<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-24053
CPC of America, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 11-3320709
- --------------------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1133 Fourth Street, Suite 200, Sarasota, Florida 34236
- --------------------------------------------------------------------------------
(Address of principal executive offices)
941-906-9546
-----------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
As of May 14, 1999, the Company had 4,391,224 shares of its $.0005 par value
common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet at March 31, 1999........ 2
Unaudited Condensed Consolidated Statements of Operations for the
three month period ended March 31, 1999 and 1998
and for the period from inception (April 11, 1996) to March 31, 1999... 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
three month period ended March 31, 1999 and 1998 and for the period
from inception (April 11, 1996) to March 31, 1999...................... 4
Notes to Condensed Consolidated Financial Statements.................... 5
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999
----------
ASSETS
<S> <C>
Current assets:
Cash and equivalents $ 150,345
Prepaid and other 179,895
-----------
Total current assets 330,240
Equipment, net of accumulated depreciation of $4,952 10,468
Trademarks, net of accumulated amortization of $779 5,453
-----------
$ 346,160
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,233
-----------
Total current liabilities 58,233
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, $.001 par value,
38,824 shares issued and outstanding 39
Common stock, 20,000,000 shares authorized, $.0005 par value,
4,391,224 shares issued and outstanding 2,196
Additional Paid in capital - Common 1,355,119
Additional Paid in capital - Preferred 439,961
Deficit accumulated during the development stage (1,509,388)
-----------
Net shareholders' equity 287,927
-----------
$ 346,160
===========
</TABLE>
2
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Three Months Cumulative
Ended from inception
-------------------------------------- (April 11, 1996)
March 31, March 31, to March 31,
1999 1998 1999
---------------- ----------------- --------------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 191,416 $ 93,055 $ 1,172,476
General and administrative 51,134 6,524 227,390
Depreciation and amortization 927 2,127 19,371
---------------- ----------------- --------------------
Operating loss (243,477) (101,706) (1,419,237)
Interest income (expense):
Interest expense - - (7,000)
Embedded interest expense (85,000) - (110,000)
Interest income 1,577 4,919 25,729
---------------- ----------------- --------------------
(83,423) 4,919 (91,271)
Loss before minority interest (326,900) (96,787) (1,510,508)
Minority interest - 240 1,120
---------------- ----------------- --------------------
Net loss $ (326,900) $ (96,547) $(1,509,388)
================ ================= ====================
Basic and diluted net loss per share $(0.08) $(0.02)
================ =================
Basic and diluted weighted average number
of common shares outstanding 4,345,449 4,252,444
================ =================
</TABLE>
3
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Three Months Ended from inception
----------------------- (April 11, 1996)
March 31, March 31, to March 31,
1999 1998 1999
--------- --------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(326,900) $ (96,547) $(1,509,388)
Adjustments to reconcile net income to
net cash used by operating activities:
Minority interest - (240) (1,120)
Depreciation and amortization 927 2,127 19,371
Embedded interest expense 85,000 - 110,000
Contribution of officer's salary - - 80,000
Gain on disposition of Tercero - - (15,679)
Issuance of common stock for services - - 38,200
Sale of Tercero - assignment of payables - - 55,678
Increase in other assets (32,800) (18,500) (126,126)
Increase in trademarks - - -
Increase in accounts payable 17,489 - 58,713
Increase (decrease) in accrued expenses - (6,000) 16,000
Increase in accrued interest - - 7,000
--------- --------- -----------
Net cash used by operating activities (256,284) (119,160) (1,267,351)
--------- --------- -----------
Cash flows from investing activities:
Tercero acquisition - - (49,999)
DSDS acquisition - - (79,000)
Capital expenditures - - (15,420)
--------- --------- -----------
Net cash used by investing activities - - (144,419)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from notes to shareholders - - 73,000
Proceeds from note receivable from shareholder - - 150
Payments on note payable to shareholder - - (3,000)
Exercise of options 23,015 - 168,015
Exercise of warrants 78,750 - 78,750
Issuance of common stock - 58,000 915,200
Issuance of preferred stock 255,000 - 330,000
--------- --------- -----------
Net cash provided by financing activities 356,765 58,000 1,562,115
--------- --------- -----------
Net (decrease) increase in cash 100,481 (61,160) 150,345
Cash, beginning of period 49,864 420,065 -
--------- --------- -----------
Cash, end of period $ 150,345 $ 358,905 $ 150,345
========= ========= ===========
</TABLE>
4
<PAGE>
CPC OF AMERICA, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
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.
