracting has become
very competitive and
-10-
<PAGE>
reimbursement schedules are nearing Medicare reimbursement levels. A decline in
referrals and/or reimbursement rates would adversely affect the Company's
revenues and profits.
Cardiology Co-Sourcing
The Company currently has not established any cardiology co-sourcing
relationships. However, the Company will seek to target physician groups,
diagnostic services and therapeutic services. The Company's strategy is to
develop a customer base on a local, regional and national basis for complete
cardiology services and to seek out hospital chains on a global basis to provide
them with inpatient and outpatient cardiology services.
RESEARCH AND DEVELOPMENT
Since inception, the Company's research and development expenses have
amounted to approximately $450,000. These expenditures have included the design
and development of both the CPCA 2000 and the CPCA 2000M, as well as the
submission of both of these units to the FDA for approval. At present, none of
these research and development expenses have been borne by customers as the
Company has not begun to market or sell its products and services.
EMPLOYEES
As of the date of this Registration Statement, the Company and its
subsidiaries employed two persons consisting of its two executive officers.
Neither of these employees are represented by a union or subject to a collective
bargaining agreement. The Company has not experienced a work stoppage and the
Company believes that its relationship with its employees is good.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
To date, the Company's activities have included the market analysis and
development of its counterpulsation units and the raising of initial working
capital. The Company has developed and prepared for market both the CPCA 2000
and the CPCA 2000M, a mobile version of the Company's stand-alone
counterpulsation unit. Both units have been submitted for FDA 510(k) approval.
The Company has financed its activities to date through the sale of its
securities. See "Item 4, Part II - "Recent Sales of Unregistered Securities"
for a description of the Company's sale of shares of its securities since
inception. The Company intends to commence commercial operations in the fourth
quarter of 1998, subject to FDA approval of its counterpulsation units, and, in
the opinion of management, has sufficient cash resources in order to sustain its
operations throughout the fiscal year of 1998.
Over the next 12 months, following FDA approval of its counterpulsation
units, the Company intends to make the counterpulsation technology available
through a delivery system of company-owned and joint-ventured facilities. Each
facility will provide two or more counterpulsation units to provide patients
with easy access to treatment. Potential joint-venture partners include
community and university hospitals, private practice groups, managed care
organizations, including HMOs, diagnostic imaging centers and preventive
cardiology centers. Staffing would include a cardiologist who will review the
patient's history from the referring physician, examine the patient and
formulate the counterpulsation treatment plan. In addition, specially trained
nurses will be present in the center to monitor each patient's treatment. The
Company intends to attract patients from referrals from physicians, insurance
carriers, HMOs and hospitals, as well as self-referred patients. The facilities
will not offer full service long-term cardiology management in an attempt to
avoid competition with cardiologists, surgeons and hospitals.
This registration statement contains forward-looking statements that are
based on the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this registration statement,
the words "believe," "expect," "anticipate," "estimate" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions, including, without
limitation, the Company's recent commencement of commercial operations and the
risks and uncertainties concerning the acceptance of its services and products
by its potential customers; the Company's present financial condition and the
risks and uncertainties concerning the availability of additional capital as and
when required; technological changes; increased competition; and general
economic conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, or projected. The
Company cautions potential investors not to place undue reliance on any such
forward-looking statements all of which speak only as of the date made.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located in Sarasota, Florida and
consist of approximately 1,000 square feet which the Company rents on a month to
month basis.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of December 31, 1997 by
(i) each person who is known by the Company to be the beneficial owner of more
than five percent (5%) of the issued and outstanding shares of Common Stock,
(ii) each of the Company's directors and executive officers and (iii) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
------------------ ----------------
<S> <C> <C>
Rod A. Shipman(1)(2) 596,000 14.2%
Dr. Richard E. Rubin(1)(3) 721,667 17.1%
William C. Lievense(1)(4) 20,000 (4)
CTM Group, Inc.(5)(6) 850,000 20.2%
Leslie J. Kessler(7)(8) 1,000,000 23.7%
All officers and directors as a group 1,337,667 31.8%
</TABLE>
_______________
(1) Address is 1133 Fourth Street, Suite 200, Sarasota, Florida 34236.
(2) Includes an option granted to Mr. Shipman to purchase 500,000 shares of
Common Stock at $2.25 per share for a ten year period ending May 2, 2006.
(3) Includes an option granted to Mr. Rubin to purchase 486,667 shares of
Common Stock at $2.25 per share for a ten year period ending May 2, 2006.
(4) Less than one percent.
(5) Address is 1350 East Flamingo, #800, Las Vegas, Nevada 89119.
(6) Includes an option granted to the CTM Group to purchase 500,000 shares of
Common Stock at $2.25 per share for a ten year period ending May 2, 2006.
(7) Address is 11 Hedgerow Lane, Jericho, New York 11753.
(8) Includes an option granted to Ms. Kessler to purchase 500,000 shares of
Common Stock at $2.25 per share for a ten year period ending May 2, 2006.
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<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below are the directors and officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --------------- -----------------------------
<S> <C> <C>
Rod A. Shipman 47 President, Secretary and Director
Dr. Richard E. Rubin 46 Senior Executive Vice President,
Treasurer and
Director
William C. Lievense 50 Director
</TABLE>
Mr. Shipman has been the President, Chief Executive Officer and Secretary
of the Company since January 1997 and has been a director of the Company since
its inception in May 1996. Mr. Shipman has over 19 years of experience in the
medical industry. Since August 1994, Mr. Shipman has been the President and
Chief Executive Officer of R.A. Shipman & Associates, L.L.C., a health care
consulting firm. From January 1993 to July 1994 he served as Senior Vice
President and Chief Operating Officer of MRI Medical Diagnostics, a Colorado
corporation that provided imaging and nuclear medical services and operated a
senior retirement facility. Mr. Shipman also served as a director of that
company from May 1993 to June 1994. From January 1991 to September 1992, Mr.
Shipman served as the President and Chief Operating Officer of Southern
California Imaging Services, a private mobile diagnostic imaging and service
company. From 1978 to 1990 he served in various positions including Business
Manager, Controller, Account Executive and District Manager with Philips Medical
Systems, CGR Medical Systems, ADAC Laboratories and Picker, all medical imaging
companies. Mr. Shipman received a Bachelor of Science degree in Business
Administration from Pepperdine University in Malibu, California and a Masters
degree in Public and Health Care Administration from the University of San
Francisco in San Francisco, California.
Dr. Rubin has served as the Senior Executive Vice President and Treasurer
of the Company since March 1997. He has also served as a director of the Company
since its inception in May 1996. Dr. Rubin has served since 1995 as President
and a director of EECP of America, Inc., a medical sales company and as a member
of Cardiovascular Medicine LLC, a private cardiology practice associated with
four physicians located in Chevy Chase, Maryland. Dr. Rubin has been a Clinical
Assistant Professor of Medicine at Georgetown University Hospital since 1982.
Dr. Rubin's special interests include topics in the fields of both non-invasive
and invasive cardiology. He has developed non-invasive cardiac diagnostic
centers, provided insurance company reimbursement consulting, assisted in the
formation of health care networks and has provided other practice management
activities. Dr. Rubin is a Fellow of the American College of Cardiology, and a
member of the American Heart Association, the American Society of Internal
Medicine, the American Medical Association, and both the Montgomery County,
Maryland and Washington, D.C. medical societies. Dr. Rubin received his
undergraduate degree and medical education at The Johns Hopkins University in
Baltimore, Maryland.
Mr. Lievense has served as a director of the Company since October 1996.
He has approximately 25 years of experience in the medical industry. Since
1993, Mr. Lievense has been the President and Chief Executive Officer of
Columbia/Doctors Hospital of Sarasota, Florida, and its predecessor, Galen
Health Care Corporation. Mr. Lievense has worked for Humana, Inc., a nationwide
owner and operator of hospitals and healthcare facilities, for 20 years, serving
as its Vice President and Assistant Regional Manager from 1988 to 1993. He also
worked for American Inhalation Representatives, Inc., a respiratory services
company in Birmingham, Alabama. Mr. Lievense received a Bachelor of Arts degree
in Sociology from Alma College in Alma, Michigan and received a Masters degree
in Business Administration from the University of Louisville, Kentucky.
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<PAGE>
KEY CONSULTANT TO THE COMPANY
The CTM Group, Inc., a Nevada corporation has a consulting contract to
provide strategic planning services to the Company. Mr. Paul Shabty is
primarily responsible for services to be provided by CTM Group, Inc. to the
Company under the consulting contract. Mr. Shabty's wife, Deborah Shabty, is
the owner and principal officer of CTM Group, Inc. Mr. Shabty is a founder of
the Company and served as its President, Treasurer and Chairman of the Board
from April 1996 to January 1997. Mr. Shabty is also a member of the Board of
Trustees of Columbia/Doctors Hospital of Sarasota, Florida, and is a director of
both TD Technologies, Inc., a private engineering and software company, and
Advanced Technologies Management Corporation, a medical software and management
company. Mr. Shabty has been involved in the medical and manufacturing
industries since 1970. He was the founder, Chairman of the Board and Chief
Executive Officer of Medical Clinic Unlimited, Inc., which specialized in both
the provision of outpatient dialysis services and the manufacturing of medical
devices, equipment and supplies. Medical Clinic Unlimited, Inc. had gross sales
of approximately $120 million in 1988. From October 1993 to September 1994, Mr.
Shabty served as Executive Vice President of U.S. Diagnostic Labs, Inc., a
physician practice management provider specializing in diagnostic imaging
centers. In 1994, Mr. Shabty was convicted on a 1988 federal grand jury
indictment of one count of mail fraud, and received one year of probation and a
fine of $500. Mr. Shabty received a Bachelor of Arts degree in Accounting from
the University of Tel Aviv. He has also attended the London School of Economics
and the Executive M.B.A. Program at the Harvard Business School.
ITEM 6. EXECUTIVE COMPENSATION
Cash Compensation of Executive Officers. The following table sets forth
the cash compensation paid by the Company to its Chief Executive Officer and to
all other executive officers for services rendered during the fiscal year ended
December 31, 1997 and from inception (April 11, 1996) to December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION/(1)/ LONG-TERM COMPENSATION
--------------------------------- ----------------------------
COMMON SHARES
RESTRICTED UNDERLYING ALL OTHER
OTHER ANNUAL STOCK OPTIONS GRANTED COMPEN-
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS ($) (# SHARES) SATION
- --------------------------- ------- ------- ------ -------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rod A. Shipman, President 1997 $ -0- -0- -0- -0- -0- -0-
and Secretary 1996 -0- -0- -0- -0- 500,000 -0-
Richard E. Rubin, Senior 1997 $ -0- -0- -0- -0- -0- -0-
Executive Vice President and 1996 -0- -0- -0- -0- 500,000 -0-
Treasurer
</TABLE>
_______________
(1) To date, the Company has not paid salaries to either of its executive
officers. The Company intends to begin paying salaries to its executive
officers at such time as it commences revenue producing operations.
-15-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED IN-THE-
UNDERLYING MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END ($)
FY-END (#)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------- --------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Rod A. Shipman -0- -0- 500,000 325,000
President and Secretary
Richard E. Rubin, 13,333 8,666 486,667 316,334
Senior Executive Vice President
and Treasurer
</TABLE>
Compensation of Directors. At the present time, directors receive no
compensation for serving as directors of the Company, however the Company may in
the future begin to compensate its non-officer directors. All directors receive
reimbursement for out-of-pocket expenses in attending Board of Directors
meetings. From time to time the Company may engage certain members of the Board
of Directors to perform services on behalf of the Company and will compensate
such persons for the services which they perform.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1997, the board of directors of the Company authorized the
Company to enter into a consulting agreement ("Consulting Agreement") with the
CTM Group, Inc., a Nevada corporation ("CTM Group"). The CTM Group is the
beneficial owner of greater than five percent (5%) of the issued and outstanding
Common Stock of the Company. In addition, CTM Group is controlled by Deborah
Shabty, the wife of Paul Shabty, a former officer and director of the Company.
Pursuant to the terms of the Consulting Agreement, CTM Group received fees of
$5,000 per month in exchange for consulting services rendered on behalf of the
Company. In November 1997, the consulting fees payable to CTM Group were
increased to $8,000 per month. The Consulting Agreement is for a term of five
years with an option on the part of the Company to renew for an additional five
year period.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, $.001
par value, of which, as of March 31, 1998, 2,135,333 shares were issued and
outstanding and beneficially held by approximately 50 stockholders. Holders of
shares of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders generally. The approval of proposals submitted
to stockholders at a meeting other than for the election of directors requires
the favorable vote of a majority of the shares voting, except in the case of
certain fundamental matters (such as certain amendments to the Articles of
Incorporation, and certain mergers and reorganizations), in which case Nevada
law and the Company's Bylaws require the favorable vote of at least a majority
of all outstanding shares. Stockholders are entitled to receive such dividends
as may be declared from time to time by the Board of Directors out of funds
legally available therefor, and in the event of liquidation, dissolution or
winding up of the Company to share ratably in all assets remaining after payment
of liabilities. The holders of shares of Common Stock have no preemptive,
conversion, subscription or cumulative voting rights.
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<PAGE>
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock,
$.001 par value ("Preferred Stock"), none of which is issued or outstanding.
The Company's Board of Directors is authorized to issue from time to time,
without shareholder authorization, in one or more designated series or classes,
any or all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided in
the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to that of the Common
Stock. The rights of the holders of Common Stock will be subject to and may be
adversely affected by the rights of the holders of any Preferred Stock that may
be issued in the future. Issuance of a new series of Preferred Stock, while
providing desirable flexibility in connection with possible acquisition and
other corporate purposes, could make it more difficult for a third party to
acquire, or discourage a third party from acquiring, a majority of the
outstanding voting stock of the Company.
PART II
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock has been listed on the OTC Bulletin Board under
the symbol "CPCF" since February 18, 1998. From February 18, 1998 through April
9, 1998, the high and low bid prices were $6.69 and $2.75, respectively. The
high and low bid information stated above reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not reflect actual prices. The
Company considers its common stock to be thinly traded and that any reported bid
or sale prices may not be a true market-based valuation of the Common Stock.
As of March 31, 1998, there were approximately 50 record holders of the
Company's Common Stock.
The Company has not paid any cash dividends since its inception and does
not contemplate paying dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for the operation of the Company's
business.
ITEM 2. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company is a party or
to which the property interests of the Company are subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Inapplicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years the Company sold unregistered shares of its
Common Stock in the following transactions:
A. In May 1996, the Company sold to its eight founders 1,200,000 shares
of Common Stock for $.001 cash per share and 150,000 shares of Common Stock for
a $150 note receivable. There was no underwriter involved in this issuance.
The issuance was conducted pursuant to Section 4(2) under the Securities Act of
1933 ("1933 Act").
B. In May 1996, the Company issued to five of its founders options to
purchase up to a total of 2,100,000 shares of Common Stock, at an exercise price
of $2.25 to $2.50 per share. The options are immediately exercisable and expire
in May 2006. The Company also issued to one of its founders an option to
purchase up to 100,000 shares of Common Stock at an exercise price of $2.35 per
share. The option expired unexercised on
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<PAGE>
January 31, 1997. There was no underwriter involved in these issuances. The
issuances were conducted pursuant to Section 4(2) of the 1933 Act.
