<PAGE>
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As filed with the Securities and Exchange Commission ("SEC") on March 23, 1999.
This Registration Statement has not yet been declared effective by the SEC,
thus, the information contained herein is subject to amendment.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
SKYNET HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 65-0861800
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(Jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
343 South Glasgow Avenue, Inglewood, CA 90301
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(Address of principal executive offices)
(310) 642-7776
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(Registrant's telephone number)
Securities to be registered pursuant to 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
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
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Title of Class
<PAGE>
ITEM 1. BUSINESS
INTRODUCTION; GENERAL DEVELOPMENT OF BUSINESS
Skynet Holdings, Inc., a Delaware corporation, (the "Company"), is a full-
service provider of international transportation delivery services operating
primarily as an international express courier for time sensitive documents and
packages. The Company's primary operations are conducted in the United Kingdom
and Australia and to a lesser extent, the United States.
Unlike most nationally and internationally recognized express couriers, the
Company does not carry out all phases of the delivery process. Instead, the
Company utilizes available cargo space on commercial passenger and cargo
aircraft and effectuates most deliveries through a global alliance of
independent couriers with over 1000 offices in over 100 countries throughout
Europe, Asia, North and South America, Africa and Australia. The Company and
these independent couriers comprise the SkyNet Worldwide Express Network (the
"SkyNet Network" or "Network") and operate under the name "SkyNet Worldwide
Express" or "SkyNet". Each member of the SkyNet Network is linked together by
the SkyCom system, the Company's proprietary computerized tracking and billing
information system which tracks each package delivered through the SkyNet
Network from initial pick up to final delivery. The Company's long term goal is
to become a leading provider of international express delivery services by
pursuing a three-fold strategy of making select acquisitions both within and
outside of the United States, increasing operating efficiencies and
consolidating key members of the Network.
The Company operates through its wholly owned subsidiaries, Sky
International Limited, a United Kingdom corporation ("SIL"), SkyNet Worldwide
Express Pty Ltd., a New South Wales, Australia corporation ("SWEPL"), DPE
International, Ltd., a Delaware corporation ("DPE"), and Skynet, Inc., a New
York corporation, as well as through the SkyNet Network. SIL operates
the SkyCom system which provides the technological foundation upon which the
Network and the Company's operations are built. Unless otherwise specified,
references to the "Company" shall include SIL, SWEPL, DPE and Skynet, Inc.
The Company's revenues are primarily derived from its retail customers and
not from Network members. Revenues derived from Network members relate primarily
to charges for use of the Company's SkyCom tracking system and to a lesser
extent, linehaul charges for packages passing through the Company's hubs from
Network members. Other than revenues from the SkyCom system, the Company does
not break out revenues generated by Network members.
The Company is the surviving entity to a merger (the "Merger") between EPL
Resources (Delaware) Corp. ("EPLR") and Skynet Holdings, Inc., a Nevada
corporation ("Skynet Nevada"), effective as of October 14, 1998. Prior to the
Merger, EPLR was an inactive company whose shares were listed for quotation on
the OTC Bulletin Board. EPLR was organized December 15, 1994, under the laws of
the State of Florida. EPLR has no operations and was considered a development
stage company. During September 1998, EPLR issued and sold an aggregate
of 4,625,000 shares of Common Stock raising gross proceeds of $555,000. This
offering was undertaken by EPLR prior to the Merger with Skynet Nevada.
Skynet Nevada was formed on September 16, 1997 to effectuate the
consolidation of certain principal members of the Network. Pursuant to a Share
Exchange Agreement dated September 30, 1997 by and among Skynet Nevada and the
shareholders of SIL, SWEPL and DPE, as subsequently amended, Skynet Nevada
acquired all of the issued and outstanding shares of capital stock of these
entities in exchange for 4,200,000 shares of its common stock. This resulted in
Skynet Nevada owning and operating the principal distribution hubs of the
Network, operating the SkyCom proprietary computerized tracking and billing
system and gaining effective control of the Network. Pursuant to the Merger, all
of the issued and outstanding shares of Common Stock of Skynet Nevada were
exchanged for an aggregate of 9,901,500 shares of Common Stock of the
Company.