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the amounts of the
Company and its fully owned subsidiary CPCA 2000 (100%). All significant
intercompany transactions and balances have been eliminated in consolidation.
Interim periods
---------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all of the information required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not
necessarily indicative of results for any future period. These statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-KSB for the year ended
December 31, 1998.
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. The Company has excluded potential common
stock from the calculation of diluted weighted average share amounts for the
three months ended March 31, 1998 and 1999, as its inclusion would have been
antidilutive.
5
<PAGE>
2. Shareholders' equity
- ------------------------
Series A Preferred stock
------------------------
The Company is authorized to issue 5,000,000 shares of $.001 par value Series
A Preferred stock. The Series A Preferred stock has no voting rights. Each
Series A share is convertible into one common share at $8.50 per share;
however, on December 31, 1999, the conversion price shall be adjusted to the
lower of (i) 75% of the average last sale price of the common stock for the
30 trading days immediately preceding such date as reported on any stock
exchange or (ii) $6.38 per share. In the event of a liquidation of the
Company, the holders of the Series A shares shall be entitled to receive a
liquidation preference payment of $8.50 per share; before any payment is made
to the holders of the common stock.
In January 1999, the Company issued 30,000 shares of Series A preferred stock
for net proceeds of $255,000. The Company has recorded $85,000 as additional
paid in capital for the discount related to the embedded interest in the
preferred stock and fully amortized the expense in the first quarter, when
the stock was issued. This interest expense is included in the caption
"Embedded interest expense" in the accompanying March 31,1999 consolidated
statement of operations.
In November 1998, the Company offered in a private placement memorandum
Series A preferred stock at $8.50 per share. As of December 31, 1998, the
Company sold 8,824 shares for net proceeds of $75,000. The Company has
recorded $25,000 as additional paid-in capital for the discount related to
the embedded interest in the preferred stock and fully amortized the expense
in the fourth quarter, when the stock was issued. This interest expense is
included in the caption "Embedded interest expense" in the accompanying
consolidated statement of operations.
Common stock
------------
In March 1999, 10,000 warrants were exercised at $1.75 per share of the
Company's $.0005 per share common stock for net proceeds of $17,500. Also in
March 1999, 20,458 options were exercised at a strike price of $1.125 for net
proceeds of $23,015.
In February 1999, 35,000 warrants were exercised at $1.75 per share of the
Company's $.0005 per share common stock for net proceeds of $61,250.
In June 1998, the Company effected a two-for-one stock split, decreasing the
par value to $.0005 per share. The number of authorized shares remained at
20,000,000. All share information reported in these financial has been
adjusted to reflect the two-for-one stock split.
6
<PAGE>
2. Shareholders' equity (continued)
- ------------------------------------
Common stock (continued)
------------------------
In March 1997, the Company offered in a private placement memorandum 35 units
at $29,000 per unit. Each unit consists of 20,000 shares of common stock and
warrants to purchase 40,000 shares of common stock exercisable at $1.75 per
share from February 10, 1999 until December 31, 2000. As of December 31,
1998, the Company sold 34 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 December 1996, the Company issued 4,000 shares of common stock to its
attorney for payment of $200 in legal fees.
In October 1996, the Company issued 760,000 shares of common stock to related
parties in payment of $38,000 in consulting fees rendered in 1996.In May
1996, the Company sold to its founders 2,400,000 shares of common stock for
$.0005 cash per share and 300,000 shares for a $150 note receivable. In
September 1996, the Company sold 100,000 shares of common stock for $.005
cash per share to one of its founders.
7
<PAGE>
2. Shareholders' equity (continued)
- ------------------------------------
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:
<TABLE>
<CAPTION>
Exercise
Number of Price
Options Per Share Expiration
----------- ------------- ------------
<S> <C> <C> <C>
Inception (April 11, 1996) - - -
Granted 4,420,000 $1.125 - 1.25 1997 - 2006
----------- -------------
Outstanding at December 31, 1996 4,420,000 $1.125 - 1.25 1997 - 2006
----------- -------------
Exercised (26,666) $ 1.125
Expired (200,000) $ 1.18
----------- -------------
Outstanding at December 31, 1997 4,193,334 $1.125 - 1.25 2006
----------- -------------
Granted 4,152,000 $ 1.25 - 9.00 2008
Exercised (57,000) $1.125 - 2.50 2003
Canceled (1,173,334) $ 1.125
----------- ------------- ------------
Outstanding at December 31, 1998 7,115,000 $1.125 - 9.00 2003 - 2008
----------- ------------- ------------
Exercised (20,458) $ 1.125 2006
-----------
Outstanding at March 31, 1999 7,094,542 $1.125 - 9.00 2003 - 2008
=========== ============= ============
Exercisable at March 31, 1999 3,230,542 $1.125 - 9.00 2003 - 2008
=========== ============= ============
</TABLE>
Included in total options granted in 1998 and 1996 are 2,000,000 and
1,000,000, respectively, 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.