C. In September 1996, the Company issued 50,000 shares of Common Stock to
one of its founders for $5,000. There was no underwriter involved in the
issuance. The issuance was conducted pursuant to Section 4(2) of the 1933 Act.
D. In October 1996, the Company issued a total of 380,000 shares of
Common Stock to related parties in payment of $38,000 in consulting fees for
services rendered in 1996. The Company also granted to one individual options
to purchase up to 10,000 shares of Common Stock at an exercise price of $2.50
per share. The options are immediately exercisable and expire on May 2, 2006.
There was no underwriter involved in this issuance. The issuance was conducted
pursuant to Section 4(2) of the 1933 Act.
E. In December 1996, the Company issued 2,000 shares of Common Stock to
one individual in consideration of legal services rendered on behalf of the
Company. There was no underwriter involved in this issuance. The issuance was
conducted pursuant to Section 4(2) of the 1933 Act.
F. From March 1997 to February 1998, the Company conducted a private
placement of units of its securities ("Units"), each Unit consisting of 10,000
shares of Common Stock and warrants to purchase up to 20,000 shares of Common
Stock at an exercise price of $3.50 per share from February 10, 1999 to December
31, 2000. The Units were offered at a price of $29,000 per Unit. In the
private placement, the Company sold thirty-four (34) Units to twenty-seven (27)
investors. The gross proceeds of the private placement were $986,000, including
the conversion of $70,000 of indebtedness. There was no underwriter involved in
this placement. The issuance was conducted pursuant to Rule 504 under the 1933
Act.
G. In April 1997, the Company issued 13,333 shares of Common Stock to one
individual upon the exercise of options. The exercise price paid to the Company
was $2.25 per share. There was no underwriter involved in this issuance. The
issuance was conducted pursuant to Section 4(2) of the 1933 Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Nevada Statutes
- ---------------
Section 78.751 of the Nevada General Corporation Law provides for the
indemnification of the Company's officers, directors and corporate agents under
certain circumstances as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, has no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
-18-
<PAGE>
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually paid and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent legal counsel in
a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
-19-
<PAGE>
Bylaws
- ------
The Company's Bylaws provide for the permissive indemnification of the
Company's officers and directors under certain circumstances as follows:
(a) Right of Indemnity. To the full extent permitted by law, this
------------------
corporation shall indemnify its directors, officers, employees and other persons
described in Subsection 78.751 of the Nevada Revised Statutes, including persons
formerly occupying any such position, against all expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred by them in
connection with any "proceeding," as that term is used in such Subsection and
including an action by or in the right of the corporation to prove a judgment in
its favor, by reason of the fact that such person is or was a person described
by such Subsection. "Expenses", as used in this Bylaw, shall have the same
meaning as in Section 78.751 of the Nevada Revised Statutes.
(b) Approval of Indemnity. Upon written requests to the Board of Directors
---------------------
by any person seeking indemnity under Section 78.751 of the Nevada Revised
Statutes, the Board shall promptly determine whether such person has met the
applicable standard of conduct set forth in such Subsection. If the Board
determines the person seeking indemnity has not met such standard of conduct,
the Board shall promptly call a meeting of shareholders at which the
shareholders shall determine whether the person seeking indemnity has met such
standard of conduct.
(c) Advancement of Expenses. To the full extent permitted by law and
-----------------------
except as shall otherwise be determined by the Board of Directors in the
specific instance, expenses incurred by a person seeking indemnity under this
Bylaw in defending any proceeding covered by this Bylaw shall be advanced by the
corporation prior to the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount unless it shall
ultimately be determined that such person is entitled to be indemnified by the
corporation therefore.
-20-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report....................................... F-1
Consolidated Balance Sheet at December 31, 1997.................... F-2
Consolidated Statements of Operations for the fiscal year
ended December 31, 1997 and for the period from inception
(April 11, 1996) to December 31, 1996............................ F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the fiscal year ended December 31, 1997 and for
the period from inception (April 11, 1996) to December 31, 1996.. F-4
Consolidated Statements of Cash Flows for the fiscal year ended
December 31, 1997 and for the period from inception
(April 11, 1996) to December 31, 1996............................ F-5
Notes to Consolidated Financial Statements......................... F-6
</TABLE>
-21-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
The Board of Directors and Shareholders
CPC of America, Inc.
We have audited the accompanying consolidated balance sheet of CPC of America,
Inc. and subsidiaries (a development stage company) (the "Company") as of
December 31, 1997, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the year ended December 31,
1997 and for the period from inception (April 11, 1996) to December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes, on a test basis, examination of
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 consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CPC of
America, Inc. and subsidiaries as of December 31, 1997, and the results of their
consolidated operations and cash flows for the year ended December 31, 1997 and
for the period from inception (April 11, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
February 25, 1998
F-1
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,
1997
---------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 420,065
Other 25,000
---------------
TOTAL CURRENT ASSETS 445,065
PATENTS, NET OF ACCUMULATED AMORTIZATION OF $2,400 73,850
EQUIPMENT, ENT OF ACCUMULATED DEPRECIATION OF $1,097 14,323
OTHER 6,327
---------------
$ 539,565
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,153
Accrued expenses 24,000
TOTAL CURRENT LIABILITIES 37,153
Accrued expenses 2,000
---------------
TOTAL LIABILITIES 39,153
---------------
MINORITY INTEREST 14,770
---------------
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, $.001 par value, -
none issued and outstanding
Common stock, 20,000,000 shares authorized, $.001 par value, 2,115
2,115,333 shares issued and outstanding
Additional paid-in capital 1,000,435
Deficit accumulated during the development stage (516,908)
---------------
NET SHAREHOLDERS' EQUITY 485,642
---------------
$ 539,565
===============
</TABLE>
F-2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR INCEPTION CUMULATI VE FROM
ENDED (APRIL 11, INCEPTION
DECEMBER 1996) TO (APRIL 11,
31, 1997 DECEMBER 1996) TO
31, 1996 DECEMBER 31, 1997
------------ ----------- -------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Research and development $ 393,772 $ 55,481 $ 449,253
General and administrative 57,600 2,400 60,000
Depreciation and amortization 13,409 88 13,497
------------ ----------- -------------------
OPERATING LOSS (464,781) (57,969) (522,750)
INTEREST INCOME (EXPENSE):
Interest expense (5,833) (1,167) (7,000)
Interest income 12,305 57 12,362
------------ ----------- -------------------
6,472 (1,110) 5,362
LOSS BEFORE MINORITY INTEREST (458,309) (59,079) (517,388)
MINORITY INTEREST 480 - 480
------------ ----------- -------------------
NET LOSS $ (457,829) $ (59,079) $(516,908)
============ =========== ===================
BASIC AND DILUTED NET LOSS PER SHARE $(0.24) $(0.04)
============ ===========
BASIC AND DILUTED WEIGHTED AVERAGE 1,919,023 1,382,920
NUMBER OF COMMON SHARES
OUTSTANDING
------------ -----------
</TABLE>
The accompanying are an integral part of these financial statements.
F-3
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Shareholders' Equity (Deficit)
From inception (April 11, 1996) to December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK NOTE ADDITIONAL DEFICIT NET
--------------------------------
NUMBER OF AMOUNT RECEIVABLE PAID-IN ACCUMULATED SHAREHOLDERS'
-------------------
SHARES PER SHARE TOTAL SHAREHOLDER CAPITAL STAGE EQUITY (DEFICIT)
----------- -------- -------- -------------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization 1,200,000 $ 0.001 $ 1,200 $ - $ - $ - $ 1,200
Issuance of common stock 150,000 0.001 150 (150) - - 0
for a note
Issuance of common stock 50,000 0.100 50 - 4,950 - 5,000
for cash
Issuance of common stock 382,000 0.100 382 - 37,818 - 38,200
for services
Net loss for 1996 - - - - - (59,079) (59,079)
---------- -------- ------- -------------- ------------ --------------- ----------------
BALANCE, DECEMBER 31, 1996 1,782,000 - $ 1,782 $ (150) $ 42,768 $ (59,079) $ (14,679)
Exercise of options 13,333 2.250 13 - 29,987 - 30,000
Issuance of common stock 320,000 2.900 320 - 927,680 - 928,000
for cash and conversion
of note payable ($77,000)
Payment of note receivable - - - 150 - - 150
from shareholder
Net loss for 1997 - - - - - (457,829) (457,829)
---------- ------- -------------- ------------ -------------- ----------------
BALANCE, DECEMBER 31, 1997 2,115,333 $ 2,115 $ - $ 1,000,435 $ (516,908) $ 485,642
========== ======= ============== ============ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statemenst.
F-4
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
CUMULATIVE
INCEPTION FROM INCEPTION
(APRIL 11, (APRIL 11,
YEAR ENDED 1996) TO 1996) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
--------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (457,829) $ (59,079) $ (516,908)
Adjustments to reconcile net loss to net
cash used by operating activities:
Minority interest (480) - (480)
Depreciation and amortization 13,409 88 13,497
Gain on disposition of Tercero (15,679) - (15,679)
Issuance of common stock for services - 38,200 38,200
Sale of Tercero - assignment of payables 55,678 - 55,678
Increase in other assets (29,344) (1,982) (31,326)
Increase in accounts payable 10,020 3,132 13,152
Increase in accrued expenses 26,000 - 26,000
Increase in accrued interest 5,833 1,167 7,000
--------------- ------------- --------------
Net cash used by operating activities (392,392) (18,474) (410,866)
--------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tercero acquisition/sale 1 (50,000) (49,999)
DSDS acquisition (61,000) - (61,000)
Capital expenditures (13,662) (1,758) (15,420)
--------------- ------------- --------------
Net cash used by investing activities (74,661) (51,758) (126,419)
--------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes to shareholders - 73,000 73,000
Proceeds from note receivable from shareholder 150 - 150
Payments on note payable to shareholder (3,000) - (3,000)
Exercise of options 30,000 - 30,000
Issuance of common stock 851,000 6,200 857,200
--------------- ------------- --------------
Net cash provided by financing activities 878,150 79,200 957,350
--------------- ------------- --------------
Net increase in cash 411,097 8,968 420,065
CASH, BEGINNING OF PERIOD 8,968 - -
--------------- ------------- --------------
CASH, END OF PERIOD $ 420,065 $ 8,968 $ 420,065
=============== ============= ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for note receivable $ - $ 150 $ 150
=============== ============= ==============
Debt to equity conversion $ 77,000 $ - $ 77,000
=============== ============= ==============
Acquisition of minority interest $ 15,250 $ - $ 15,250
=============== ============= ==============
Sale of Tercero - elimination of goodwill $ (40,000) $ - $ (40,000)
--------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------
Organization
------------
CPC of America, Inc., a Nevada corporation ("CPC" or the "Company") was formed
on April 11, 1996 to manufacture and distribute external counterpulsation
medical devices and own controlling interests in various management service
organizations ("MSO"s) and medical services companies. The Company is
classified as a development stage company because its principal activities
involve obtaining capital and rights to certain technology, and conducting
research and development activities.
On July 25, 1997, the Company acquired 80% of DSDS Group, Inc. ("DSDS"). The
sole owner of DSDS, John P. Colonna, served as a technical and engineering
consultant to the Company. DSDS has no operating history and its only assets
consist of two patents relating to a self-destructing single-use syringe.
The patents have approximately 16 years remaining before expiration, and were
deemed to have a fair value of $76,250. The Company purchased its interest
in DSDS for a total price of $61,000, of which $25,000 was paid in cash at
the closing, and $36,000 was to be paid by the Company in 18 equal monthly
installments. The transaction was accounted for as a purchase of DSDS by the
Company and, accordingly, the accompanying financial statements include the
amounts and operations of the Company from its inception and of DSDS from
July 25, 1997. The pro forma summary combining the results of operations of
the Company and DSDS as if the acquisition had occurred at the inception of
CPC (April 11, 1996) would be the same as the accompanying financial
statements since DSDS had no operations.
In December 1996, the Company acquired 90% of the outstanding and issued
shares of Tercero Corporation ("Tercero"), a public shell, for $50,000 cash.
Tercero was incorporated under the laws of the state of Nevada on November 6,
1995. From inception, Tercero has been inactive, has operated no business, and
held no assets or liabilities. On December 31, 1997, the Company sold Tercero
for $1 and the assumption of $55,678 in legal fees incurred by Tercero in 1997.
The Company recognized a gain of $15,679 on the disposition, after amortization
of $10,000 goodwill.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the amounts of the
Company and its majority-owned subsidiaries, DSDS (80%) and Tercero (90%).
Tercero was sold on December 31, 1997. All significant intercompany
transactions and balances have been eliminated in consolidation.
(Continued)
F-6
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------------------------------
Cash and equivalents
--------------------
The Company considers all liquid investments with a maturity of three
months or less from the date of purchase that are readily convertible into cash
to be cash equivalents. Balances in bank accounts may, from time to time, exceed
federally insured limits.
Patents and trademarks
----------------------
The patents are stated at cost and are amortized using the straight-line
method over their remaining economic useful lives, which has been estimated
to be sixteen years. The trademark is stated at cost and was filed in late
1997. Amortization will begin in 1998 using the straight-line method over
its economic useful life, which is estimated at ten years.
Equipment
---------
Depreciation expense is provided over the estimated useful life of 5 years
using the straight-line method.
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Income taxes
------------
The Company reports certain expenses differently for financial and tax
reporting purposes and, accordingly, provides for the related deferred taxes.
Income taxes are accounted for under the liability method in accordance with
SFAS 109.
Research and development costs
------------------------------
Costs and expenses that can be clearly identified as research and
development are charged to expense as incurred in accordance with FASB Statement
No. 2, "Accounting for Research and Development Costs".
(Continued)
F-7
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------
Basic and diluted net loss per share
------------------------------------
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings Per Share ("SFAS 128"), which superseded
Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share for all
periods presented has been restated to reflect the adoption of SFAS 128. Basic
net loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Stock-based compensation
------------------------
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in accordance
with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB
25 requires compensation costs for stock-based compensation plans to be
recognized based on the difference, if any, between the fair market value of the
stock on the date of grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards 123, Accounting for Stock - Based Compensation ("SFAS 123"). SFAS 123
established a fair value - based method of accounting for compensation costs
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of APB 25 if certain pro forma disclosures are made. SFAS
123 is effective for fiscal years beginning after December 15, 1995. The Company
adopted the provisions for pro forma disclosure requirements of SFAS 123 in
fiscal 1996. Options granted to non-employees are recognized at their estimated
fair value at the date of grant.
Reclassification of prior year amounts
--------------------------------------
Certain prior year balances have been reclassified to conform to the
current year presentation.
(Continued)
F-8
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
2. SHAREHOLDERS' EQUITY
- -------------------------
Common stock
------------
In May 1996, the Company sold to its founders 1,200,000 shares of common
stock for $.001 cash per share and 150,000 shares for a $150 note
receivable. In September 1996, the Company sold 50,000 shares of common
stock for $.10 cash per share to one of its founders.