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On December 9, 1998, the Company signed a Placement Agency Agreement
with Puglisi Howells & Co., a broker dealer registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and member in good
standing of the National Association of Securities Dealers, Inc., for the
purpose of offering (the "Private Placement") up to 2,000,000 shares of Common
Stock, par value $.0001 per share, at a purchase price of $2.00 per share on a
"best efforts, 1,000,000 shares or none" basis. On February 19 and March 5,
1999, the Company conducted closings with respect to the Private Placement
resulting in the issuance of an aggregate of 1,325,500 shares of Common Stock
which generated net proceeds (after offering costs of approximately $441,000) of
approximately $2,210,000. The Company intends to use the net proceeds of the
Private Placement for general working capital and general corporate purposes,
primarily to finance the Company's business plan which includes an acquisition
and consolidation strategy, and to upgrade the Company's information technology,
including the Skycom system.
GEOGRAPHIC INFORMATION
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The Company operated in one principal industry segment: the delivery of
time sensitive documents and packages. A summary of the Company's geographic
information is presented below:
<TABLE>
<CAPTION>
United
States Europe Australia Total
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<S> <C> <C> <C> <C> <C>
Net Sales to Customers.......... 1998 $5,962,396 $21,250,613 $4,625,910 $31,838,919
1997 7,597,883 24,079,365 4,474,515 36,151,763
1996 7,714,977 22,661,783 4,028,186 34,404,946
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Operating Income (Loss)......... 1998 (384,849) 630,936 334,890 580,977
1997 107,664 (381,347) 244,176 (29,507)
1996 (341,921) 701,310 99,333 458,722
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Identifiable Assets............. 1998 882,250 5,066,925 936,640 6,885,815
1997 918,546 6,199,922 985,603 8,104,071
1996 1,102,830 5,502,766 699,721 7,305,317
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</TABLE>
INDUSTRY OVERVIEW
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The Company's principal operations are conducted overseas. In fact, 82% of
the Company's revenues during the fiscal year ended June 30, 1998 were generated
from deliveries outside of the United States. According to industry data
compiled by Triangle Management Services Ltd., a UK based consulting company to
the global express and freight industries, the estimated size of the world
international express delivery market (one of the markets in which the Company
competes) is approximately $14 billion, the estimated aggregate size of the
world domestic express markets is approximately $55 billion, and in 1997, the
global international market grew at an estimated annual rate of 12% while the
various domestic markets grew at an average of approximately 6%. In its recently
published 1998-1999 World Air Cargo Forecast, Boeing reported that the
international express delivery market currently accounts for 6% of the world air
cargo market, is experiencing rapid growth and by 2017 is expected to approach
40% of the total market.
The next-day and two-day express courier industry in the United States is
dominated by much larger competitors such as United Parcel Service, Inc. ("UPS")
and FDX Corp.'s Federal Express Division ("FedEx"). Although the Company offers
these services to its customers in the United States, such services represent a
small percentage of the Company's business and are not the focus for future
growth. This service often consists of picking up packages directly from a
customer and unless the destination is in or around one of the Company's
domestic stations (Los Angeles, San Francisco or New York), forwarding them via
other domestic couriers, typically at a lower wholesale rate, to their ultimate
domestic destination.
The same-day, regional, freight forwarding and international segments of
the courier services business are more fragmented and served by thousands of
smaller companies. Although major corporations such as DHL, FedEx and UPS have
substantial worldwide operations, the international express courier business is
also served by many smaller independent operators. These markets are more
fragmented and demand more specialized services than the domestic next day
delivery market. The Company primarily participates and competes in these
markets. Through Company owned stations and the Network, the Company serves
these specialized delivery needs of corporate and small business customers in a
retail environment.
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The same-day freight forwarding, regional express courier and international
segments of the industry are currently undergoing substantial growth and
consolidation. Management of the Company believes that several factors are
driving this growth and consolidation. First, commercial and industrial
companies are continuing to follow the trend of concentrating on their core
business by outsourcing non-core activities. The significant growth in catalogue
and at-home shopping, electronic commerce as well as modern inventory management
focused on just-in-time delivery, requires customized and reliable express
delivery services. Management believes that these trends will increase the
demand for specialized time-certain deliveries and provide significant
opportunities for the Company to expand its business both internally and through
strategic acquisitions of same-day, regional and international express delivery
companies.
OVERVIEW OF BUSINESS
- --------------------
The Company is a single-source provider of global transportation delivery
and logistic services to a diverse international customer base. These services
consist of the following:
. Time-certain deliveries of documents and packages within 24-48 hours of
pickup to most parts of the world.