8
<PAGE>
3. Consulting agreements
- -------------------------
In January 1997, the Company entered into a consulting agreement with its
financial advisor, a related party, for ten years at $5,000 per month. The
agreement was revised in November 1997 to $8,000 per month and in April 1998
to $10,000 per month. Options to purchase 2,000,000 shares of common stock
at an exercise price of $2.50 per share were also granted under the April
1998 revision agreement. The options vest and become exercisable in
installments of 200,000 shares each year starting on the grant date and are
exercisable for ten years. As of December 31, 1998, the Company has prepaid a
company controlled by this related party $70,000 for research and development
costs to be provided in 1999. In April 1999 the consulting agreement was
revised to increase the fees to $220,000 annually. Additionally all accrued
fees can be converted into shares by exercising stock options.
In April 1998, the Company entered into an employment agreement with its
President and CEO for ten years. The agreement provides for a base salary of
$10,000 per month beginning May 1998, to be paid when the Company begins
recording revenues. In December 1998, the Company's president elected to
contribute his accrued salary of $80,000 to the Company. Options to purchase
2,000,000 shares of common stock at an exercise price of $2.50 per share were
granted under the agreement. The options vest and become exercisable in
installments of 200,000 shares each year starting on the grant date and are
exercisable for ten years. In April 1999 the employment agreement was revised
to increase the salary to $220,000 annually, not to include the wording "to
be paid when the company begins recording revenues". Additionally all accrued
salary, benefits, and bonuses can be converted into shares by exercising
stock options.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
General
- -------
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. The Company intends to commence commercial operations as soon it
obtains FDA approval of its counterpulsation units. The Company is unable to
provide an estimate at this time of when FDA approval of the counterpulsation
units may be obtained.
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. In addition, the Company intends to
market is counterpulsation units to existing facilities through national and
international distributors. Each company-owned and joint-ventured 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.
In addition to its working capital on hand as of the date of this report, the
Company believes that it will require, at least, an additional $1,000,000 of
capital in order to fund its plan of operations over the next 12 months. To
fund its working capital requirements, in November 1998, the Company commenced a
private placement of shares of its Series A Preferred Stock, $.001 par value per
share ("Series A Preferred Stock"). In the private placement, the Company is
offering a total of 235,294 shares of Series A Preferred Stock at a price of
$8.50 per share, pursuant to Rule 506 under the 1933 Act. The Series A
Preferred Stock has no voting rights. Each Series A Preferred Share is
convertible into Common Stock at a conversion price of $8.50 per share, however,
on December 31, 1999, the conversion price shall be adjusted to the lower of (i)
seventy-five percent (75%) of the average last sale price of the Common Stock
for the thirty (30) trading days immediately preceding such date as reported on
any stock exchange or (ii) $6.38 per share. As of May 14, 1999, the Company had
sold 62,824 shares of Series A Preferred Stock for the gross proceeds of
$534,000. Proceeds from the sale of the shares will be applied towards the
Company's working capital.
The Company expects to obtain the working capital it needs from both the
present private placement of Series A Preferred Stock as well as from the
exercise of currently outstanding warrants. There can be no assurance, however,
that the Company will be able to obtain sufficient additional capital, either
through the present private placement, the exercise of warrants or otherwise, in
order to fund the Company's working capital requirements in a timely manner.
The report of the Company's independent accountants for the fiscal year ended
December 31, 1998
10
<PAGE>
states that due to the absence of operating revenues and the Company's limited
capital resources, there is doubt about the Company's ability to continue as a
going concern.
Year 2000
- ---------
The Company utilizes computer software programs and operating systems,
including applications used in operating the CPCA 2000 and various
administrative and billing functions. To the extent the Company's software
applications contain source codes that are unable to appropriately interpret the
upcoming calendar year 2000, some level of modification, or even replacement of
such applications, may be necessary. The Company has performed an audit of its
computer systems to assess the scope of the Company's risks and bring its
applications into compliance. Following the completion of that audit,
management of the Company believes that all of the Company's and its third party
systems are Year 2000 compliant. Management estimates that the cost to the
Company of performing its Year 2000 audit is $5,000 and that the costs of
bringing all of its software programs into compliance with the Year 2000 is
$25,000.