In October 1996, the Company issued 380,000 shares of common stock to
related parties in payment of $38,000 in consulting fees rendered in 1996.
In December 1996, the Company issued 2,000 shares of common stock to its
attorney for payment of $200 in legal fees.
In March 1997, the Company offered in a private placement memorandum 35
units at $29,000 per unit. Each unit consists of 10,000 shares of common
stock and warrants to purchase 20,000 shares of common stock exercisable at
$3.50 per share from February 10, 1999 until December 31, 2000. As of
December 31, 1997, the Company sold 32 units, including 3 units in
conversion of notes payable. An investor converted a note with a balance of
$70,000 and related accrued interest of $7,000 into 3 units, and the
Company received $10,000 cash for the balance. No value was allocated to
the warrants because the exercise price was above market price at the time
of issuance.
In July 1997, the Company amended the number of common shares authorized
from 10,000,000 to 20,000,000 and authorized 5,000,000 shares of preferred
stock at $.001 par value of which no shares are currently issued or
outstanding.
Stock options
-------------
The Company has granted options to purchase its common stock to its
founders. The option prices at the time of grant were at or above the fair
value of the Company's common stock. A summary of stock option activity
follows:
(Continued)
F-9
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
2. SHAREHOLDERS' EQUITY (CONTINUED)
- -------------------------------------
Stock options (continued)
-------------------------
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
OPTIONS SHARE EXPIRATION
------------ --------------- ------------
<S> <C> <C> <C>
Inception (April 11, 1996) - - -
Granted 2,210,000 $ 2.25 - 2.50 1997 - 2006
------------ ---------------
Outstanding at December 31, 1996 2,210,000 42.25 - 2.50 1997 - 2006
Exercised (13,333) $ 2.25
Expired (100,000) $ 2.35
------------ ---------------
Outstanding at December 31, 1997 2,096,667 $ 2.25 - 2.50 2006
============ =============== ============
Exercisable at December 31, 1997 2,096,667
------------
</TABLE>
Included in total options granted in 1996 are 1,000,000 options granted to
employees. Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire
the stock.
The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for 1996: risk-free interest rate of 9%; volatility of 200%;
and a weighted fair value of $.001.
The effect of applying SFAS 123's fair value method to the Company's stock-
based compensation results in pro forma net loss and net loss per share
that are not materially different from the actual amounts reported.
(Continued)
F-10
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
3. BASIC AND DILUTED NET LOSS PER SHARE
- ---------------------------------------
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Numerator
---------
Net loss $ (457,829) $ (59,079)
------------- ------------
Denominator
-----------
Basic weighted average number of common
shares outstanding during the period 1,919,023 1,382,920
------------- ------------
Basic net loss per share $ (0.24) $ (0.04)
============= ============
DILUTED EARNINGS PER SHARE:
Numerator
---------
Net loss $ (457,829) $ (59,079)
------------- ------------
Denominator
-----------
Basic weighted average number of common shares
outstanding during the period 1,919,023 1,382,920
------------- ------------
Diluted net loss per share $ (0.24) $ (0.04)
============= ============
Incremental common shares (not included in
denominator of diluted earnings per share calculation
due to their antidilutive nature) attributable to
exercise of:
Outstanding options 2,096,667
Outstanding warrants 640,000
-------------
2,736,667
=============
</TABLE>
4. INCOME TAXES
- ------------------
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting and tax bases of its assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate.
(Continued)
F-11
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
4. INCOME TAXES (CONTINUED)
- ---------------------------
At December 31, 1997, the Company has a net operating loss carryforward for
federal tax purposes of $473,000 which, if unused to offset future taxable
income, will expire between 2011 and 2012.
The Company had deferred tax assets of $190,000 and $9,800 at December 31,
1997 and 1996, respectively, relating to its net operating loss. A valuation
allowance has been recognized to offset all of the related deferred tax asset
due to the uncertainty of realizing the benefit.
5. COMMITMENTS
- ----------------
The Company leases office space on a month-to-month basis at $95 per month.
Actual rent expense was $475 in 1997 and $2,400 in 1996.
In January 1997, the Company entered into a consulting agreement with its
financial advisors, a related party, for five years at $5,000 per month,
with a five year extension option. The agreement was revised in November
1997 increasing the monthly amount to $8,000 per month.
F-12
<PAGE>
PART III
- --------
ITEM 1. INDEX TO EXHIBITS PAGE
----
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Specimen of Common Stock Certificate.
10.1 Consulting Agreement between the Company and CTM Group, Inc.
10.2 Stock Purchase Agreement between the Company and DSDS Group, Inc.
dated July 25, 1997.
21.1 The Company has one subsidiary, DSDS Group, Inc., a Florida
corporation.
27.1 Financial Data Schedule.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CPC OF AMERICA, INC.,
a Nevada corporation
Date: April 16, 1998 By: /s/ ROD A. SHIPMAN
----------------------------------
Rod A. Shipman, President
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CPC OF AMERICA, INC.
KNOW ALL MEN BY THESE PRESENTS:
That I, Jose Mojica the undersigned, for the purpose of forming a
corporation under the laws of the State of Nevada, relating to the
General Corporation Law,
DO HEREBY CERTIFY:
FIRST: The name of the corporation is CPC OF AMERICA, INC.
SECOND: This corporation is authorized to carry on any lawful business or
enterprise.
THIRD: The amount of the total authorized capital stock of this corporation
is 10,000,000 shares @ $.001 par value.
FOURTH: The members of the governing board of this corporation shall be styled
directors. The first board of directors shall consist of 1 members and
the names and addresses are as follows: LESLIE KESSLER, 366 N.
BROADWAY, STS 310, JERICHO, N.Y. 11753
FIFTH: The name and address of the incorporator is as follows:
Name Post Office Address
- ---- -------------------
Jose Mojica c/o XL CORPORATE SERVICES, INC.
62 WHITE STREET, 2ND FLOOR
NEW YORK, N.Y. 10013
SIXTH: The period of existence of this corporation shall be perpetual.
SEVENTH: The name and address of the Registered Agent of CPC OF AMERICA, INC.
is as follows: XL CORPORATE SERVICES, INC., 412 N. CURRY ST., CARSON
CITY, NV. 89703
<PAGE>
Jose Mojica, the undersigned, for the purpose of forming a
corporation under the laws of the State of Nevada, do make, file and
record this certificate, and do certify that the acts herein states
are true and I have accordingly hereunto not my hand this 11th day of
April, 1996.
/s/ JOSE MOJICA
-------------------------------------
JOSE MOJICA
Incorporator
STATE OF NEW YORK
ss
COUNTY OF NEW YORK
On April 11, 1996, personally appeared before me, a Notary Public,
Jose Mojica who acknowledged that they executed the above instrument.
/s/ MARC MOEL
-------------------------------------
Notary Public
[STAMP APPEARS HERE]
I hereby accept appointment as Registered Agent of CPC OF AMERICA,
INC., and do hereby affix my signature of acceptance on this 11th day
of April, 1996.
By: /s/ MARC MOEL
-------------------------------------
XL CORPORATE SERVICES, INC.
MARC MOEL, ASSISTANT SECRETARY
<PAGE>
CERTIFICATE AMENDING THE
ARTICLES OF INCORPORATION
OF
CPC OF AMERICA, INC.
The undersigned, being the President and Secretary of CPC OF AMERICA, INC,
a Nevada Corporation (the "Corporation"), hereby certify that by the written
action of all the members of the Board of Directors dated July 21, 1997, and by
the written action dated July 21, 1997 in lieu of a special meeting of the
holders of a majority of the voting stock of the Corporation, it was agreed that
this CERTIFICATE AMENDING THE ARTICLES OF INCORPORATION be filed.
The undersigned further certifies that the original Articles of
Incorporation of CPC OF AMERICA, INC. were filed with the Secretary of State of
Nevada on the 11th day of April, 1996. The undersigned further certifies that
Article THIRD of the original Articles of Incorporation is amended to read as
follows:
THIRD: The aggregate number of shares of all classes of capital stock which
this Corporation shall have authority to issue is Twenty Five Million
(25,000,000), consisting of (i) Twenty Million (20,000,000) shares of common
stock, par value $.001 per share (the "Common Stock"), and (ii) Five Million
(5,000,000) shares of preferred stock, par value $.001 per share (the "Preferred
Stock").
The designation and the preferences, limitations and relative rights of the
Common Stock and the Preferred Stock of the Corporation are as follows:
A. Provisions Relating to the Common Stock.
---------------------------------------
1. Except as otherwise required by law or as may be provided by the
resolutions of the Board authorizing the issuance of any class or series of
Preferred Stock, as herein below provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.
2. Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as and if
declared by the Board, out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled (if any) or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
B. Provisions Relating to the Preferred Stock.
------------------------------------------
1. The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations and powers, preferences and
<PAGE>
rights, and qualifications, limitations and restrictions thereof as are stated
and expressed herein and in the resolution or resolutions providing for the
issue of such class or series adopted by the Board of Directors as hereinafter
prescribed.
2. Authority is hereby expressly granted to and vested in the Board
to authorize the issuance of the Preferred Stock from time to time in one or
more classes or series, to determine and take necessary proceedings fully to
effect the issuance and redemption of any such Preferred Stock and, with respect
to each class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
a. Whether or not the class or series is to have voting rights,
full or limited, or is to be without voting rights;
b. The number of shares to constitute the class or series and
the designations thereof;
c. The preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
d. Whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which such shares shall be
redeemable and the manner of redemption;
e. Whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
f. The dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of the dividends payable on any other class or classes or series of
stock, whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
g. The preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of the Corporation;
h. Whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other class or classes
or of any other series of the same or any other class or classes of stock of the
Corporation and the conversion price or prices or ratio or ratios or the rate or
rates at which such conversion or exchange may be made, with such adjustments,
if any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
<PAGE>
i. Such other special rights and protective provisions
with respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing respects. The
Board may increase the number of shares of the Preferred Stock designated for
any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock, designated
for such class or series, and the shares so subtracted shall become authorized,
unissued and undesignated shares of the Preferred Stock."
The undersigned hereby certifies that he has on this 30 day of July, 1997,
executed this Certificate Amending the Original Articles of Incorporation
heretofore filed with the Secretary of State of Nevada.
/s/ R. A. Shipman
----------------------------------------
Rod A. Shipman, President and Secretary
State of Calif. )
)
County of Orange )
On this 30th day of July, 1997, before me the undersigned, a Notary Public
in and for the County of Orange, State of Calif., ?????????? appeared Rod A.
Shipman, known to be the person whose name is subscribed to the foregoing
Certificate Amending Articles of Incorporation and acknowledged to me that he
executed the name.
[SEAL APPEARS HERE] [SIGNATURE ILLEGIBLE]
----------------------------------------
Notary Public
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
CPC OF AMERICA, INC.,
a Nevada corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The principal office shall be in the
-----------------
City of Jericho, State of New York.
Section 2. OTHER OFFICES. The board of directors may at any time
-------------
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
-----------------
at any place within or without the State of Nevada designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders
---------------
shall be held at a date and time designated by the board of directors. (At such
meetings, directors shall be elected and any other proper business may be
transacted by a plurality vote of stockholders.)
Section 3. SPECIAL MEETINGS. A special meeting of the stockholders,
----------------
for any purpose or purposes whatsoever, unless prescribed by statute or by the
articles of incorporation, may be called at any time by the president and shall
be called by the president or secretary at the request in writing of a majority
of the board of directors, or at the request in writing of stockholders holding
shares in the aggregate entitled to cast not less than a majority of the votes
at any such meeting.
The request shall be in writing, specifying the time of such meeting,
the place where it is to be held and the general nature of the business proposed
to be transacted, and shall be delivered personally or sent by registered mail
or by telegraphic or other facsimile transmission to the chairman of the board,
the president, any vice president or the secretary of the corporation. The
officer receiving such request forthwith shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Sections 4
1
<PAGE>
and 5 of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing or affecting
the time when a meeting of stockholders called by action of the board of
directors may be held.
Section 4. NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings
--------------------------------
of stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and (i) in the case of a special meeting the general nature
of the business to be transacted, or (ii) in the case of the annual meeting
those matters which the board of directors, at the time of giving the notice,
intends to present for action by the stockholders. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i)
contracts or transactions in which a director has a direct or indirect financial
interest, (ii) an amendment to the articles of incorporation, (iii) a
reorganization of the corporation, (iv) dissolution of the corporation, or (v) a
distribution to preferred stockholders, the notice shall also state the general
nature of such proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
--------------------------------------------
any meeting of stockholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the stockholder at the address of such stockholder appearing on the books of
the corporation or given by the stockholder to the corporation for the purpose
of notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent by mail or telegram to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where this office is located.
Personal delivery of any such notice to any officer of a corporation or
association or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication. In the event
of the transfer of stock after delivery or mailing of the notice of and prior to
the holding of the meeting, it shall not be necessary to deliver or mail notice
of the meeting to the transferee.
If any notice addressed to a stockholder at the address of such
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the stockholder
upon written demand of the stockholder at the principal executive office of the
corporation for a period of one year from the date of the giving of such notice.
2
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 6. QUORUM. The presence in person or by proxy of the holders
------
of a majority of the shares entitled to vote at any meeting of stockholders
shall constitute a quorum for the transaction of business, except as otherwise
provided by statute or the articles of incorporation. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
Section 8. VOTING. Unless a record date set for voting purposes be
------
fixed as provided in Section 1 of Article VII of these bylaws, only persons in
whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the business day next preceding the day
on which notice is given (or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held) shall be
entitled to vote at such meeting. Any stockholder entitled to vote on any
matter other than elections of directors or officers, may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or
vote them against the proposal, but, if the stockholder fails to specify the
number of shares such stockholder is voting affirmatively, it will be
conclusively presumed that the stockholder's approving vote is with respect to
all shares such stockholder is entitled to vote. Such vote may be by voice vote
or by ballot; provided, however, that all elections for directors must be by
ballot upon demand by a stockholder at any election and before the voting
begins.
When a quorum is present or represented at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the articles of incorporation a different
3
<PAGE>
vote is required in which case such express provision shall govern and control
the decision of such question. Every stockholder of record of the corporation
shall be entitled at each meeting of stockholders to one vote for each share of
stock standing in his name on the books of the corporation.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The
------------------------------------- ------------
transactions at any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any regular or special meeting of stockholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of such proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the meeting.
Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of stockholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. All such consents shall be
filed with the secretary of the corporation and shall be maintained in the
corporate records. Any stockholder giving a written consent, or the
stockholder's proxy holders, or a transferee of the shares of a personal
representative of the stockholder of their respective proxy holders, may revoke
the consent by a writing received by the secretary of the corporation prior to
the time that written consents of the number of shares required to authorize the
proposed action have been filed with the secretary.