. Next-flight-out services for same day expedited deliveries of the most
time-sensitive documents and packages.
. Local ground transport of hand-deliveries.
. Freight forwarding services for manufacturing and distribution
companies in the United States and overseas.
. Bulk shipment or "remailing" of mass mailing materials produced in one
country for distribution in another country.
. Global logistics services with respect to inventory management for
manufacturing and distribution companies.
Rather than focusing on particular segments of the industry and offering
standardized services based on rigid pickup and delivery times, the Company
designs and markets its services to meet the specific needs of its customers.
The variable cost, low overhead structure of the Company's current model of
operations provides the Company with the flexibility to provide such customized
services. For example, the Company utilizes excess cargo space on commercial
aircraft rather than operating its own fleet, and through the SkyNet Network,
enjoys a global presence without incurring the cost of maintaining its own
offices in most locations. As a result, the Company has access to a greater
number of aircraft with a wider range of scheduled departures. This allows the
Company to provide services tailored to any number of specific customer
requests.
3
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OPERATIONS OF SUBSIDIARIES
SIL, formed in 1978, maintains offices in London, Manchester and Bristol,
England, and acts as the European hub of the Network. SIL makes deliveries on
behalf of the Network throughout the United Kingdom and provides same-day
courier services in select regions of the United Kingdom. SIL also owns and
operates the SkyCom proprietary computerized tracking and billing information
system which tracks each package in the SkyNet Network from point of pickup to
final destination. SWEPL, formed in 1984, conducts operations in Sydney,
Melbourne and Brisbane, Australia and acts as a hub for the Pacific Rim
operations of the Network. DPE, formed in 1984, maintains offices in Los Angeles
and San Francisco, California. Los Angeles serves as the hub for deliveries
throughout the western United States, Canada and parts of the Far East. Skynet,
Inc. formed in 1991, maintains offices in Jamaica, New York and operates as the
hub for the Company's New York operations for deliveries throughout the eastern
United States and Canada.
In 1995, DPE filed for protection under Chapter 11 of the United States
Bankruptcy Code in the Central District of California. On August 1, 1996, an
Order was entered confirming DPE's Plan of Reorganization. On December 2, 1996,
an Order of Final Decree and Discharge was entered with respect to DPE. At
December 31, 1998, assets of DPE secure approximately $334,000 of obligations
under its Plan of Reorganization.
THE SKYNET NETWORK
Most express delivery companies, including UPS and FedEx, seek to carry out
all phases of the delivery process by using directly-owned offices, facilities
and equipment. By contrast, the Company utilizes the SkyNet Network to effect
the delivery of the vast majority of packages delivered under the SkyNet name.
As described above, the Network is comprised of the Company's subsidiaries and
independently owned and operated courier services located in some 1,000 cities
in over 100 countries throughout the world operating under the names "SkyNet" or
"SkyNet Worldwide Express."
SkyNet Network members ("Members") provide delivery of packages in their
region which are originated by other Network Members. In exchange, each Member
receives delivery of its packages by other Network Members in their respective
regions. Payment, if any, for deliveries by Network Members is dependent upon
the number of packages delivered as compared to the number of packages generated
by each Network Member. Established high volume Network Members have
historically achieved a balance between packages delivered and packages
generated for delivery by other Network Members. Accordingly, no payments are
made by or to such Members to or from the Company or any other Network Member
for such deliveries. Network Members who experience a significant difference
between packages delivered and packages generated for delivery by other Network
Members participate in a cost recovery system whereby they receive payments from
the Company or other Network Members for providing such delivery services. Any
transfer fee imposed by a hub operator for the transport of packages from one
country to another is borne by the transferor Member.
Each package generated by a Network Member is entered into and tracked from
pick-up to delivery by the SkyCom system for which SIL charges Network Members a
fee of approximately $.30 per package. In short, through its subsidiaries and
the SkyCom system, the Company forms the core of an extensive group of
independent delivery companies in different parts of the world which operate
under a common brand name and deliver each other's packages from airport-to-
door.