Forward Looking Statements
- --------------------------
This report 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 report, 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.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In March 1999, the Company was named as a defendant in a lawsuit brought by
Nancy Lee, a former consultant for the Company, in the United States District
Court for the Central District of California. In her complaint, Ms. Lee alleged
that the Company prohibited Ms. Lee from selling shares of Common Stock issued
to Ms. Lee as a founder of the Company. Ms. Lee seeks a judicial declaration
from the court that she is the rightful owner of the shares.
The Company has filed an answer and a counterclaim against Ms. Lee seeking the
return of the shares of Common Stock on the grounds that Ms. Lee failed to
provide adequate consideration for the securities. The Company intends to
vigorously defend against Ms. Lee's allegations and prosecute its counterclaim.
The Company believes that a determination of the lawsuit adverse to the Company
will not have a materially adverse effect on the financial condition or
operations of the Company.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Inapplicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
4.2 Certificate of Designations of the Company
10.8 Amendment to Employment Agreement dated April 1, 1999
between the Company and Rod A. Shipman
10.9 Amendment to Consulting Agreement dated April 1, 1999
between the Company and CTM Group, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CPC of America, Inc.
(Registrant)
Dated: May 14, 1999 By: /s/ ROD A. SHIPMAN
-------------------------
Rod A. Shipman,
Chief Financial Officer
13
<PAGE>
EXHIBIT 4.2
Certificate of Designations
of
CPC of America, Inc.,
a Nevada Corporation
The undersigned, Rod A. Shipman , hereby certifies that:
1. He is the duly elected and acting President, Chief Executive Officer
and Secretary, of CPC of America, Inc., a Nevada corporation (the
"Corporation").
2. The Corporation, in its Articles of Incorporation, as amended, has
authorized 5,000,000 shares of preferred stock. By resolution, the Board of
Directors of the Corporation has designated 500,000 shares of preferred stock
authorized by the Articles of Incorporation as Series A Preferred Stock.
3. Pursuant to the authority given by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recital and resolution:
WHEREAS, Article Third of the Articles of Incorporation, as
amended, of the Corporation authorizes this Corporation to issue 5,000,000
shares of preferred stock, $.001 par value per share, issuable from time to time
in one or more series (the "Preferred Stock").
RESOLVED, the Board of Directors hereby determines that it
is in the best interests of this Corporation to designate 500,000 shares of
Series A Preferred Stock upon the following terms and conditions:
Section 1. Designation. The initial series of Preferred Stock shall be
-----------
designated and known as "Series A Preferred Stock." The number of authorized
shares constituting such series shall be 500,000. The Series A Preferred Stock
shall have a par value of $.001 per share.
Section 2. Definitions. For the purposes of this Certificate of
-----------
Designations, the following terms shall have the meanings indicated:
"Common Stock" shall mean the Company's $.0005 par value common
------------
stock.
"Conversion Price" shall mean $8.50 per share of Series A Preferred
----------------
Stock, provided, however, on the Maturity Date, the Initial Conversion Price
-------- -------
then in effect shall be adjusted to, and shall then mean, the lower of either
(i) the amount which is equal to seventy-five percent (75%) of the average last
sale price of the Common Stock for the thirty (30) trading days immediately
preceding the Maturity Date as reported on any stock exchange or (ii) $6.38 per
share.
<PAGE>
"Initial Conversion Price" shall mean $8.50 per share of Series A
------------------------
Preferred Stock.
"Junior Stock" shall mean any capital stock of the Corporation,
------------
including without limitation the Common Stock, ranking junior to the Series A
Preferred Stock with respect to dividends, distribution in liquidation or any
other preferences, rights and powers.
"Liquidation Preference" shall mean $8.50 per share of Series A
----------------------
Preferred Stock.
"Maturity Date" shall mean December 31, 1999.
-------------
"Parity Stock" shall mean any capital stock of the Corporation
------------
ranking on a parity with the Series A Preferred Stock with respect to dividends,
distributions in liquidation and all other preferences, rights or powers.
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Senior Stock" shall mean any capital stock of the Corporation
------------
ranking senior to the Series A Preferred Stock with respect to dividends,
distribution in liquidation or any other preference, right or power.
Section 3. Ranking. The Series A Preferred Stock shall, with respect to
-------
dividends and rights on liquidation, dissolution or winding up, rank senior to
all other equity securities of the Corporation, including the Common Stock and
any other series or class of the Corporation's preferred or common stock, now or
hereafter authorized.
Section 4. Dividends.