Section 11. PROXIES. Every person entitled to vote for directors or
-------
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless revoked by
the person executing it, prior to the vote pursuant thereto, by a writing
delivered to the
4
<PAGE>
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or attendance at the meeting and voting in person by the person executing
the proxy; provided, however, that no such proxy shall be valid after the
expiration of six (6) months from the date of such proxy, unless coupled with an
interest, or unless the person executing it specifies therein the length of time
for which it is to continue in force, which in no case shall exceed seven (7)
years from the date of its execution. Subject to the above and the provisions
of Section 78.355 of the Nevada General Corporation Law, any proxy duly executed
is not revoked and continues in full force and effect until an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
secretary of the corporation.
Section 12. INSPECTORS OF ELECTION. Before any meeting of
----------------------
stockholders, the board of directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are appointed, the chairman of the meeting may, and
on the request of any stockholder or his proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more stockholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors before the meeting, or by the chairman at the meeting.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine the election result; and
(f) Do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the Nevada General
------
Corporation Law and any limitations in the articles of incorporation and these
bylaws
5
<PAGE>
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:
(a) Select and remove all officers, agents, and employees of
the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or these bylaws, fix
their compensation, and require from them security for faithful service.
(b) Change the principal executive office or the principal
business office from one location to another; cause the corporation to be
qualified to do business in any other state, territory, dependency, or foreign
country and conduct business within or without the State; designate any place
within or without the State for the holding of any stockholders' meeting, or
meetings, including annual meetings; adopt, make and use a corporate seal, and
prescribe the forms of certificates of stock, and alter the form of such seal
and of such certificates from time to time as in their judgment they may deem
best, provided that such forms shall at all times comply with the provisions of
law.
(c) Authorize the issuance of shares of stock of the
corporation from time to time, upon such terms as may be lawful, in
consideration of money paid, labor done or services actually rendered, debts or
securities cancelled, tangible or intangible property actually received.
(d) Borrow money and incur indebtedness for the purpose of the
corporation, and cause to be executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor.
Section 2. NUMBER OF DIRECTORS. The authorized number of directors
-------------------
shall be no fewer than three (3) nor more than nine (9). The exact number of
authorized directors shall be set by resolution of the board of directors,
within the limits specified above. The maximum or minimum number of directors
cannot be changed, nor can a fixed number be substituted for the maximum and
minimum numbers, except by a duly adopted amendment to this bylaw duly approved
by a majority of the outstanding shares entitled to vote.
Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Directors shall be elected at each annual meeting of the stockholders to hold
office until the next annual meeting, but if any such annual meeting is not held
or the directors are not elected at any annual meeting, the directors may be
elected at any special meeting of stockholders held for that purpose, or at the
next annual meeting of stockholders held thereafter. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified
or until his earlier resignation or removal or his office has been
6
<PAGE>
declared vacant in the manner provided in these bylaws. Directors need not be
stockholders.
Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
------------------------------------
resign effective upon giving written notice to the chairman of the board, the
president, the secretary or the board of directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation, in
which case such resignation shall be effective at the time specified. Unless
such resignation specifies otherwise, its acceptance by the corporation shall
not be necessary to make it effective. The board of directors may declare
vacant the office of a director who has been declared of unsound mind by an
order of a court or convicted of a felony. Any or all of the directors may be
removed without cause of such removal is approved by the affirmative vote of a
majority of the outstanding shares entitled to vote. No reduction of the
authorized number of directors shall have the effect of removing any director
before his term of office expires.
Section 5. VACANCIES. Vacancies in the board of directors, may be
---------
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. Each director so elected shall hold office until
the next annual meeting of the stockholders and until a successor has been
elected and qualified.
A vacancy in the board of directors exists as to any authorized
position of directors which is not then filled by a duly elected director,
whether caused by death, resignation, removal, increase in the authorized number
of directors or otherwise.
The stockholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote. If the resignation of a director is effective at a
future time, the board of directors may elect a successor to take office when
the resignation becomes effective.
If after the filling of any vacancy by the directors, the directors
then in office who have been elected by the stockholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of five percent or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of the stockholders to elect the entire board. The term of office of
any director not elected by the stockholders shall terminate upon the election
of a successor.
Section 6. PLACE OF MEETINGS. Regular meetings of the board of
-----------------
directors shall be held at any place within or without the State of Nevada that
has been designated from time to time by resolution of the board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board shall be
held at any place within or without the State of Nevada that has been designated
in the notice of the meeting or, if not stated in the notice or there is not
notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
7
<PAGE>
equipment, so long as all directors participating in such meeting can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.
Section 7. ANNUAL MEETINGS. Immediately following each annual
---------------
meeting of stockholders, the board of directors shall hold a regular meeting for
the purpose of transaction of other business. Notice of this meeting shall not
be required.
Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the
----------------------
board of directors shall be held without call at such time as shall from time to
time be fixed by the board of directors. Such regular meetings may be held
without notice, provided the notice of any change in the time of any such
meetings shall be given to all of the directors. Notice of a change in the
determination of the time shall be given to each director in the same manner as
notice for special meetings of the board of directors.
Section 9. SPECIAL MEETINGS. Special meetings of the board of
----------------
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 10. QUORUM. A majority of the authorized number of directors
------
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 78.140 of the Nevada General Corporation Law (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 78.125 (appointment of committees), and Section 78.751
(indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
Section 11. WAIVER OF NOTICE. The transactions of any meeting of the
----------------
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The
8
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waiver of notice of consent need not specify the purpose of the meeting. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Notice of a meeting shall also be
deemed given to any director who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such director.
Section 12. ADJOURNMENT. A majority of the directors present,
-----------
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of such time and
place shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.
Section 14. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and
----------------------------------
members of committees may receive such compensation, if any, for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the board of directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving compensation for such
services. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
-----------------------
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of one or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committees, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with regard to:
(a) the approval of any action which, under the Nevada
General Corporation Law, also requires stockholders' approval or approval of the
outstanding shares;
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(b) the filing of vacancies on the board of directors or in
any committees;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members thereof.
Section 2. MEETINGS AND ACTION BY COMMITTEES. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings),
9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12
(adjournment), 13 (notice of adjournment) and 14 (action without meeting), with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members, except
that the time or regular meetings of committees may be determined by resolutions
of the board of directors and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws. The committees shall keep regular minutes of their proceedings and
report the same to the board when required.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
--------
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any two or more offices may be held by the same
person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
--------------------
except such officers as may be appointed in accordance with the provisions of
Section 3
10
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or Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment. The board of directors at its
first meeting after each annual meeting of stockholders shall choose a
president, a vice president, a secretary and a treasurer, none of whom need be a
member of the board. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may
-------------------------
appoint, and may empower the president to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the
-----------------------------------
corporation shall hold office until their successors are chosen and qualify.
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the board of
directors, at any regular or special meeting thereof, or, except in case of an
officer chosen by the board of directors, by any officer upon whom such power or
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to such
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
---------------------
an officer be elected, shall, if present, preside at all meetings of the board
of directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence of the chairman of the board, of if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws. He
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shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation.
Section 8. VICE PRESIDENTS. In the absence or disability of the
---------------
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall attend all meetings of the
---------
board of directors and all meetings of the stockholders and shall record, keep
or cause to be kept, at the principal executive office or such other place as
the board of directors may order, a book of minutes of all meetings of
directors, committees of directors and stockholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' and committee meetings,
the number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of stockholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation in safe custody, as
may be prescribed by the board of directors or by the bylaws.
Section 10. TREASURER. The treasurer shall keep and maintain, or
---------
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have
other powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
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If required by the board of directors, the treasurer shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation
-------------------------------------
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify
--------------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees, actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view
13
<PAGE>
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director,
------------------
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2, or in defense of any claim, issue or matter therein, he must
be indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1
-----------------
and 2, unless ordered by a court or advanced pursuant to Section 5, must be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the
-------------------
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of
------------
expenses authorized in or ordered by a court pursuant to this Article VI:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while
14
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holding his office, except that indemnification, unless ordered by a court
pursuant to Section 2 or for the advancement of expenses made pursuant to
Section 5, may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 7. INSURANCE. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise for any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article
------------
are held to be invalid or unenforceable, this Article shall be construed as if
it did not contain such invalid or unenforceable provision and the remaining
provisions of this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by
------------------
applicable law, the rights and powers granted pursuant to this Article VI shall
apply to acts and actions occurring or in progress prior to its adoption by the
board of directors.
ARTICLE VII
RECORDS AND BOOKS
Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep
-----------------------------
at its principal executive office, or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the board
of directors, a record of its stockholders, giving the names and addresses of
all stockholders and the number and class of shares held by each stockholder.
Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its
---------------------
principal executive office, or if its principal executive office is not in this
State at its principal business office in this State, the original or a copy of
the bylaws as amended to date, which shall be open to inspection by the
stockholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside this state and the
15
<PAGE>
corporation has no principal business office in this state, the secretary shall,
upon the written request of any stockholder, furnish to such stockholder a copy
of the bylaws as amended to date.
Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting
--------------------------------------
books and records and minutes of proceedings of the stockholders and the board
of directors and any committee or committees of the board of directors shall be
kept at such place or places designated by the board of directors, or, in the
absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of this corporation and any subsidiary of this
corporation. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts. The foregoing rights of inspection shall extend to the records of
each subsidiary of the corporation.
Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be
-----------------------------
interpreted as prohibiting the board of directors from issuing annual or other
periodic reports to the stockholders of the corporation as they deem
appropriate.
Section 5. FINANCIAL STATEMENTS. A copy of any annual financial
--------------------
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months.
Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENT.
-----------------------------------------------------
The corporation shall, on or before December 31 of each year, file with the
Secretary of State of the State of Nevada, on the prescribed form, a list of its
officers and directors and a designation of its resident agent in Nevada.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE. For purposes of determining the stockholders
-----------
entitled to notice of any meeting or to vote or entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days prior to the date of any such meeting nor
more than sixty (60) days prior to any other action, and in such case only
stockholders of record on the date so fixed are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to exercise
the rights, as the case may be,
16
<PAGE>
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the Nevada
General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to
give consent to corporate action in writing without a meeting, when no prior
action by the board has been taken, shall be the day on which the first written
consent is given.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
Section 2. CLOSING OF TRANSFER BOOKS. The directors may prescribe a
-------------------------
period not exceeding sixty (60) days prior to any meeting of the stockholders
during which no transfer of stock on the books of the corporation may be made,
or may fix a date not more than sixty (60) days prior to the holding of any such
meeting as the day as of which stockholders entitled to notice of and to vote at
such meeting shall be determined; and only stockholders of record on such day
shall be entitled to notice or to vote at such meeting.
Section 3. REGISTERED STOCKHOLDERS. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Nevada.
Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
-----------------------------------------
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 5. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
-------------------------------------------------
board of directors, except as in the bylaws otherwise provided, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board
17
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of directors or within the agency power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or to any amount.
Section 6. STOCK CERTIFICATES. A certificate or certificates for
------------------
shares of the capital stock of the corporation shall be issued to each
stockholder when any such shares are fully paid, and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the president or vice president and by the treasurer
or an assistant treasurer or the secretary or any assistant secretary,
certifying the number of shares and the class or series of shares owned by the
stockholder. When the corporation is authorized to issue shares of more than
one class or more than one series of any class, there shall be set forth upon
the face or back of the certificate, or the certificate shall have a statement
that the corporation will furnish to any stockholders upon request and without
charge, a full or summary statement of the designations, preferences and
relatives, participating, optional or other special rights of the various
classes of stock or series thereof and the qualifications, limitations or
restrictions of such rights, and, if the corporation shall be authorized to
issue only special stock, such certificate must set forth in full or summarize
the rights of the holders of such stock. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
No new certificate for shares shall be issued in place of any
certificate theretofore issued unless the latter is surrendered and cancelled at
the same time; provided, however, that a new certificate may be issued without
the surrender and cancellation of the old certificate if the certificate thereto
fore issued is alleged to have been lost, stolen or destroyed. In case of any
such allegedly lost, stolen or destroyed certificate, the corporation may
require the owner thereof or the legal representative of such owner to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 7. DIVIDENDS. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the articles of incorporation, if any,
may be declared by the board of directors at any regular or special meeting
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the articles of incorporation.
Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
18
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corporation, and the directors may modify or abolish any such reserves in the
manner in which it was created.
Section 8. FISCAL YEAR. The fiscal year of the corporation shall be
-----------
fixed by resolution of the board of directors.
Section 9. SEAL. The corporate seal shall have inscribed thereon the
----
name of the corporation, the year of its incorporation and the words "Corporate
Seal, Nevada."
Section 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
----------------------------------------------
chairman of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority herein granted to said
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any such officer in person or by any person authorized to do so by
proxy duly executed by said officer.
Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context
----------------------------
requires otherwise, the general provisions, rules of construction, and
definitions in the Nevada General Corporation Law shall govern the construction
of the bylaws. Without limiting the generality of the foregoing, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY STOCKHOLDERS. New bylaws may be adopted or
-------------------------
these bylaws may be amended or repealed by the affirmative vote of a majority of
the outstanding shares entitled to vote, or by the written assent of
stockholders entitled to vote such shares, except as otherwise provided by law
or by the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
----------------------
stockholders as provided in Section 1 of this Article, bylaws may be adopted,
amended or repealed by the board of directors.
19
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of CPC of America,
Inc., a Nevada corporation; and
2. That the foregoing Bylaws, comprising twenty (20) pages,
constitute the Bylaws of said corporation as duly adopted and approved by the
board of directors of said corporation by the Written Consent of the Sole
Director dated as of April 11, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this 11th day of April, 1996.
/s/ Rod A. Shipman
--------------------------------
Rod A. Shipman, Secretary
20
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
CPC OF AMERICA, INC.
Incorporated Under the Laws of the State of Nevada
20,000,000 Authorized Shares $0.001 par value
_________________
CUSIP 126147 10 7
-----------------
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $0.001 PAR VALUE COMMON STOCK OF
CPC OF AMERICA, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
SECRETARY PRESIDENT
[SEAL APPEARS HERE]
COUNTERSIGNED AND REGISTERED
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1598
Denver, Colorado 80201
By ____________________________________________
Transfer Agent & Registrar ??? Signature
<PAGE>
CPC OF AMERICA, INC.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws of regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -........Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.......................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
________________________________________________________________________________
For Value Received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________
___________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated ____________________
____________________________________________________________
____________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE PAGE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
______________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
<PAGE>
EXHIBIT 10.1
CONSULTING SERVICES CONTRACT
----------------------------
THIS CONTRACT OF CONSULTING SERVICES (hereinafter "Contract") is made as of
September 01, 1997, by and between CPC of America, Inc. a Nevada corporation,
and all wholly owned subsidiaries of the above named corporation (hereinafter
the "Company"), and CTM Group, Inc a Nevada Corporation, (hereinafter
"Consultant").
RECITALS
--------
A. Consultant has participated in the organization of the Company and its
business.
B. Consultant is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.
C. The Company considers the continued services of the Consultant to be
in the best interest of the Company and its shareholders and desires to assure
the continued services of the Consultant on behalf of the Company on an
objective and impartial basis and without distraction or conflict of interest in
the event of an attempt to obtain control of the Company.