4
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The Network is an alliance of delivery professionals. In fact, most Network
Members are bound not by a formal licensing agreement, but rather by mutual
opportunity and need. Although management of the Company is currently evaluating
the merits of creating a more formalized arrangement, it believes that the
absence of contractual obligations between the Company and the vast majority of
the Network Members will not have an adverse effect on the Company's operations
even though there can be no assurance that Network Members will not enter into
exclusive or non-exclusive arrangements with competitive networks offering
greater benefits or lower costs. This belief is based, in part, on the fact that
many of the existing couriers are small businesses which have been operating as
Network Members for many years without a written contract. Management believes
that these entities may resist entering into a more formalized arrangement. In
addition, management continues to believe that independent couriers receive a
number of substantial benefits by being a Network Member and therefore have an
economic incentive to remain a member of the network.
First and foremost, by gaining access to the Network, independent couriers
have the ability to cost-effectively deliver packages to distant locations
throughout the world. For example, if a local courier in Turkey needed to
deliver a package to Los Angeles, it may incur an airbill as high as $70 or more
for an individual package. However, by sending the package to the Company's
European hub in London where it is consolidated with numerous other packages
which are going to the United States or the Far East, the unit cost of
transporting that particular package decreases dramatically. This allows the
individual Network Member to provide international delivery service to its
customers at a more reasonable rate. Second, each member has access to the
SkyCom system. This not only ensures that the package will be tracked
throughout the delivery process and will not be delivered without a signature,
but also serves as the customs declaration manifest ("Manifest") saving the
Member the administrative fees and expenses of preparing its own paper Manifest.
Third, the package originated by the local Network Member will be delivered at
its point of destination. All of the above reduce administrative and other
costs associated with numerous international transactions in varying currencies
and permit independent couriers to offer worldwide delivery services to their
customers at competitive rates.
THE SKYCOM SYSTEM
The SkyCom system is the Company's propriety computerized billing and
tracking information technology. The SkyCom system is an internet based
proprietary software program which provides computerized tracking and billing
information for each package delivered through the SkyNet Network. Upon a
package being generated by a Member, it is immediately given a tracking number
and entered into the SkyCom system. The tracking number is updated upon a
package's clearance through customs, arrival at a Company or other Network
station, its placement on a truck for local distribution and upon delivery to
the intended recipient.
Each Network Member has real time access to the SkyCom system. This allows
all Network Members to track the status of any package being delivered through
the SkyNet Network at any time. In addition, the Company's and any Network
Member's customers can access the SkyCom system through the Company's web site.
Larger customers are provided with customized software permitting them to
directly access the SkyCom system. Accordingly, at any point in the delivery
process, the Company, any Network Member and any customer is able to determine
the exact location of any particular shipment within the Network.
Management believes that the SkyCom system is one of the essential
components of the Company's operations. The SkyCom system provides the
framework upon which the Company will attempt to build a larger global
distribution system.
Management believes that superior information technology is essential to
maintaining the Company's competitive position within the industry. Although
management believes that the current SkyCom system is capable of effectively
serving the needs of the Company and the Network Members, it is currently
seeking to upgrade the Company's existing information technology and outsourcing
the ongoing upgrade and maintenance of the system. Any upgrade will be designed
to achieve the following three objectives:
. provide enhanced internet applications relying on recent technological
advances;
. provide additional and enhanced services to better fullfill the needs
of the SkyNet Network and its customers; and
. reduce the Company's dependence on its existing third party licensing
arrangements.
The Company has identified a qualified technology vendor who has submitted
a proposal to: (i) develop a state-of-the-art Company-owned information
technology system which would achieve the foregoing objectives; (ii) provide the
Company with technology upgrades and new developments; and (iii) manage and
operate the system through dedicated qualified personnel provided by the vendor.
The Company believes that this system would be technologically superior to its
existing SkyCom system.
The licensing agreement regarding the use of the existing SkyCom system is
perpetual, however, the consulting agreement, which covers the maintenance of
the current system, expires on June 1, 1999. Based on the anticipated
development of the new information technology system, it is unlikely that the
consulting agreement will be renewed after June 1, 1999. Since the Company will
maintain its current license to operate the existing SkyCom system, management
believes that any potential delay in the development and implementation of any
new system should not have a material adverse affect on the Company's
operations. At this time, management does not believe affect the existing SkyCom
system will be impacted by the so called "Year 2000 Problem". Any upgrade to the
SkyCom system will be Year 2000 compliant.