---------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends at the rate of five percent (5%) of the
Liquidation Preference per share per year, payable annually ("Dividends"), when,
as, and if declared by the Board of Directors of the Corporation. The Dividends
shall commence to accrue on the date of purchase of such share and shall be
payable commencing December 31, 1999 and on December 31 of each year thereafter,
to holders of record on such date. At the option of the holder, the Dividends
shall be payable in cash in arrears ("Cash Dividend") or in shares of Series A
Preferred Stock at the rate of one share of Series A Preferred Stock per accrued
Dividends in the amount of the then effective Conversion Price ("Preferred Stock
Dividend"). The Cash Dividend shall be payable only out of funds legally
available therefor, prior and in preference to any dividend payment with respect
to Common Stock. The Cash Dividend shall be cumulative, so that if Dividends
required to be paid on such stock for any year shall not have been declared or
paid, the amount of the deficiency shall be paid in full, without interest,
together with any Dividends due for the current year, before any distribution of
any kind shall be paid to the holders of the Junior Stock. No fractional shares
of Series A Preferred Stock will be issued in connection with the payment of
Preferred Stock Dividends. In lieu of fractional shares of
-2-
<PAGE>
Series A Preferred Stock, the Corporation shall issue one (1) share of Series A
Preferred Stock to each holder of Series A Preferred Stock entitled to a
Preferred Stock Dividend not evenly divisible by the Conversion Price. The
Corporation shall declare and pay the Preferred Stock Dividend on a current
basis.
(b) In addition to the Dividend, if any dividends or other
distributions (including, without limitation, any distribution of cash,
indebtedness, assets or other property, but excluding any dividend payable in
shares of its Common Stock) on the Common Stock are so permitted and declared,
such dividends shall be paid pro rata to the holders of the Common Stock and
Series A Preferred Stock. The holders of Series A Preferred Stock shall receive
a dividend in an amount that would be payable to such holder assuming that such
shares had been converted on the record date for determining the stockholders of
the Corporation entitled to receive payment of such dividends into the maximum
number of shares of Common Stock into which such shares of Series A Preferred
Stock are then convertible as provided in Section 7.
Section 5. Voting Rights.
-------------
(a) Except as required by law, or as set forth in Section 5(b)
below, the holders of shares of Series A Preferred Stock shall have no voting
rights.
(b) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of more than
50% of the outstanding shares of the Series A Preferred Stock shall be necessary
to (1) authorize, increase the authorized number of shares of or issue
(including on conversion or exchange of any convertible or exchangeable
securities or by reclassification) any shares of any class or classes of Senior
Stock or Parity Stock or any additional shares of Series A Preferred Stock, (2)
authorize, adopt or approve any amendment to the Articles of Incorporation, the
Bylaws or this Certificate of Designations that would increase or decrease the
par value of the shares of the Series A Preferred Stock, alter or change the
powers, preferences or rights of the shares of Series A Preferred Stock or alter
or change the powers, preferences or rights of any other capital stock of the
Corporation if after such alteration or change such capital stock would be
Senior Stock or Parity Stock, (3) amend, alter or repeal the Articles of
Incorporation or this Certificate of Designations so as to affect the shares of
Series A Preferred Stock adversely, including, without limitation, by granting
any voting right to any holder of notes, bonds, debentures or other debt
obligations of the Corporation, or (4) authorize or issue any security
convertible into, exchangeable for or evidencing the right to purchase or
otherwise receive any shares of any class or classes of Senior Stock or Parity
Stock.
-3-
<PAGE>
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, before any distribution or
payment to holders of Junior Stock may be made, the holder of each share of
Series A Preferred Stock shall be entitled to be paid an amount equal to the
Liquidation Preference of such share, plus any accrued and unpaid Dividends, as
that term is defined in Section 4.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full. Neither the consolidation
or merger of the Corporation into or with another corporation or corporations,
nor the sale of all or substantially all of the assets of the Corporation to
another corporation or any other entity shall be deemed a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
Section 7. Conversion of Preferred Stock into Common Stock.
-----------------------------------------------
(a) Right to Convert. The outstanding shares of Series A
----------------
Preferred Stock shall be convertible, at the option of the holders thereof, into
fully paid and nonassessable shares of Common Stock at the Initial Conversion
Price, subject to adjustment as set forth in this Section 7.
(b) Number of shares of Common Stock Issuable upon Conversion.
---------------------------------------------------------
The number of shares of Common Stock to be issued upon conversion of shares of
Series A Preferred Stock shall be equal to the product of (X) and (Y), where (X)
is a fraction, the numerator of which is the Initial Conversion Price in effect
at the time and the denominator of which is the Conversion Price in effect at
that time and (Y) is the number of shares of Series A Preferred Stock to be
converted.