D. Consultant is willing to remain in the services of the Company under
the terms and conditions hereof, and upon the understanding that the Company
will provide him with the income security herein, if his services are terminated
by the Company or if he voluntarily terminates his services for good reason.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties to this Contract hereby agree as follows:
1. SERVICES. The Company hereby agrees to contract with Consultant.
--------
Consultant accepts such assignments and agrees to be subject to the general
supervision, orders, advice and direction of the President, Chief Executive
Officer and the Board of Directors of the Company, in a manner consistent with
the Articles of Incorporation and By-Laws of the Company.
2. TERMS OF SERVICES AND COMPENSATION. Consultant's term of services
----------------------------------
(the "Services Term") hereunder shall start on the date first written above, and
continue until such services terminates pursuant to Section 7 hereof.
3. SERVICES FEES AND OTHER COMPENSATION.
------------------------------------
a. Consultant's fees for each year hereunder shall be $120,000.00
per year. Thereafter during the Services Term, Consultant's fees shall be
increased.
1
<PAGE>
each year by an amount equal to Consultant's fees for the previous year
multiplied by the percent change of the Consumer Price Index for all Urban
Consumers (the "CPI") (published by the Bureau of Labor Statistics, United
States Department of Labor) during the immediately preceding calendar year.
For example, if the percent change in the CPI from 1% and 11% were 10%,
Consultant's fees for the second year hereunder would be $132,000.00. Fees
increase shall not exceed 10% per year. Consultant's fees shall be payable
within (10) ten days following receipt of invoice. In addition, Consultant
shall receive a bonus. The bonus paid to Consultant shall be determined by
the compensation committee as a annual plan to be determined each year) of
the monthly net operating income of the Company pursuant to internally
created financials of the Company, payable beginning no later than sixty
(60) days after the end of each year, quarter and/or month subject to the
compensation committee plan during the term hereunder; provided however
that no such monthly bonus shall be paid or payable except and unless the
monthly net operating income of the Company equals to least $75,000.00.
The Consultant shall be entitled to participate in any key management
bonus or incentive compensation program including, but not limited to
stock options and warrants, instituted by the Board of Directors of the
Company, in the sole discretion of the Board of Directors. The fees and
bonus payments hereunder shall be subject to withholding and any other
applicable tax law.
a. Upon the execution of this Agreement by Consultant, the Company
shall grant to Consultant a stock option to purchase (I) up to two
hundred fifty thousand (250,000) shares of the Company's common stock,
$.001 par value per share (collectively, the "Shares"), at an exercise
price of two dollars and ninety cents ($2.90) per Share in the first five
(5) year term of the Services Period and, if the Services Period is
extended for an additional five (5) year term, (ii) up to an additional two
hundred fifty thousand (250,000) Shares in the second five (5) year term of
the Services Period, also at an exercise price of two dollars and ninety
cents ($2.90) per Share. Such options shall vest and become exercisable in
five equal installments of fifty thousand (50,000) shares each over the
term of each five (5) year Services Period with the first vesting to occur
upon the last day of the first year of each such Services Period (the
"Vesting Date"), and subsequent vestings to occur upon the next four
anniversaries of the Vesting Date. In order for Consultant to be eligible
to exercise his options, the Services Period shall not have been terminated
pursuant to Section 7, as of the date such options are first exercisable.
The options shall have such additional terms and conditions as set forth in
an option agreement to be executed between the Company and Consultant in
the form attached hereto as Exhibit A.
3. FEES GUARANTEE. All fees payable to the Consultant under the Agreement
--------------
will be guaranteed (the "Guaranteed Payments") as of the effective date of the
Agreement for the full Services Term of the Agreement except for terminations
found in Section 7(b), (d) or (e) hereof.
2
<PAGE>
a. After the initial five year Services Term of Guaranteed Payments,
any additional five year extensions made pursuant to the terms of Section
7(a) will be guaranteed once the notice period for the extension or
termination period found in Section 7(a) has passed.
b. None of the Guaranteed Payments described in this Section shall
prevent the Consultant from receiving the Termination Benefits described in
Section 13 of the Agreement.
c. All Guaranteed Payments described in this Section and payable to
the Consultant shall be repayable to the Estate of Consultant in the event
of death of the Consultant.
d. In the event of any mental disability which renders the
Consultant unable to fulfill his duties pursuant to Section 1 of this
Agreement, all Guaranteed Payments shall be made to Consultant's company,
his attorney in fact, his personal representative, his guardian, or any
other such person legally specifically listed, to whomever is legally
authorized to receive monetary payments due and owing to.
e. In the event of any physical disability which renders the
Consultant unable or unwilling to fulfill his duties pursuant to Section 1
of this Agreement, all Guaranteed Payments shall be made directly to the
Consultant.
f. Upon the termination of Consultant's services for any reason
other than pursuant to Section 7(b), (d), or (e) hereof, the Company shall
continue to pay to Consultant the fees received by him on the date of such
termination for a minimum period of five (5) years following such date of
termination, payable on the Company's regular fees payment date.
5. REIMBURSEMENT FOR EXPENSES. The Company shall, during the Services
--------------------------
Term, reimburse Consultant for all reasonable travel, business entertainment and
other business expenses incurred by Consultant that are approved in rendering
services under this Contract. Such reimbursement shall be subject to compliance
with the applicable policies and procedures established by the Company.
6. TERMINATION. The Services Term shall terminate on the first to occur
-----------
of the following events:
(a) the sixth year anniversary of the date on which the Services Term
becomes effective; provided, however, that after such sixth year
anniversary, the Services Term shall be extended each year thereafter for
an additional one year period unless either party gives the other written
notice at least 90 days before such extension of its intention not to renew
the Contract;
3
<PAGE>
(b) termination by the Company for the cause, upon written notice
(specifying the particulars) to Consultant from the Company's President,
which cause shall be limited to:
(i) the persistent failure of or refusal by Consultant to
comply with the material orders, advice, directions, policies,
standard and regulations of the Company and its President or Board of
Directors, as promulgated from time to time, or with the provisions of
this Contract, which failure or refusal is detrimental to the Company;
(ii) an act or acts of fraud or dishonesty by Consultant
resulting in or tending to result in gain to or personal enrichment of
Consultant at the Company's expense;
(iii) any felony conviction of Consultant or material tort which
is detrimental to the Company;
(iv) the persistent absence by Consultant from his services
without cause or explanation;
(c) the death of Consultant;
(d) the 90th day after notice from the Company to Consultant that
Consultant is considered to be permanently disable due to his inability to
perform his duties or fulfill his responsibilities hereunder, which
inability existed for a period of 90 days or more before such notice; or
(e) termination by Consultant, at his option, after 90 days prior
written notice to the Company.
Upon termination of Consultant's services pursuant to Section 7(b), (d), or (e),
Consultant (or his estate) shall receive (i) any unpaid fees payments with
respect to periods prior to the date of termination, and (ii) any termination,
disability or death benefits to which he is entitled under any employee benefit
plan of the Company which is in effect at the time of the termination of his
services. In all other events of termination, Consultant shall continue to
receive the Guaranteed Payments.
7. AGREEMENT NOT TO COMPETE. Consultant agrees that if his services is
------------------------
terminated by the Company pursuant to Subsection 7 (a), (b), or (e) hereof he
shall not, for a period of one year from the date his services hereunder
terminates, (x) directly or indirectly sell or attempt to sell within Florida on
behalf of himself or any other person, corporation or entity, any type of
product or services marketed by the Company at the time his services is
terminated, (y) directly or indirectly sell or attempt to sell any type of
product or services marketed by the Company at the time his services is
terminated to any person, corporation or other entity that is a customer of the
Company at the time his services is terminated, and (z) within U.S.A., Canada,
South America, Europe, Far East
4
<PAGE>
directly or indirectly, own manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, or control of any business similar to the type of business conducted
by the Company at the time of termination of Consultant's services hereunder;
provided, however, that Consultant may be a shareholder of less than 5% of the
outstanding shares of voting stock of any company listed on a recognized stock
exchange or traded in the NASD over-the-counter market.
8. TECHNICAL INFORMATION. Consultant covenants and agrees that during the
---------------------
Services Term and for a period of six months after termination of the Services
Term (regardless of whether Consultant is terminated or defaults under any other
provison of this Contract) he will assign to the Company or its nominees all of
his right, title and interest in an to all "Technical Information" (as
hereinafter defined) which he makes, develops or conceives, either alone or in
conjunction with others; he will disclose promptly to the Company all such
Technical Information; and he will cooperate with the Company in its efforts to
protect its rights of ownership in such Technical Information. For purposes of
this Contract, "Technical Information" shall mean and include, but not be
limited to, all software, processes, devices, trademarks, trade names,
copyrights, patents, marketing plans, improvements, and ideas relating to the
business of the Company, and all goodwill associated with any such item.
9. COVENANT AGAINST DISCLOSURE OF TECHNICAL AND CONFIDENTIAL INFORMATION.
----------------------------------------------------------------------
Consultant agrees that while he is employed by the Company and thereafter he
shall not, directly or indirectly, disclose or use to the detriment of the
Company or for the benefit of any other person, corporation or other entity, any
confidential information or trade secret (including, but not limited to, the
identity and needs of any customer of the Company, the method and techniques
of any of the business of the Company, the marketing, sales, costs and pricing
plans and objectives of the Company, the problems, developments, research
records, and Technical Information) of the Company or of any of the affiliates
of the Company. Furthermore, Consultant shall deliver promptly to the Company
upon termination of his services, or at any time the Company may so request, all
memoranda, notes, records, reports, manuals, software, models, designs, and
other documents and computer records (and all copies thereof) relating to the
business of the Company, and all property associated therewith, which he may
then possess or have under his control. This Contract supplements and does not
supersede Consultant's obligations under statute or the common law to protect
the Company's trade secrets and confidential information.
10. REMEDY. Consultant acknowledges that the restrictions contained in
------
Sections 8 through 10 of this Contract are reasonable and that the legal
remedies for breach of the covenants which are contained in Sections 8 through
10 of this Contract may be inadequate and, therefore, agrees that, in the event
of any actual or threatened breach of any such covenant, in addition to any
other right or remedy which the Company may have, the Company may: (a) seek
specific enforcement of any such covenant through injunction or other equitable
relief, and (b) recover from Consultant an amount equal to (i) all sums paid by
the Company to him after commencement of the breach, plus
5
<PAGE>
(ii) all costs and expenses (including attorney's fees) incurred by the Company
in enforcement of the covenant, plus (iii) all other damages to which the
Company may be legally entitled.
11. UNDERTAKING TO PAY TERMINATION BENEFITS. In addition to the payments
---------------------------------------
Consultant shall receive under Section 4 hereof in the event of the termination
of his services, the Company agrees to pay to the Consultant the Termination
Benefits specified in Section 13 hereof if (a) control of the Company is
acquired (as defined in paragraph 14(a) hereof) and (b) within three years after
the acquisition of control occurs (i) the Company terminates the services of
Consultant for any reason other than pursuant to Section 7(b), 7(c) or 7(d)
hereof, or (ii) Consultant voluntarily terminates his services for good reason
(as defined in Section 14(b) hereof).
12. TERMINATION BENEFITS. If Consultant is entitled to termination
--------------------
benefits pursuant to paragraph 12 hereof, the Company agrees to pay to
Consultant as termination compensation in a lump-sum payment within five
calendar days of the termination of Consultant's services an amount to be
computed by multiplying (a) Consultant's average annual fees payable by the
Company which was includable in the gross income of Consultant for the most
recent five calendar years ending coincident with or immediately before the date
on which control of the Company is acquired (or such portion of such period
during which Consultant was an employee of the Company), by (b) 100%. For
purposes of this Contract, services and compensation paid by any direct or
indirect subsidiary of the Company, if any will be deemed to be services and
compensation paid by the Company.
a. The Termination Benefits described in this section are payable to
the Consultant regardless of any determination by the Company's independent
public accountants that payments made pursuant to this section are or would
be non-deductible by the Company for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986 or any subsequent
revisions in the Internal Revenue Code.
13. DEFINITIONS.
-----------
(a) As used in this Contract, the "acquisition of control": means (i)
attaining ownership of company or more of the shares of voting stock of the
Company by any person or group (other than a person or group including
Consultant or with whom or which Consultant is affiliated), or (ii) the
occurrence of a "change of control" required to be described under the
proxy disclosure rules of the Securities and Exchange Commission.
(b) As used in this Contract, the term "good reason" means, without
Consultant's written consent, (i) a change in Consultant's status, position
or responsibilities which, in his reasonable judgment, does not represent a
promotion from his status, position or responsibilities as in effect
immediately prior to the change in control; the assignment to Consultant of
any duties or responsibilities
6
<PAGE>
which, in his reasonable judgment, are inconsistent with such status,
position or responsibilities; or any removal of Consultant from or failure
to reappoint or reelect him to any of such positions, except in connection
with the termination of his services for total permanent disability, death
or pursuant to Subsection 7(ii) or 7(iii) herein or by him other than for
good reason; (ii) a breach by the Company of its covenants under this
Contract after a change in control; (iii) the relocation of the Company's
principal executive offices to a location outside the west central Florida
area or the Company's requiring him to be based at any place other than the
location at which he performed his duties prior to a change in control
except for required travel on the Company's business to an extent
substantially consistent with his business travel obligations at the time
of a change in control; (iv) the failure of the Company to obtain a
satisfactory agreement from any successor or assign of the Company to
assume and agree to perform this Contract; (v) any purported termination of
Consultant's services which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 15(c) hereof (and, if
applicable, Subsection 7(b) hereof); and for purposes of this Contract, no
such purported termination shall be effective; or (vi) any request by the
Company that Consultant participate in and unlawful act or take any action
constituting a breach of Consultant's professional standard of conduct.
Notwithstanding anything in this paragraph 14(b) to the contrary, Consultant's
right to terminate his services pursuant to paragraph 12 herein shall not be
affected by his incapacity due to physical or mental illness.
14. ADDITIONAL PROVISIONS RELATING TO TERMINATION.
----------------------------------------------
(a) The Company is aware that the Board of Directors or shareholders
of the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Contract, or may cause or attempt to
cause the Company to institute, or may institute litigation seeking to have
this Contract declared unenforceable, or may take or attempt to take action
to deny Consultant the benefits intended under this Contract. In these
circumstances, the purpose of this Contract could be frustrated. It is the
intent of the Company that Consultant not be required to incur the expenses
associated with the enforcement of his rights under this Contract by
litigation or other legal action, nor be bound to negotiate any settlement
of his rights hereunder. Accordingly, if following a change in control, if
it should appear to Consultant that the Company has failed to comply with
any of its obligations under this Contract of in the event that the Company
or any other person takes any action to declare this Contract void or
unenforceable, or institutes any litigation or other legal action designed
to deny, diminish or to recover from Consultant the benefits entitled to be
provided to Consultant, hereunder, and that Consultant has complied with
all of his obligations under this Contract, the Company irrevocably
authorizes Consultant from time to time to retain counsel of his choice, at
the expense of the Company as provided in this Subsection 15(a), to
represent Consultant in connection with the initation or defense of any
7
<PAGE>
litigation or other legal action, whether such action is by or against the
Company or any director, officer, shareholder, or other person affiliated
with the Company, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between the Company and such counsel,
the Company irrevocably consents to Consultant entering into an attorney-
client relationship with such counsel, and in that connection the Company
and Consultant agree that a confidential relationship shall exist between
Consultant and such counsel. The reasonable fees and expenses of counsel
selected from time to time by Consultant as herein above provided shall be
paid or reimbursed to Consultant by the Company on a regular, periodic
basis upon presentation by Consultant of a statement or statements prepared
by such counsel, in accordance with its customary practices, up to a
maximum aggregate amount of $50,000. Any legal expenses incurred by the
Company by reason of any dispute between the parties as to enforceability
of or the terms contained in this Contract, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and the
Company shall not take any action to seek reimbursement from Consultant for
such expenses.