5
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CURRENT OPERATIONS
The Company is involved in all aspects of the express courier business
which consists of the following three distinct components: (i) pickup; (ii) line
haul; and (iii) delivery. In contrast to most express delivery companies,
including UPS and FedEx, as more fully explained below, the Company does not
carry out all phases of the delivery process for each package, but rather relies
on Network Members for pick up or delivery of most packages and available
aircargo space for line haul. Accordingly, the Company can be categorized as a
variable rather than fixed cost operator.
Pickup. Documents and packages delivered through the SkyNet Network are
typically picked up by a Company owned or Network Member van which transports
the parcel to one of the Member's or Company's stations. Specifically, Company
owned stations pick up approximately 27% of the total number of packages
delivered through the Network. Packages are then sorted by destination and
packed into air bags for transport throughout the world. At the time packages
are sorted, they are entered onto the SkyCom system and assigned a tracking
number. At the same time, an airway bill is generated based primarily on the
weight and to a lesser extent, the destination of the package. For international
deliveries, a Manifest is created describing the various documents and packages
being sent to a particular location. The Manifest is entered into the SkyCom
system and transmitted electronically to the point of destination so that it can
be reviewed and processed prior to the package's arrival. This saves the Company
and Members the expense related to preparing a paper Manifest and the
communication expense of transmitting it via facsimile.
Line Haul. Line haul refers to the transport of packages from point of
origination by ground or air to its city or country of destination. With respect
to air transport, the Company does not own or operate any aircraft but rather,
utilizes cargo space on commercial passenger and cargo aircraft. In this regard,
the Company has established relationships with a number of major international
airlines and large air freight companies from which the Company purchases cargo
space on an as-needed basis. The rates are typically charged per pound and,
depending upon departure times and space availability, are frequently subject to
negotiation. Although the Company has historically been able to secure air cargo
space as needed and believes its relations with commercial airlines and cargo
carriers are good, it has no contractual rights with respect to the acquisition
of cargo space and no assurance can be given that it will continue to be in a
position to secure such space in the future.
The Company believes this system is superior to the capital intensive
alternative of owning, operating and maintaining its own fleet of aircraft. In
order to most efficiently operate an air fleet, couriers such as FedEx must
ensure that each aircraft is filled to capacity. To best achieve this
objective, FedEx maintains a rigid departure schedule; typically one departure
each evening from each city in which it operates. By utilizing commercial
aircraft, the Company has access to many more destinations and departure times.
This provides the Company with the flexibility to provide next-flight-out
services for the fastest delivery of time sensitive documents and the ability to
more effectively meet special customer needs.
With respect to ground transport, the Company operates ground
transportation services at its hub locations for pickup and consolidation of
packages at such locations. Some of these services are performed on a "routed"
basis (i.e. scheduled route) while others are on an as requested basis. The
Company does not maintain receptacles which must be serviced by an extensive
route system which further increases fixed costs.
6
<PAGE>
Delivery. Upon reaching its destination, packages are sorted and released
in accordance with the Manifest. All non-documents must be cleared by a customs
agent. In this regard, the Company utilizes the services of a custom's broker to
manage the release of packages within the Network. Upon packages being released
from the airport, they are sorted at a Company or a Network Member owned
station. Documents and packages are then delivered by truck by the Company or,
more often, a Network Member. Specifically, during the year ended June 30,
1998, Company owned stations delivered approximately 20% of the total number of
packages delivered through the Network. Neither the Company nor any Network
Member will deliver a package without the signature of the recipient. This
ensures, to the best extent possible, that packages reach their intended
destination.
Pricing. Due to the highly competitive nature of the express courier
business, competitive pricing is critical to the Company's ability to
effectively compete in the market. The Company believes that its variable cost
structure permits it to provide quality services at reasonable rates. Pricing
is typically based on the weight and the destination of the package. Since the
Company and Network Members aggregate large volumes of packages for air cargo
shipment, the Company enjoys per unit air transportation costs which are less
than some smaller regional couriers. Since it does not maintain its own
aircraft, unit costs do not substantially rise or fall with volume fluctuations.
Customers. The Company maintains a diverse international customer base and
no customer accounts for in excess of 5% of the Company's annual consolidated
revenues. The Company's principal customer base can be divided into two (2)
distinct categories. First, commercial business enterprises with international
offices, customers or distribution centers which utilize the Company's
international services. Second, commercial entities based in the United Kingdom
or Australia which are primarily engaged in domestic manufacturing or service
business with delivery needs to the principal commercial centers of those
countries. Other than airbills for individual packages, the Company does not
have contracts with any of its customers. To date, the Company has not marketed
its services on a global basis to any of its customers but is currently
considering the benefits of such an approach.