(c) Antidilution Adjustments. The Initial Conversion Price,
------------------------
Conversion Price and Liquidation Preference of the Series A Preferred Stock
shall be adjusted from time to time in certain cases as follows:
(i) Dividend, Subdivision, Combination or
-------------------------------------
Reclassification of Common Stock. If the Corporation shall, at any time or from
- --------------------------------
time to time, (a) declare a dividend on the Common Stock payable in shares of
its capital stock (including Common Stock), (b) subdivide the outstanding Common
Stock, (c) combine the outstanding Common Stock into a smaller number of shares,
or (d) issue any shares of its capital stock in a reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), then in each
such case, the Initial Conversion
-4-
<PAGE>
Price, Conversion Price and the Liquidation Preference in effect at the time of
the record date for such dividend or at the effective date of such subdivision,
combination or reclassification shall be proportionally adjusted such that, in
the case of the Initial Conversion Price and Conversion Price, the adjusted
price will permit the number of shares of Common Stock into which the Series A
Preferred Stock may be converted to be increased or reduced in the same
proportion as the number of shares of Common Stock are increased or reduced in
connection with such dividend, subdivision, combination or reclassification. Any
such adjustment shall become effective immediately after the record date of such
dividend or the effective date of such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur. In the event, if a dividend is declared, such dividend
is not paid, the Initial Conversion Price, Conversion Price and Liquidation
Preference shall be adjusted to the Initial Conversion Price, Conversion Price
and Liquidation Preference in effect immediately prior to the record date of
such dividend.
(ii) De Minimis Adjustments. No adjustment of the
----------------------
Initial Conversion Price, Conversion Price or Liquidation Preference shall be
made if the amount of such adjustment would result in a change in the Initial
Conversion Price, Conversion Price or Liquidation Preference per share of less
than $.05 but in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment, which together with any adjustment
so carried forward, would result in a change in the Initial Conversion Price,
Conversion Price and Liquidation Preference in excess of $.05 per share. All
calculations under this Section 7(c) shall be made to the nearest cent, or the
nearest 1/100th of a share, as the case may be. If the Corporation shall, at any
time or from time to time, issue Common Stock by way of dividends on any stock
of the Corporation or subdivide or combine the outstanding shares of the Common
Stock, such amount of $.05 (as theretofore increased or decreased, if such
amount shall have been adjusted in accordance with the provisions of this
clause) shall forthwith be proportionately increased in the case of a
combination or decreased in the case of a subdivision or stock dividend so as
appropriately to reflect the same. Notwithstanding the provisions of the first
sentence of this Section 7(c)(ii), any adjustment postponed pursuant to this
Section 7(c)(ii) shall be made no later than the earlier of (a) two years from
the date of the transaction that would, but for the provisions of the first
sentence of this Section 7(c)(ii), have required such adjustment and (b) the
date of any conversion of the shares of Series A Preferred Stock.
(iii) Fractional Shares. Notwithstanding any other
-----------------
provision of this Certificate of Designations, the Corporation shall not be
required to issue fractions of shares upon conversion of any shares of Series A
Preferred Stock or to distribute certificates which evidence fractional shares.
In lieu of fractional shares of Common Stock, the Corporation shall pay
therefore, at the time of any conversion of shares of Series A Preferred Stock
as herein provided, an amount in cash equal to such fraction multiplied by the
Conversion Price then in effect.
(d) Reorganization and Reclassification Adjustment. If there
----------------------------------------------
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, then each share of Series A Preferred Stock shall thereafter be
convertible into the same kind and amounts of
-5-
<PAGE>
securities (including shares of stock) or other assets, or both, which were
issuable or distributable to the holders of outstanding Common Stock of the
Corporation upon such reorganization or reclassification in respect of that
number of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such reorganization or
reclassification; and, in any such case, appropriate adjustments (as determined
in good faith by the Board of Directors of the Corporation) shall be made to
assure that the provisions set forth herein (including provisions with respect
to changes in, and other adjustments of, the Initial Conversion Price and
Conversion Price) shall thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or other assets thereafter
deliverable upon the conversion of the Series A Preferred Stock.
(e) Mechanics of Conversion. The option to convert shall be
-----------------------
exercised by surrendering for such purpose to the Corporation, certificates
representing the shares to be converted, duly endorsed in blank or accompanied
by proper instruments of transfer, and at the time of such surrender, the Person
in whose name any certificate for shares of Common Stock shall be issuable upon
such conversion shall be deemed to be the holder of record of such shares of
Common Stock on such date, notwithstanding that the share register of the
Corporation shall then be closed or that the certificates representing such
Common Stock shall not then be actually delivered to such person.