(b) The amounts payable to Consultant under this Contract shall not
be treated as damages but as severance compensation to which Consultant is
entitled by reason of termination of his services in the circumstances
contemplated by this Contract. The Company shall not be entitled to set off
against the amounts payable to Consultant of any amounts earned by
Consultant in other services after termination of his services with the
Company, or any amounts which might have been earned by Consultant in other
services had he sought such other services.
(c) Any purported termination by the Company or by Consultant shall
be communicated by written Notice of Termination to the other party hereto
in accordance with Section 22 hereof. For purposes of this Contract, a
"Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Contract relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of his services under the provision so indicated. For
purposes of this Contract, no such purported termination shall be effective
without such Notice of Termination.
15. ENTIRE AGREEMENT. This Contract contains the entire agreement of the
----------------
parties relating to the services of Consultant by the Company, superseding any
and all prior such agreements, and cannot be amended, modified, or supplemented
in any respect by subsequent written agreement entered into by the parties.
16. BENEFIT. Consultant acknowledges that the services to be rendered by
-------
him are unique and personal; accordingly, Consultant may not assign any of his
rights or delegate any of his duties or obligations under this Contract. The
rights and obligations
8
<PAGE>
of the Company under this Contract shall inure to the benefit of, and be binding
upon, the legal representatives, successors and assigns of the Company.
17. NO WAIVER. No failure on the part of either party at any time to
---------
require the performance by the other party of any term of this Contract shall be
taken or held to be a waiver of such term or in any way affect such party's
right to enforce such term, and no waiver on the part of either party of any
term in this Contract shall be taken or held to be a waiver of any other term
hereof or the breach thereof.
18. SEVERABILITY. The provisions of Sections 8 through 11 hereof are
------------
severable, and the invalidity or unenforceability of any particular provision of
Section 8 through 11 shall not affect or limit the enforceability of the other
provisions. If any provisions in Section 8 through 11 hereof is held
unenforceable for any reason, including the time period, geographic area, or
scope of activity covered, then such provision shall be enforced to whatever
extent is reasonable and enforceable.
19. GOVERNING LAW. This Contract shall be governed and construed in
-------------
accordance with the law of the State of Florida (other than the provisions
relating to choice of law). The parties hereto agree that any legal action
arising from this Contract may be brought in any state or federal court of
record in Florida and the parties hereto waive any right to question the
jurisdiction of such court over their person or the propriety of such venue.
20. CAPTIONS. The captions in this Contract are for convenience and
--------
identification purposes only, and not an integral part of this Contract, and are
not to be considered in the interpretation of any part hereof.
21. NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if in writing and personally
delivered to the party to whom notice should be given or if sent by registered
or certified mail, postage prepaid, addressed to the addresses set forth below,
or to such other addresses as shall be furnished in writing by either party to
the other CTM Group, Inc. the Consultant, and the President of the Company.
22. BEST EFFORTS AND REASONABLE CARE. Consultant will exert his best
--------------------------------
efforts to assist in the management of the Company in accordance with the terms
and provisions of this agreement, and will use reasonable care in providing such
services.
23. CONFIDENTIALITY. Consultant will not disclose or otherwise use an
---------------
unauthorized manner confidential business, patient records and documents of the
Company without the express written consent of the Company while this agreement
is in effect or after this agreement is terminated.
24. INDEMNIFICATION. Consultant will have no liability whatever for damage
---------------
suffered by any person or entity on account of the dishonesty, wilful misconduct
or negligence of any employee of the Company. The Company agrees to indemnify
the
9
<PAGE>
consultant and its employee's, directors, officers and associates and hold it
harmless from any and all liability, including reasonable attorney's fees caused
by or resulting from intentional acts or omissions of the Company, or any
officer, director or employee thereof or of any employee or agent of the
Company.
In witness whereof, the company has caused this contract to be executed on its
behalf by its duly authorized officer and Consultant has hereunto set his hand
as of the date and year first above written.
CPC of America, Inc., a Nevada Corp.
And All Wholly Owned Subsidiaries
By:
/s/ R. A. Shipman
------------------------------------
Rod A. Shipman
President and Chief Executive Officer
Attested:
[SIGNATURE ILLEGIBLE]
- --------------------------
Consultant:
____________________________________
CTM Group, Inc.
P.O. Box 6904
Sarasota, Florida 34270
10
<PAGE>
EXHIBIT A
---------
Stock Option Agreement
1
<PAGE>
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of September 01,
1997, by and between CPC of America, Inc., a Nevada corporation (the "Company"),
and CTM Group, Inc. ("Consultant").
W I T N E S S E T H:
-------------------
WHEREAS, This Agreement is entered into and executed pursuant to that
certain Consulting services agreement of even date herewith by and among the
Company and Consultant (the "Consulting services agreement") in which the
Company agreed to grant Consultant two (2) options to purchase up to two hundred
fifty thousand (250,000) shares per option of the Company's common stock, $.001
per value per share (collectively, the "Shares"), at an exercise price of two
dollars and ninety cents ($2.90) per Share, pursuant to the terms and conditions
of this Agreement (all capitalized terms not defined in this Agreement have the
meaning ascribed to them in the Consulting services agreement).
WHEREAS, THE Company and Consultant have provided for the issuance to
Consultant of an option to purchase the Shares, all as more particularly set
forth herein.
NOW THEREFORE, in consideration of the mutual agreements contained herein,
and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
---------------
forth in this Agreement, the Company hereby grants to Consultant the following.
A. First Option. Upon the execution of this Agreement, the Company
------------
shall grant Consultant a stock option to purchase up to two hundred fifty
thousand (250,000) shares of the Company's common stock, $.001 per value per
share (collectively, the "Shares") at an exercise price of two dollars and
ninety cents ($2.90) per Share in the first five (5) year term of the Consulting
services Period (the "First Option"). The date of grant for the First Option
shall be September 01, 1997.
B. Second Option. Upon the extension of the Consulting services
-------------
Period for an additional five (5) year term, the Company shall grant Consultant
a second stock option to purchase up to an additional two hundred fifty thousand
(250,000) Shares in the second five (5) year term of the Consulting services
Period, also at an exercise price of two dollars and ninety cents ($2.90) per
Share (the "Second Option). The date of grant for the Second Option shall be the
first day of the second five (5) year term of the Consulting services Period.
The First and Second Option shall be referred to collectively herein as the
"Options".
2. NO TRANSFERABILITY. The Options may not be transferred or assigned
------------------
except as permitted by will or by the laws of descent and distribution, subject
to the terms of Section 10 of this Agreement.
2
<PAGE>
3. PARTIAL EXERCISE. Exercise of the Options up to the extent as per
----------------
Section 4 of this Agreement may be made in one or more installments at any time
and from time to time, except that the Option may not be exercised for a
fraction of a Share. Any fractional Share with respect to which an installment
of the Option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to the Option and shall be available for
later purchase by Consultant in accordance with the terms hereof.
4. VESTING. Subject to and upon the terms and conditions set forth in
-------
this Agreement, Consultant's right under the Options shall vest as and become
exercisable in five equal installments of fifty thousand (50,000) shares over
the term of each five (5) year Consulting services Period with the first vesting
to occur upon the last day of the first year of such Consultant services Period
(the "Vesting Date"), and subsequent vestings to occur upon the next four
anniversaries at the Vesting Date.
A. 250,000 Shares Vest in First Five-Year Term. Consultant's right
--------------------------------------------
under the First Option shall vest for up to two hundred fifty-thousand (250,000)
Shares in the first five (5) year term of the Consultant services Period.
B. 250,000 Shares Vest in Second Five-Year Term. If the Consulting
--------------------------------------------
services Period is extended for a second five (5) year term, Consultant's rights
under the Second Option shall vest for up to an additional two hundred fifty
thousand (250,000) Shares in the second five (5) year term.
C. Vesting Date. The amount of the Shares set opposite the
------------
applicable vesting date may be exercised from and after the
vesting date at any time up to and including the date which is
ten (10) years from July 14, 1998 for the First Option and ten
(10) years from July 14, 2003 for the Second Option:
Vesting Date Number of
First Option Shares Exercisable
------------ ------------------
08/31/98 50,000
08/31/99 50,000
08/31/00 50,000
08/31/01 50,000
08/31/02 50,000
-------
TOTAL 250,000
Vesting Date Number of
First Option Shares Exercisable
------------ ------------------
08/31/03 50,000
08/31/04 50,000
08/31/05 50,000
08/31/06 50,000
08/31/07 50,000
-------
TOTAL 250,000
3
<PAGE>
D. Continued Consulting services is Precondition to Vesting. In
--------------------------------------------------------
order for Consultant to be eligible to exercise his rights under the Options,
the Consulting services Period shall not have been terminated for Cause,
pursuant to Section 6.C of the Consulting services agreement, or voluntarily by
Consultant, pursuant to Section 6.D of the Consulting services agreement, as of
the respective vesting date.
5. METHOD OF PAYMENT. The exercise price for each of the Options is
-----------------
payable in United States dollars and must be paid either in cash, by certified
or cashier's check, by delivery of Shares having an aggregate fair market value
(as determined by the Company) equal as of the date of exercise to the exercise
price for each Option, or by any combination of the foregoing, equal in amount
to the respective Option exercise price.
6. METHOD OF EXERCISING OPTIONS. Subject to the terms and conditions of
----------------------------
this Agreement, the Options may be exercised by written notice to the Company
delivered pursuant to Section 12.K. Such notice shall state the election to
exercise the respective Option and the number of Shares in respect of which it
is being exercised and shall be signed by Consultant. Such notice shall be
accompanied by payment of the full purchase price of such Shares, and the
Company shall deliver a certificate or certificates representing such Shares as
soon as practicable after the notice and such payment have been received. The
certificate or certificates for the Shares as to which the Options shall have
been so exercised shall be registered in the name of Consultant or permitted
assignee and shall be delivered to Consultant or permitted assignee. All Shares
that shall be purchased upon the exercise of the Options as provided herein
shall be fully paid and non-assessable. Consultant shall not have the rights of
a shareholder with respect to the Shares covered by the Options hereunder until
the date of issuance of a stock certificate to Consultant for such Shares.
7. ADJUSTMENTS. Upon the occurrence of any of the following events,
-----------
Consultant's rights with respect to the Options granted hereunder shall be
adjusted as hereinafter provided:
A. Stock Dividends and Stock Splits. If the shares of common stock
--------------------------------
of the Company shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of common stock as a stock
dividend on its outstanding common stock, the number of shares of common stock
deliverable upon exercise of the Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is to be consolidated
-------------------------
with or acquired by another entity, in a merger, sale of all or substantially
all of the Company's assets or otherwise (an "Acquisition"), the board of
directors of any entity assuming the obligations of the Company under the
Options (the "Successor Board") shall, with respect to Consultant's outstanding
rights hereunder, take one or more of the following actions: (i) make
appropriate provision for the continuation of the Options by substituting on an
equitable basis for the shares then subject to the Options the consideration
payable with respect to the outstanding shares of common stock in connection
with the Acquisition, (ii) accelerate the date of exercise of all
4
<PAGE>
installments of the Options; or (iii) terminate the Options in exchange for a
cash or stock payment equal to the excess of the fair market value of the shares
subject to the Options (to the extent then exercisable) over the exercise price
thereof. For purposes hereof, "fair market value" shall be deemed to be price
paid for the stock in connection with the Acquisition.
C. Recapitalization of Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B, above) pursuant to which securities of the Company
or of another company are issued with respect to the outstanding shares of
Company common stock, Consultant upon exercising the Options shall be entitled
to receive for the purchase price paid upon such exercise the securities
Consultant would have received if he had exercised his rights under the Options
prior to such recapitalization or reorganization
D. Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Options will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the Board of
Directors of the Company.
E. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or exercise price of
shares subject to the Options. No adjustments shall be made for dividends paid
in cash or in property other than securities of the Company.
F. Restricted Shares. If any person or entity owning restricted
-----------------
common stock of the Company obtained by exercise of the Options receives shares
or securities or cash in connection with a corporate transaction described in
subparagraphs A, B, or C above as a result of owning such restricted common
stock, such shares or securities or cash shall be subject to all of the
conditions and restrictions applicable to the restricted common stock with
respect to which such shares of securities or cash were issued, unless otherwise
determined by the Successor Board.
8. RESTRICTED SHARES: PURCHASE FOR INVESTMENT. Consultant understands
------------------------------------------
that the Shares to be purchased upon an exercise of the Options have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
under the laws of any jurisdiction. Consultant represents that Consultant is,
either alone or through advisors, sophisticated and experienced in financial,
business and investment matters and, as a result, Consultant is in a position to
evaluate the merits and risks of an investment in the Company. Consultant
represents and agrees that (i) Consultant's purchase of Shares upon an exercise
of the Options will not be made with a view toward the "distribution" of such
Shares, as defined in the 1933 Act; (ii) such Shares may not be transferred or
hypothecated unless, in the opinion of counsel to the Company, such transfer or
hypothecation would be in compliance with the registration provisions of the
1933 Act or pursuant to an exemption therefrom; and (iii) Consultant agrees to
sign a certificate to such effect at the time of exercising the Options and
agrees that the certificate for the Shares so purchased may be inscribed with a
legend to ensure compliance with the 1933 Act.
5
<PAGE>
9. LEGENDS. The certificates representing the Shares issued or to be
-------
issued hereunder shall be stamped or otherwise imprinted with legends
substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR AN INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPTION OF
COUNSEL ACCEPTABLE TO COUNSEL FOR THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH LAWS.
10. DEATH OF CONSULTANT. If Consultant dies, the Option may be exercised
-------------------
during the ninety (90) day period beginning with the date of Consultant's
death, to the extent of the number of Shares with respect to which Consultant
could have exercised on the date of Consultant's death or thereafter would have
become exercisable during such 90-day period in accordance with its terms, by
Consultant's estate, personal representative or beneficiary to whom the
respective Option has passed pursuant to Section 2. At the expiration of such
90-day period or the scheduled expiration date, whichever is the earlier, such
Option shall terminate and the only rights hereunder shall be those as to which
the Option was properly exercised before such termination.