Seasonality. Due to the international nature of the Company's business, it
is not subject to any material seasonal fluctuations. For example, although
volume in the United States and Europe decreases in July and August, volume in
Australia is substantially higher during these months.
BUSINESS STRATEGY
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The Company's objective is to become a recognized provider of express
delivery and logistics services throughout the world. The Company plans to
achieve its objective through implementation of a three-fold business strategy
involving strategic acquisitions within its industry, consolidation with key
Network Members and focus on internal growth and increased operating
efficiencies.
ACQUISITION STRATEGY
The Company intends to aggressively pursue an acquisition strategy to
enhance its position in its current markets and acquire operations in new
markets. The Company will focus its acquisition strategy on candidates that
either fit into or complement the Company's current operations. This will
include the acquisition of independent local and regional express courier
companies in the United States and overseas which can be consolidated into the
Company's current operations. It will also include targeting same-day couriers,
intra city couriers and global freight forwarders which can complement the
Company's current operations. For example, the Company could acquire an intra
city courier in a major US or European city or a domestic regional express
courier which, although it might not fit precisely within the Company's current
operations, could provide the Company with a more efficient delivery system and
substantial cross-selling opportunities by offering international delivery
services to a new set of customers.
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The Company's present strategy is to (i) acquire additional companies that
are intended to supplement the Company's existing market presence as "tuck-in"
acquisitions; and (ii) establish a significant presence in new markets or
geographic areas through the acquisition of established regional competitors as
"platform" acquisitions to be followed by additional "tuck-in" acquisitions.
Platform Acquisitions. A "platform acquisition" is defined by management
as one that creates a significant presence for the Company in a new geographic
market or market segment. The Company intends, where possible, to make platform
acquisitions in targeted markets by acquiring established high quality local and
regional express courier companies. In general, the Company intends to retain
the management as well as the operating and sales personnel of a platform
acquisition in order to maintain continuity of operations and customer service.
The Company will seek to increase an acquired company's revenues and improve its
profitability by integrating the acquired company into the SkyNet Network. The
Company believes that these acquisitions could provide significant cross-selling
opportunities by providing international express courier services to existing
customers on a cost-effective basis. These acquisitions are also intended to
provide a significant market presence from which additional "tuck-in"
acquisitions can be undertaken.
Tuck-In Acquisitions. A "tuck-in" acquisition will more likely occur in an
existing market, will be smaller than a platform acquisition and will enable the
Company to offer additional services or expand into secondary markets within a
region already served. In most instances, management believes that the
operations acquired by tuck-in acquisition can be integrated into the Company's
existing operations, resulting in the elimination of duplicative overhead and
operating costs and ultimately increasing operating margins and/or price
competitiveness.
The Company's acquisition strategy is intended to compliment rather than
replace the existing SkyNet Network. By focusing on "platform acquisitions" in
new markets, the Company is seeking to increase its global presence in order to
provide additional points of delivery for the Company and all Network Members.
Similarly, "tuck-in" acquisitions are primarily intended to provide additional
services or increased presence in existing markets to assist rather than
compete with existing Network Members. Accordingly, such acquisitions will
only be made in those markets which management believes are large enough to
absorb such new or additional services without adversely impacting the
operations of existing Network Members. Although the Company's acquisition
strategy will require the Company to directly pick-up and deliver additional
packages, the Company will continue to utilize available air cargo space on
commercial aircraft for line haul and rely on Network Members for most
deliveries in order to minimize fixed overhead costs.
The Company recently completed its first material acquisition. On March 15,
1999, the Company acquired the operating assets of Nevada Fleet management, Inc.
dba Fleet Delivery Service, ("Fleet"), a regional courier company which provides
air and ground delivery services in Nevada, Washington and Oregon, primarily to
the banking industry. The Company issued 1,479,415 shares of Common Stock as
consideration for the acquisition. Fleet has annual revenue of approximately $13
million, 450 employees and more than 200 delivery vehicles. The assets acquired
include; receivables, delivery vehicles, equipment, refundable deposits,
licenses, administrative material and equipment, records and documents, and all
personal property used in the operation of the business. The Company also
assumed approximately $300,000 in liabilities relating to the acquisition. The
Company accounted for the acquisition using the purchase method of accounting
with the assets acquired and liabilities assumed recorded at fair values, and
the results of the acquired business will be included in the Company's
consolidated financial statements from the closing date of the acquisition.