(f) Certificate as to Adjustments. Whenever the Initial Conversion
-----------------------------
Price, Conversion Price or the securities or other property deliverable upon the
conversion of the Series A Preferred Stock shall be adjusted pursuant to the
provisions hereof, the Corporation shall promptly give written notice thereof to
each holder of shares of Series A Preferred Stock at such holder's address as it
appears on the transfer books of the Corporation and shall forthwith file, at
its principal executive office and with any transfer agent or agents for the
shares of Series A Preferred Stock and the Common Stock, a certificate, signed
by the Chairman of the Board, Chief Executive Officer or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, its Treasurer
or one of its Assistant Treasurers, stating the adjusted Initial Conversion
Price, Conversion Price and the securities or other property deliverable per
share of Series A Preferred Stock calculated to the nearest cent or to the
nearest one one-hundredth of a share and setting forth in reasonable detail the
method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required.
(g) Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series A Preferred Stock, the maximum number of its authorized but unissued
shares of Common Stock as is reasonably anticipated to be sufficient to permit
the conversion of all outstanding shares of Series A Preferred Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized but unissued shares
of Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Series A Preferred Stock.
-6-
<PAGE>
(h) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of Series
A Preferred Stock shall be made without charge to the holder of shares of Series
A Preferred Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
Section 8. Redemption of Series A Preferred Stock.
--------------------------------------
(a) At any time commencing upon the Maturity Date, the Corporation
shall have the right to redeem for cash out of funds legally available therefor,
each share of Series A Preferred Stock. Redemptions pursuant to this Section
8(a) shall be made for a price per share equal to the Liquidation Preference
plus an amount equal to the amount of all unpaid dividends payable in accordance
with Section 4 hereof on each share of Series A Preferred Stock to be redeemed.
(b) The Corporation shall give written notice of its intention to
redeem the Series A Preferred Stock as provided herein, to each holder thereof,
at such holder's address as it appears on the transfer books of the Corporation,
which notice shall specify (i) the total number of shares of Series A Preferred
Stock being redeemed; (ii) the number of shares of Series A Preferred Stock held
by the holder which the Corporation intends to redeem; (iii) the date of
redemption (which shall be at least 30 days from the date of mailing of such
notice by the Corporation); and (iv) the redemption price. On or after the date
of redemption, each holder of Series A Preferred Stock shall surrender his
certificate for the number of shares to be redeemed as stated in the notice
provided by the Corporation. Dividends will cease to accumulate on shares of
Series A Preferred Stock called for redemption.
(c) For the purpose of determining whether funds are legally
available for redemption of shares of Series A Preferred Stock as provided
herein, the Corporation shall value its assets at the highest amount permissible
under applicable law. If on the redemption date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Series A
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the total redemption amount owed to
each holder of Series A Preferred Stock as of the redemption date. The
redemption requirements provided hereby shall be continuous, so that if such
requirement shall not be fully discharged, funds legally available shall be
applied therefor until such requirements are fully discharged in accordance with
the preceding sentence.
Section 9. Notice of Certain Events. In case the Corporation shall
------------------------
propose at any time or from time to time (A) to declare or pay any dividend
payable in stock of any class to the holders of Common Stock or to make any
other distribution to the holders of Common Stock, (B) to offer to the holders
of Common Stock rights or warrants to subscribe for or to purchase any
additional shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (C) to effect any reclassification of its Common
Stock, (D) to effect any consolidation, merger or sale, transfer or other
disposition of all or substantially all of the property, assets or business of
the Corporation which would, if consummated result in the
-7-
<PAGE>
mandatory conversion of shares of Series A Preferred Stock, or (E) to effect the
liquidation, dissolution or winding up of the Corporation, then, in each such
case, the Corporation shall mail to each holder of shares of Series A Preferred
Stock via first class mail at such holder's address as it appears on the
transfer books of the Corporation, a written notice of such proposed action,
which shall specify (1) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights or warrants or, if a record is
not to be taken, the date as of which the holders of shares of Common Stock of
record to be entitled to such dividend, distribution or rights are to be
determined, or (2) the date on which such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up is expected to
become effective, and such notice shall be so given as promptly as possible but
in any event at least ten (10) business days prior to the applicable record,
determination or effective date, specified in such notice.
Section 10. Certain Remedies. Any registered holder of shares of Series A
----------------
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Designations and to enforce
specifically the terms and provisions of this Certificate of Designations in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which such holder may be entitled at law or
in equity.