11. NO OBLIGATION TO EXERCISE OPTIONS. The grant and acceptance of the
---------------------------------
Options hereunder imposes no obligation on Consultant to exercise the Options.
12. GENERAL PROVISIONS.
------------------
A. Amendments. The provisions of this Agreement may not be amended,
----------
supplemented, waived or changed orally, but only by a writing signed by the
party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.
B. Assignments. Consultant shall not assign his rights and/or
-----------
obligations under this Agreement without the prior written consent of the
Company.
C. Binding Effect. All of the terms and provisions of this
--------------
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective administrators, executors, legal
representatives, heirs, successors and permitted assigns, whether so expressed
or not.
D. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall
6
<PAGE>
constitute one and the same instrument. Confirmation of execution by electronic
transmission of a facsimile signature page shall be binding upon any party so
confirming.
E. Severability. If any provision of this Agreement or any other
------------
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provison valid and
enforceable, such provision shall have the meaning which renders it valid and
enforceable.
F. Headings. The headings contained in this Agreement are for
--------
convenience of reference only, are not to be considered a part of the Agreement
and shall not limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
G. Preparation of Agreement. This Agreement shall not be construed
------------------------
more strongly against any part regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally responsible
for its preparation.
H. Survival. All covenant, agreements, representations and
--------
warranties made herein or otherwise made in writing by any party pursuant hereto
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
I. Waivers. The failure or delay of the Company at any time to
-------
require performance by Consultant of any provision of this Agreement, even if
known, shall not affect the right of the Company to require performance of that
provision or to exercise any rights, power or remedy hereunder, and any waiver
by the Company of any breach of any provision of this Agreement should not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power or remedy
under this Agreement. No notice to or demand on Consultant in any case shall, of
its, entitle such party to any other or further notice or demand in similar or
other circumstances.
J. Equitable Remedies. Consultant acknowledges that the services to
------------------
be rendered by Consultant hereunder are extraordinary and unique and are vital
to the success of the Company, and that damages at law would be an inadequate
remedy for any breach or threatened breach by Consultant of any provision of
this Agreement, then the Company shall be entitled, in addition to all other
rights or remedies, to an injunction restraining such breach, without the
Company being required to show any actual damage or to post an injunction bond.
K. Notices. All notices, requests, consents and other
-------
communications required or permitted under this Agreement shall be in writing
(including electronic transmission) and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier service,
electronically transmitted, or mailed (airmail if international) by registered
or certified mail (postage prepaid), return receipt requested, addressed to:
7
<PAGE>
[PAGE IS MISSING]
<PAGE>
the laying of venue of any such suit, action or proceeding in any such courts;
and (iv) agrees that service of any court paper may be effected on such party by
mail, as provided in this Agreement, or in such other manner as may be provided
under applicable laws or court rules in said state.
O. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties with respect to the subject matter hereof, and
supersedes all other negotiations, understandings and representations (if any)
made by and between such parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CTM GROUP, INC.
_____________________________________
CPC OF AMERICA, INC
/s/ Rod A. Shipman
-------------------------------------
Rod A. Shipman
President and Chief Executive Officer
9
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated this 25th day of
July, 1997, by and between CPC of America, Inc., a Nevada corporation ("Buyer"),
John P. Colonna ("Seller"), and DSDS Group Inc., a Florida corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, Seller owns all the outstanding shares of the common stock, $1.00
par value per share (the "Common Stock"), of the Company; and
WHEREAS, the Seller will assign or assist Buyer in assigning to the
Company all of the Seller's right, title and interest in two patents, as more
specifically described herein and on Exhibit A attached hereto (the "Patents");
and
WHEREAS, pursuant to a letter of understanding signed by each of Buyer and
Seller, dated June 26, 1997 (a signed copy of which was received by Seller on
July 7, 1997), Seller desires to sell and Buyer desires to purchase 6,000 shares
of Common Stock, representing an eighty percent (80%) voting interest in the
Company (the "Shares"), pursuant to this Agreement; and
WHEREAS, it is intent of the parties hereto that upon consummation of the
purchase and sale of the Shares pursuant to this Agreement, Buyer will own
eighty percent (80%) of the outstanding Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. Purchase and Sale of the Shares. Pursuant to the terms and conditions
-------------------------------
of this Agreement, Seller shall sell and Buyer shall buy the Shares.
2. Deposit and Purchase Price.
--------------------------
(a) The total purchase price ("Purchase Price") for the Shares is
Sixty One Thousand and NO/100 Dollars ($61,000.00) The Purchase Price shall be
paid by Buyer to Sellers in accordance with Sections 2(b) and 2(c) hereof.
(b) Buyer shall pay to Seller at the Closing (as defined below),
Twenty Five Thousand and No/100 Dollars ($25,000.00) of the Purchase Price by
check or wire transfer.
(c) Commencing August 15, 1997, Buyer shall pay to Seller Thirty Six
Thousand and No/100 Dollars ($36,000.00) in eighteen (18) equal monthly
installments of Two Thousands and No/100 Dollars ($2,000.00) each.
<PAGE>
3. CLOSING. The closing of this transaction (the "Closing") shall occur
-------
simultaneously with the execution of this Agreement (the "Closing Date"), at the
offices of the Company, or at such other time and place as may be agreed upon by
Buyer and seller. Upon the terms and subject to the conditions of this
Agreement, at the Closing Seller shall sell, assign, transfer, convey and
deliver to Buyer the Shares, free and clear of all liens, charges, security
interest, pledges, equities, options, claims, charges, restrictions and other
encumbrances whatsoever and Buyer shall purchase the Shares from Seller.
4. CLOSING OBLIGATIONS AND DELIVERIES. At the Closing:
----------------------------------
(a) Seller will deliver to Buyer:
(i) all minute books, stock transfer books and other records
of the Company, which include the original resolutions and minutes of all
actions taken by the Board of Directors and shareholders of the Company since
inception;
(ii) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;
(iii) a certificate executed by the Seller and the Company
representing and warranting to Buyer that each of Seller's and the Company's
representations and warranties in this Agreement was true and correct in all
respects as of the Closing Date and that Seller shall perform all post-closing
covenants as set forth in this Agreement.
(iv) an executed Assignment, in the form attached hereto as
Exhibit B, for the purposes of assigning the Patents from Seller to the Company;
and
(v) the resignation of all officers and directors of the
Company, effective as of the date hereof, pursuant to Section 8(a)(v) hereof.
(b) Buyer will deliver to Seller:
(i) Twenty Five Thousand and No/100 Dollars ($25,000.00) by
check or wire transfer; and
(ii) a certificate executed by the Buyer to the effect that,
except as otherwise stated in such certificate, each of Buyer's representations
and warranties in this Agreement was true and correct in all respects as of the
Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. As an inducement to Seller to
---------------------------------------
enter into this Agreement and consummate the transactions contemplated hereby,
Buyer represents, covenants and warrants to Seller the following:
2
<PAGE>
(a) Power and Authority. Buyer has full power, legal right and
-------------------
authority to enter into, execute and deliver this Agreement and any other
agreements, instruments and documents contemplated hereby and to carry out its
obligations hereunder. No other acts or proceedings on the part of Buyer will be
necessary to authorize this Agreement (or any agreements, instruments and
documents contemplated hereby) or the transactions contemplated hereby. This
Agreement and any other agreements, instruments and documents contemplated
hereby, constitute valid and legally binding obligations of Buyer and are
enforceable against Buyer in accordance with their respective terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other law of general applicable relating to creditors' rights or by the
application of equitable principles when equitable remedies are sought.
(b) Purchase for Investment. Buyer is acquiring the Shares for its
-----------------------
own account as principal, for investment and not with a view to the distribution
or fractionalization thereof or with any intention of distributing or reselling
the Shares, or any part thereof within the meaning of the Securities Act of
1993, as amended (the "Securities Act") and the rules and regulations
promulgated thereunder (other than in compliance with the Securities Act) or in
violation of any securities laws of any other jurisdiction.
(c) Restricted Securities. Buyer acknowledges that: (i) the Shares
---------------------
have not been registered under the Securities Act or the securities laws of any
jurisdiction and, therefore, the Shares constitute "restricted securities" as
defined in Rule 144(a)(3) promulgated under the Securities Act that cannot be
sold or transferred by Buyer unless and until they are registered under the
Securities Act and any other applicable securities laws or are sold pursuant to
a valid exemption from registration; (ii) a legend as to the restrictions on
transfer imposed under the Securities Act will be placed on the certificates
evidencing the Shares and evidence of such restrictions on transfer shall be
made in the transfer records with respect thereto; (iii) no public market now
exists for any of the Shares and Seller has made no assurances that a public
market will ever exist for the Shares; and (iv) it may be necessary to hold the
Shares indefinitely, unless, if ever, the Shares are subsequently registered
under the Securities Act or a valid exemption from registration under the
Securities Act is available and the sale or transfer thereof is otherwise
accomplished in compliance with the requirements of the Securities Act, during
which time Buyer must bear the entire economic risk of the investment in the
Shares.
(d) Sophisticated Investor. Buyer has the financial ability to bear
----------------------
the economic risk of its investment in the Shares and has adequate means to
provide for its current needs and other contingencies and to withstand the loss
of its entire investment in the Shares and has no need for liquidity with
respect to its investment in the Shares; and had such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and nature and the number of the Shares, the restrictions on transferability and
the tax consequences of the investment.
3
<PAGE>
6. Representations and Warranties of Sellers and Company. Seller and
-----------------------------------------------------
Company jointly and severally represent and warrant to Buyer as follows:
(a) Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under this Agreement. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification. True and correct copies of the Company's Articles of
Incorporation and Bylaws have been delivered to Buyer.
(b) Authority; No Conflict.
----------------------
(i) This Agreement constitutes the legal, valid, and binding
obligation of Seller and the Company enforceable against each of them in
accordance with its terms. Seller and the Company have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and to perform their obligations under this Agreement.
(ii) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions will, directly or
indirectly (with or without notice or lapse of time):
(1) contravene, conflict with, or result in a violation of
(A) any provision of the Articles of Incorporation or
Bylaws of the Company, or (B) any resolution adopted by
the board of directors or the shareholders of the
Company;
(2) contravene, conflict with, or result in a violation of,
or give any person or governmental entity the right to
challenge any of the contemplated transactions or to
exercise any remedy or obtain any relief under,
statute, law, rule, regulation or any order, judgement,
award or decree of any court, arbitrator or
governmental or regulating body against or binding upon
the Seller, the Company, or his or its properties,
which the Company or the Seller, or any of the assets
owned or used by the Company or the Seller, may be
subject;
(3) cause the Company to become subject to, or to become
liable for the payment of, any tax;
4
<PAGE>
(4) contravene, conflict with, or result in a violation or
breach of any provision of, or give any person the
right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any mortgage,
indenture, deed of trust, lease, obligation, agreement,
license, instrument or contract to which the Company or
Seller is a party; or
(5) result in the imposition or creation of any charge,
claim, condition, pledge, liens, security interest or
other encumbrance upon or with respect to the Common
Stock or any of the assets owned or used by the
Company.
(iii) Neither the Seller nor the Company will be required to give
any notice to or obtain any consent from any person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the transactions contemplated hereunder.
(c) Capitalization. The total authorized capitalization of the Company
--------------
consists of seventy five hundred (7,500) shares of common stock, par value $1.00
per share, of which seventy five hundred (7,500) shares are issued and
outstanding. Seller is and will be on the Closing Date the record and beneficial
owner and holder of all of the shares of common stock of the Company, including
the Shares, free and clear of all liens, security interests or other
encumbrances. Seller has been the only shareholder of the Company since the
Company's incorporation. No legend or other reference to any purported
encumbrance appears upon any certificate representing any of the Shares. All of
the Shares have been duly authorized and validly issued and are fully paid and
nonassessable. There no contracts relating to the issuance, sale, or transfer of
any equity securities or other securities of the Company. None of the
outstanding Shares were issued in violation of the Securities Act or any other
legal requirement. The Company does not own, or have any contract to acquire,
any equity securities or other securities of any person or any direct or
indirect equity or ownership interest in any other business. The Company has no
subsidiaries. The Company has not incurred any liabilities, has not hired any
employees, has not transacted any business, and has not entered into any
agreements (written or oral).
(d) Patents. Seller and the Company hereby represent and warrant as
-------
follows:
(i) Exhibit A attached hereto contains a complete and accurate
list and description of all the Patents. Other than any rights or benefits it
may possess hereunder, the Company does not own any assets.
5
<PAGE>
(ii) Seller owns, and upon the filing of a duly executed form of
assignment of the Patents with the United States Patent and Trademark Office
(the "PTO") and the Company's receipt of a certificate from the PTO as to the
effectiveness of such assignment, the Company will own, each of the Patents free
and clear of any liens, encumbrances, security interests, charges or other
adverse claims, and has the full right to use and enjoy the Patents without
payment to any third party, and Seller agrees that he will take any action
requested by Buyer to assist Buyer or the Company in filing or causing to be
filed all agreements, assignments, filings, documents, certificates and filing
fees necessary or desirable in order to duly and legally record with the PTO the
assignment of all of Seller's right, title and interest in each of the Patents
from the Seller to the Company, so that such assignment shall be effective as of
a date no later than three (3) months from the date of this Agreement.
(iii) There are no outstanding or threatened disputes or
disagreements with respect to any Patent, including any court or administrative
actions wherein the enforceability or validity of any of the Patents has been
challenged.
(iv) Neither the Seller nor the Company has entered into any
contract or agreement requiring the transfer or assignment of the Patent.
(v) The Patents have not been declared invalid or unenforceable
by any court or other government agency.
(vi) None of the Patents has been the subject of re-examination,
reissue or protest proceedings before the United States Patent and Trademark
Office.
(vii) In procuring the issuance of the Patents, the applicant
therefor has not stated or done or omitted to do anything that could result in
the unenforceability of any Patent.
7. Manufacturing and Distribution Rights of Seller. Buyer agrees that, as
-----------------------------------------------
a material inducement of Seller to enter into this Agreement, the Company shall
retain all rights to manufacture, market, distribute and sell the products
represented by the Patents, pursuant to a Manufacturing and Distribution
Agreement to be approved by the shareholders of the Company.
8. Conditions to Obligations of Buyer and Seller.
---------------------------------------------
(a) Conditions to Obligation of Buyer. All obligations of Buyer at
---------------------------------
the Closing hereunder are subject to the fulfillment prior to and at the Closing
Date of each of the following conditions:
(i) Seller and the Company shall confirm that all
representations and warranties of Seller and the Company in this Agreement shall
be true and complete at and as of the Closing Date;
6
<PAGE>
(ii) Seller shall have properly endorsed and delivered to Buyer
stock certificates representing all of the Shares;
(iii) There shall have been no material adverse change in the
assets or operations of the Company;
(iv) No action or proceeding shall have been instituted by any
governmental entity against, and no order, decree or judgment of any court,
agency, commission or governmental authority shall be subsisting against, any
party that would have a material adverse effect on the assets, operations or
business of the Company or Seller; and
(v) At or prior to the Closing, Seller shall have delivered to
the Buyer executed resignations of all officers and directors of the Company,
effective as of the Closing Date; and
(vi) At the Closing, Seller shall have delivered to the Buyer
an executed Assignment of Patent in the form of Exhibit B attached hereto.