CONSOLIDATION OF CERTAIN NETWORK MEMBERS
The second component of the Company's business strategy is to consolidate,
via acquisition, certain of the Network Members. In this regard, the Company
intends to focus on acquiring Network Members who have a proven record of
generating a large volume of packages for delivery through the SkyNet Network.
Management believes this strategy will lead to increased productivity and
efficiency and substantially increase revenues by effectively converting certain
Network Members into revenue and profit centers for the Company and providing
such Network Members with an equity stake in the Company.
The Company believes it can successfully implement its acquisition and
consolidation strategy due to (i) the highly fragmented composition of certain
segments of the express courier industry; (ii) its unique position as a global
courier which will enable it to offer acquired companies the ability to
substantially expand the services provided to their existing customers; (iii)
the potential for increased profitability by consolidating the administrative
functions and package volume of the acquired company with those of the Company
and the Network; (iv) the extensive industry knowledge and experience of its
senior management both in the United States and overseas; and (v) the nature of
the industry which is characterized by mature privately held small businesses
whose owners might be receptive to being acquired by a larger corporation. To
date, although the Company has identified a number of potential acquisition
candidates, with the exception of the fleet acquisition described above, the
Company has not consummated any acquisition and there can be no assurance that
the Company will have the financial or personnel resources to effectuate this
strategy.
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Although the Company's capital resources are more limited than certain of
its larger competitors, the Company plans to accomplish acquisitions principally
through the issuance of its securities. The successful implementation of this
strategy depends upon the liquidity of the Company's securities which, in turn,
is facilitated by having a class of securities which are eligible for public
trading.
The use of Company securities to facilitate acquisitions, will rely to a
great extent upon the development and maintenance of an active trading market
for the Company's securities. The public trading market for the Company's
Common Stock has only recently commenced on a very limited basis. There can be
no assurance that a regular trading market will develop or if developed, will be
sustained on a long-term basis.
INTERNAL GROWTH AND INCREASED OPERATING EFFICIENCIES
Although the Network effectively provides the Company with a global
presence and international brand identity without incurring the associated costs
of owning and operating offices throughout the world, historically, it has not
been a significant source of revenue for the Company. Management also believes
that there is an imbalance of packages generated versus those delivered by
certain Network Members which is not fully covered by the Company's existing
cost recovery system and results in unequal monetary benefits and burdens among
such Members. Although management does not believe that this has resulted in any
material number of Members dropping out of the Skynet Network, it is currently
evaluating this situation in order to provide a more Equitable system of
distribution. Specifically, management is considering creating a clearinghouse
arrangement which would utilize a system of debits and credits to collect and
disburse fees from and to Members in order to equalize the economic benefits
among the Members. The Company's proposed upgrade to the Skycom system is
being designed to provide such a service. See "The Skycom System."
Management of the Company believes that accurate billing for each package
is critical to maintaining both fair pricing to its customers and consistent
margins. Since the pricing of an airbill is primarily determined by weight,
underestimating weight results in a loss of revenue. This aspect of the
Company's operation is largely controlled by Company employees and independent
contractors working at stations and hubs. Although management believes that
this has not resulted in a material loss of revenue, it continues to believe
that dedicated attention to detail by these employees is essential to the
efficient operation of the Company. Primarily through the grant of options
under the Company's broad based stock option plan, the Company believes it can
provide a sense of proprietorship to these employees which management believes
will improve their efficiency and ultimately benefit the Company.