Section 11. Method of Election. For purposes of this Certificate of
------------------
Designations, any election required or allowed to be made by the majority of the
holders of Series A Preferred Stock shall be effective upon receipt by the
Company of the written consent of a majority of such holders.
Section 12. Status of Reacquired Shares. Shares of Series A Preferred
---------------------------
Stock which have been issued and converted shall (upon compliance with any
applicable provisions of the laws of the State of California) have the status of
authorized and unissued shares of Preferred Stock issuable in series
undesignated as to series and may be redesignated and reissued.
The undersigned, Rod A. Shipman, President, Chief Executive Officer and
Secretary of CPC of America, Inc. hereby declares and certifies under penalty of
perjury that the foregoing Certificate is the act and deed of the Corporation
and that the facts herein stated are true.
Executed at Newport Beach, California on May 13, 1999.
/s/ Rod A. Shipman
--------------------------------------------
ROD A. SHIPMAN
President, Chief Executive Officer
and Secretary
-8-
<PAGE>
Exhibit 10.8
AMENDMENT TO EMPLOYMENT CONTRACT
--------------------------------
This Amendment to Employment Contract ("Amendment") is entered into this 1st
day of April, 1999, by and between CPC OF AMERICA, INC., a Nevada corporation
("Employer"), and ROD A. SHIPMAN ("Executive").
R E C I T A L S
- - - - - - - -
WHEREAS, Executive is engaged by Employer as its Chief Executive Officer and
Chairman of the Board pursuant to an Employment Contract dated April 23, 1998
(the "Employment Contract").
WHEREAS, Employer and Executive desire to amend certain provisions of the
Employment Contract relating to Executive's compensation.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Employment Contract, the parties agree as follows:
1. Paragraph 3(a) of the Employment Contract is hereby amended to read in its
entirety as follows:
"Executive's salary for each year hereunder shall be $220,000.00 per year.
Thereafter during the Employment Term, Executive's salary shall be
increased each year by an amount equal to Executive's salary 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% to 11% were 10%, Executive's salary for the second year hereunder
would be $242,000.00. Salary increases shall not exceed 10% per year.
Executive's salary shall be payable on the Company's regular salary payment
date. In addition, Executive shall receive a bonus. The bonus paid to
Executive shall be determined by the compensation committee as an annual
plan to be determined each year as a percentage 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. The Executive 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 salary and bonus payments hereunder shall
be subject to withholding and any other applicable tax law."
<PAGE>
2. Except as amended by this Amendment, the form, terms and conditions of the
Employment Contract remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day
and year first above written.
"Employer"
CPC OF AMERICA, INC.
a Nevada corporation
By:/s/ Rod A. Shipman
------------------
Rod A Shipman,
President and Chief Executive Officer
"Employee"
/s/ Rod A. Shipman
------------------
ROD A. SHIPMAN
-2-
<PAGE>
Exhibit 10.9
AMENDMENT TO CONSULTING SERVICES CONTRACT
-----------------------------------------
This Amendment to Consulting Services Contract ("Amendment") is entered into
this 1st day of April, 1999, by and between CPC OF AMERICA, INC., a Nevada
corporation (the "Company"), and the CTM GROUP, INC., a Nevada corporation
("Consultant").
R E C I T A L S
- - - - - - - -
WHEREAS, Consultant is engaged by the Company as a consultant pursuant to a
Consulting Services Contract dated April 23, 1998 (the "Consultant Contract").
WHEREAS, the Company and Consultant desire to amend certain provisions of the
Consultant Contract relating to Consultant's compensation.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Consultant Contract, the parties agree as follows:
1. Paragraph 3(a) of the Consultant Contract is hereby amended to read in its
entirety as follows:
"Consultant's fees for each year hereunder shall be $220,000.00 per year.
Thereafter during the Services Term, Consultant's fees shall be increased
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% to 11% were 10%,
Consultant's fees for the second year hereunder would be $242,000.00. Fee
increases 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 an annual plan to be determined
each year as a percentage 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. 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."
<PAGE>
2. Except as amended by this Amendment, the form, terms and conditions of the
Consultant Contract remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day
and year first above written.
"The Company"
CPC OF AMERICA, INC.
a Nevada corporation
By:/s/ Rod A. Shipman
------------------
Rod A Shipman,
President and Chief Executive Officer
"Consultant"
CTM GROUP, INC.,
a Nevada corporation
By: /s/ Deborah Shabty
-------------------
Deborah Shabty, President
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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