(b) Conditions to Obligations of Seller. All obligations of Seller at
-----------------------------------
the Closing hereunder are subject to the fulfillment prior to and at the Closing
Date of each of the following conditions:
(i) Buyer shall confirm that all representations and warranties
of Buyer in this Agreement shall be true and complete at and as of the Closing
Date; and
(ii) Buyer shall have delivered $25,000.00 of the Purchase Price
to Seller as set forth in Section 2(b) hereof.
9. Rights of Buyer and Seller Upon Termination or Breach. This Agreement
------------------------------------------------------
may be terminated by either Seller or Buyer, if the termination party is not
then in breach of any obligation under this Agreement on written notice to the
other at any time prior to Closing as follows.
(a) By Buyer or Seller, as the case may be, if the other shall commit
a breach of any of the provisions applicable to it hereunder.
(b) By Buyer, if (i) Buyer is unable to duly effectuate the
assignment of the Patents from Seller to the Company or to record such
assignment with PTO within a period of three (3) months from the date hereof; or
(ii) any representation or warranty of Seller is not true and correct at any
time after the date hereof .
7
<PAGE>
(c) By mutual agreement of Buyer and Seller, at any time, set forth
in a writing executed by both parties.
In the event of a termination in accordance with this Section 9, Seller
shall immediately cause any and all of the Purchase Price which Buyer paid to
Seller to be wire transferred in immediately available funds to an account
specified by Buyer. As of the date that any event of termination referred to in
this Section 9 has occurred, this Agreement shall terminate and Buyer shall have
no further obligation to perform any act required hereunder. Seller shall also
be liable to Buyer for any fees, costs or expenses whatsoever incurred by Buyer
as a result of any assignment of or any attempt to assign the Patents from
Seller to the Company or any action taken to enforce any provision of this
Agreement, including this Section 9(b).
Except as otherwise provided in this Section, if this Agreement is
terminated, each party will pay all of its costs and expenses and neither will
have any further liability or obligation of any nature to the other.
10. Survival. Notwithstanding any examination made for or on behalf of the
--------
parties hereto, the knowledge of any officer, director or employee or agent of
any of the parties hereto or any of their respective affiliates, or the
acceptance of any certificate or opinion, all representations, warranties,
agreements and covenants of Seller contained in this Agreement shall be deemed
continuing representations, warranties, agreements and covenants, and shall
expressly survive the Closing Date.
11. Indemnification.
---------------
(a) Indemnification by Seller. Seller hereby agrees to indemnify,
------------------------
defend, and hold harmless Buyer against and in respect of, and reimburse Buyer
for and against, any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorneys' fees and expenses (even if
incident to appeals), which arise, result from, or relate to: (i) any breach of
any of the representations made in this Agreement by Seller, and/or (ii) any
act, breach, misrepresentation, omission, violation, or failure by Seller or the
Company prior to the Closing Date.
(b) Indemnification Procedures. In connection with any matters giving
--------------------------
rise to any claims made for indemnification under this Section, the party or
parties with indemnification obligations (the "Indemnitor") shall choose counsel
therefor reasonably acceptable to the Indemnitiees and the Indemnitor shall pay
all fees and expenses of such counsel. The party or parties entitled to
indemnification (the "Indemnitee") may elect, at its/their sole expense, any
additional counsel to consult and participate with counsel selected by the
Indemnitor, provided the Indemnitor's counsel shall control all legal actions.
The Indemnitee shall notify the Indemnitor of the existence of any claim, demand
or other matter to which the Indemnitor's indemnification obligations would
apply, and shall give the Indemnitor a reasonable opportunity to defend the same
at its own expense. If the Indemnitor shall within a reasonable time after this
8
<PAGE>
notice fail to defend, the Indemnitee shall have the right, but not the
obligation, to undertake and control the defense of, and to compromise or settle
the claim or other matter on behalf, for the account, and at the risk and
expense, of the Indemnitor.
12. Legal Representation of Seller and the Company. Seller and the Company
----------------------------------------------
hereby acknowledge that Buyer has advised each of them to consult with an
attorney concerning this Agreement and, specifically, any questions which Buyer
or any officer or director of the Company may have regarding the provisions
thereof. Each of Seller and the Company hereby acknowledges and represents that
(i) he or it has had the opportunity to consult with an attorney and to discuss
all provisions of this Agreement with such attorney and has either done so or
has knowingly declined to do so, and (ii) each of Seller and the Company is
voluntarily entering into this Agreement.
13. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided in this Agreement, each
--------
party to this Agreement will bear its or his respective expenses incurred in
connection with the preparation, execution and performance of the Agreement and
the transactions contemplated thereby, including all fees and expenses of
agents, representatives, counsel and accountants.
(b) Amendments. The provisions of this Agreement may not be amended,
----------
supplemented, waived or changed orally, but only by a writing signed by the
party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.
(c) Enforcement Costs. If any civil action, arbitration or other
-----------------
legal proceeding is brought by any party for the enforcement of this Agreement,
or because of an alleged dispute, breach, default or misrepresentation in
connection with any provision of this Agreement, the successful or prevailing
party or parties shall be entitled to recover reasonable attorneys' fees, sales
and use taxes, court costs and all expenses even if not taxable as court costs
(including, without limitation, all such fees, taxes, costs and expenses
incident to arbitration, appellate, bankruptcy and post-judgment proceedings),
incurred in that civil action, arbitration or legal proceeding, in addition to
any other relief to which such party or parties may be entitled. Attorneys' fees
shall include, without limitation, paralegal fees, investigative fees,
administrative costs, sales and use taxes and all other charges billed by the
attorney to the prevailing party.
(d) Further Assurances. Seller hereby agrees from time to time to
------------------
execute and deliver such further and other transfers, assignments and documents
and do all matters and things which may be convenient or necessary to more
effectively and completely carry out the intentions of this Agreement.
(e) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon, inure to the benefit of, and be enforceable by the
parties and their respective
9
<PAGE>
administrators, executors, legal representatives, heirs, successors and
permitted assigns, whether so expressed or not.
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument. Confirmation of execution
by electronic transmission of a facsimile signature page shall be binding upon
any party so confirming.
(g) Governing Law. This Agreement and all transactions contemplated
-------------
by this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Florida.
(h) Jurisdiction and Venue. The parties acknowledge that a
----------------------
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Sarasota, Florida. Any civil action
or legal proceeding arising out of a relating to this Agreement shall be brought
in the courts of record in the State of Florida in Sarasota County or the United
States District Court, Middle District of Florida. Each party consents to the
jurisdiction of such court in any such civil action or legal proceeding and
waives any objection to the laying of venue of any such civil action or legal
proceeding in such court. Service of any court paper may be effected on such
party by mail, as provided in this Agreement, or in such other manner as may be
provided under applicable laws, rules of procedure or local rules.
(i) No Construction Against Drafters. The parties acknowledge that
--------------------------------
this is a negotiated agreement, and that in no event shall the terms hereof be
construed against either party on the basis that such party, or its counsel,
drafted this Agreement.
(j) Notices. All notices, requests, consents and other communications
-------
required or permitted under this Agreement shall be in writing (including
electronic transmission) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, electronically
transmitted, or mailed (airmail if international) by registered or certified
mail (postage prepaid), return receipt requested, addressed to:
If to Buyer: With a copy to:
CPC of America, Inc. Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.
1133 4th Street 777 South Flagler Drive
Sarasota, Florida 34236 Suite 500 East Tower
(941) 364-8406 West Palm Beach, Florida 33401
Attention: Rod A. Shipman, (561) 650-0553
President and Chief Attention: Michael V. Mitrione, Esq.
Executive Officer
10
<PAGE>
If to Seller:
Mr. John P. Colonna
7550 Fairway Woods Drive
Sarasota, Florida 34238
(941) 924-6401
If to the Company:
DSDS Group, Inc.
7550 Fairway Woods Drive
Sarasota, Florida 34238
(941) 924-6401
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by electronic transmission; (c) on the date upon which
the return receipt is signed or delivery is refused or the notice is designated
by the postal authorities as not deliverable, as the case may be, if mailed.
(k) Entire Agreement. This Agreement represents the entire
----------------
understanding and agreement between the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and between such parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first above written.
WITNESSES: SELLER:
[SIGNATURE ILLEGIBLE] /s/ John P. Colonna
- ------------------------- ----------------------------
JOHN P. COLONNA
_________________________
WITNESSES: BUYER:
_________________________ CPC OF AMERICA, INC., a Nevada
corporation
_________________________ By: /s/ R. A. Shipman
-------------------------
Rod A. Shipman
President and Chief Executive
Officer
11
<PAGE>
WITNESSES: COMPANY:
[SIGNATURE ILLEGIBLE] DSDS Group, Inc., a Florida corporation
- -------------------------
By: /s/ John P. Colonna
_________________________ ----------------------------------
John P. Colonna
President
12
<PAGE>
EXHIBIT A
PATENTS
1. Self-Destruct Double Syringe, Patent No. 5,149,323.
2. Cap Assembly, Patent No. 5,197,953.
<PAGE>
EXHIBIT B
FORM OF PATENT ASSIGNMENT
<PAGE>
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
A S S I G N M E N T
- - - - - - - - - -
WHEREAS, John P. Colonna (hereinafter ASSIGNOR), a resident of the State of
Florida residing at 7550 Fairway Woods Drive, Sarasota, Florida 34238, is the
owner of the entire right, title and interest, in (i) the invention entitled
"Self-Destruct Double Syringe", which is the subject of Letters Patent of the
United States Patent No. 5,149,323, issued on September 22, 1992, and (ii) in
the invention entitled "Cap Assembly" which is the subject of Letters Patent of
the United States Patent No. 5,197,953, issued on March 30, 1993.
WHEREAS, DSDS Group, Inc. (hereinafter ASSIGNEE), a corporation duly
organized under the laws of the State of Florida, located and doing business at
7550 Fairway Woods Drive, Sarasota, Florida 34238, is desirous of acquiring the
entire right, title and interest in and to the aforementioned inventions and
any and all Letters Patent to be obtained on said inventions;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN:
BE IT KNOW that for and in consideration of good and valuable consideration
paid to ASSIGNOR by said ASSIGNEE, the receipt and sufficiency of which is
hereby acknowledged, said ASSIGNOR, by these presents does hereby sell, assign,
set over and transfer unto the said ASSIGNEE its successors, legal
representatives or assigns, the entire right, title and interest in and to the
aforesaid inventions in and for the United States and all countries foreign
thereto; and any divisional, continuing, substitute or reissue applications or
supplementary disclosures which may be or have been filed on said inventions in
any country; and the right to file said foreign applications and claim priority
under the provisions of the International Convention; and any Letters Patent of
the United States or any foreign country issued or granted on said inventions;
AND ASSIGNEE HEREBY authorizes and requests the U.S. Patent and Trademark
Office or other issuing authority to issue any and all patents on said
inventions to said ASSIGNEE; as sole assignee; and ASSIGNOR further hereby
authorizes said ASSIGNEE to file and prosecute any of said foreign applications
in its own name;
AND ASSIGNOR HEREBY covenants that it has the full right to convey the
entire right, title and interest herein assigned and that it has not executed
and will not execute any assignment or other instrument in conflict herewith;
AND ASSIGNOR HEREBY further covenants and agrees to communicate to said
ASSIGNEE, or its legal representatives, successors or assigns, any facts
relating to said inventions, including evidence for interference purposes or
other proceedings, whenever requested, and to testify
<PAGE>
in any interference or in any other legal proceeding, when requested, and to
execute and deliver on request all lawful papers required to make any of the
foregoing provisions effective; and to perform the aforesaid communicating,
executing and delivering, without any payment except expenses and to perform the
aforesaid testifying for reasonable compensation; and generally to do every
thing possible to aid the said ASSIGNEE, its successors, legal representatives
or assigns to obtain and enforce proper patent protection on and for said
inventions in all countries, and likewise ASSIGNOR makes these provisions
binding upon ASSIGNOR'S heirs, legal representatives and/or administrators.
IN WITNESS WHEREOF, I have hereunder set my hand and seal this 25 day of
July, 1997.
[SIGNATURE ILLEGIBLE] /s/ John P. Colonna (LS)
- -------------------------- ------------------------
Witness John P. Colonna
<PAGE>
CERTIFICATE OF JOHN P. COLONNA AND DSDS GROUP, INC.
I, John P. Colonna, hereby certify that I am President of DSDS Group, Inc.,
a Florida corporation (the "Corporation"), and in both my capacity as President
of the Corporation and my individual capacity, I hereby certify to the following
pursuant to Section 4(a)(ii) of that certain Stock Purchase Agreement, by and
among myself, the Corporation and CPC of America, Inc., a Nevada corporation
(the "Agreement"):
1. All of my representations and warranties contained in the
Agreement were true and correct in all respects as of the Closing Date.
2. I have performed and complied with all covenants, agreements and
conditions required by the Agreement to be performed or complied with by me
prior to or on the Closing Date, and shall continue to perform and comply
with all post-closing covenants, agreements and conditions required by the
Agreement.
3. All of the Corporation's representations and warranties contained
in the Agreement were true and correct in all respects as of the Closing
Date.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
25th day of July, 1997.
DSDS Group, Inc., a Florida corporation
By: /s/ John P. Colonna
---------------------------------
John P. Colonna, President
/s/ John P. Colonna
---------------------------------
John P. Colonna
<PAGE>
CERTIFICATE OF OFFICER OF CPC OF AMERICA, INC.
I, Rod A. Shipman, hereby certify that I am President and Chief Executive
Officer of CPC of America, Inc., a Nevada corporation (the "Corporation), and
such capacity, I hereby certify as to the following pursuant to Section 4(b)(ii)
of that certain Stock Purchase Agreement, by and among the Corporation, John P.
Colonna, and DSDS Group, Inc., a Florida corporation (the "Agreement") that all
of the representations and warranties of the Corporation contained in the
Agreement were true and correct in all respects as of the Closing Date.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
24 day of July, 1997.
CPC of America, Inc., a Nevada Corporation
By: /s/ Rod A. Shipman
------------------------------------
Rod A. Shipman
President and Chief Executive Officer
<PAGE>
CERTIFICATE OF OFFICER OF CPC OF AMERICA, INC.
I, Rod A. Shipman, hereby certify that I am President and Chief Executive
Officer of CPC of America, Inc., a Nevada corporation (the "Corporation"), and
such capacity, I hereby certify as to the following pursuant to Section 4(b)(ii)
of that certain Stock Purchase Agreement, by and among the Corporation, John P.
Colonna, and DSDS Group, Inc., a Florida corporation (the "Agreement") that all
of the representations and warranties of the Corporation contained in the
Agreement were true and correct in all respects as of the Closing Date.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
24 day of July, 1997.
CPC of America, Inc., a Nevada corporation
By: /s/ Rod A. Shipman
---------------------------------------
Rod A. Shipman
President and Chief Executive Officer
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