SALES AND MARKETING
The Company and SkyNet Network Members engage in direct sales activities to
existing customers and prospects within their respective regions. This consists
of canvassing targeted markets and intensive follow-up on referrals from
existing customers. All sales and marketing is conducted on a local rather than
a global basis through the following Company owned and independently owned
Skynet stations throughout the world:
Skynet Network Stations
- -----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Company Owned Stations Location Number of Stations
- ----------------------------------------------------------------------------
London England (3)
Sydney Australia (3)
Los Angeles, California United States (1)
New York, New York United States (1)
San Francisco, California United States (1)
</TABLE>
<TABLE>
<CAPTION>
Independently Owned Stations
----------------------------
<S> <C> <C>
Country Country Country
- -------------------------------------------------------------------------------
Antigua Haiti Peru
Argentina Honduras Philippines
Aruba Hong Kong Portugal
Austria Hungary Puerto Rico
Bahamas India Reunion Island
Bahrain Indonesia Russia
Barbados Iran Rwanda
Belgium Ireland Scotland
Belize Isle of Man Singapore
Bolivia Israel South Africa
Botswana Italy South Korea
Brazil Japan Spain
Brunei Jordan Sri Lanka
Canada Kenya St Denis
Cayman Islands Kuwait Swaziland
Channel Islands Lebanon Sweden
Czech Republic Malawi Switzerland
Chile Malaysia Syria
China Malta Taiwan
Colombia Mauritius Tanzania
Costa Rica Martinique Thailand
Curazao Mexico Trinidad
Cyprus Mozambique Turkey
Denmark Moresby U.A.E.
Dominican Republic Namibia Uganda
Egypt Nepal United States
El Salvador Netherlands Uruguay
Ecuador New Guinea Vanuatu
Estonia/Lithuania New Zealand Venezuela
Finland Nicaragua Vietnam
France Norway Virgin Islands
Germany Oman Western Samoa
Greece Pakistan Yemen
Guatemala Panama Zambia
Guernsey Paraguay Zimbabwe
Guyana Peking
</TABLE>
9
<PAGE>
As management continues to integrate and streamline the operations of the
Company, it will focus on implementing a formalized marketing and sales program.
At this time, the Company intends to expand its direct sales force rather than
engage in any mass marketing or media advertising. The Company believes that
direct sales is the most cost effective way to market the Company's specialized
delivery and logistics services to its current and future customers.
COMPETITION
The market for the Company's delivery services is highly competitive. The
Company believes that the principal competitive factors in the markets in which
it competes are reliability, quality, dependability of service and, most
importantly, price. Since the industry is essentially cost-driven, the Company
is continually seeking to streamline operations to further reduce costs.
Management believes that as it implements its acquisition strategy and
integrates certain Network Members, the Company's per unit costs should
decrease, which should make the Company more competitive in the market place.
Although many of the Company's current competitors, particularly those in
the same-day ground and air delivery market, are small privately held companies,
the industry is currently undergoing substantial consolidation. This will
likely increase competition as the Company's competitors become larger and
better capitalized. In addition, the domestic next-day and second-day express
courier market is dominated by large corporations such as UPS and FedEx who have
substantially greater market power and financial resources. The international
market in which the Company primarily operates is more fragmented. Since the
Company generates in excess of 80% of its revenues from international
deliveries, the impact of direct competition with FedEx and UPS for domestic
time sensitive deliveries is limited.
REGULATION
The Company's operations are subject to various state and local regulations
which require permits and licenses from state authorities. Interstate and
intrastate motor carrier operations are subject to safety requirements
prescribed by the United States Department of Transportation and by state
Departments of Transportation. The Company's failure to comply with applicable
regulations could result in fines or possible revocation of one or more of the
Company's operating licenses, any of which events could have a material adverse
effect on the Company. In addition, the Company is also subject to certain
Federal Aviation Administration regulations which require the Company to
identify the source of all packages placed onto aircraft originating or
terminating in the United States.
INTELLECTUAL PROPERTY
The Company operates under the tradenames "SkyNet" and "SkyNet Worldwide
Express". SkyNet is a registered trademark in Australia which is owned by
SWEPL. Both SkyNet and SkyNet Worldwide Express are registered as tradenames in
the United Kingdom by SIL. The Company has made trademark applications for
SkyNet and SkyNet Worldwide Express with the United States Patent and Trademark
Office and with each of the fifty (50) states, which applications have been
approved in approximately forty (40) states. With respect to the numerous other
countries in which Network Members operate, the Company does not own the
equivalent of registered trademarks in these countries. In some cases, the
names are owned by Network members. Management does not believe that failure to
own the name in each country will have a material adverse effect on the
Company's operation.
10
<PAGE>
EMPLOYEES AND INDEPENDENT CONTRACTORS
As of March 1, 1999, the Company employed approximately 263 people; 51
as drivers or messengers, 93 in operations, 100 in sales and administrative
positions, and 19 in management. Approximately 55 are employed in the United
States. The Company is not a party to any collective bargaining agreements, has
not experienced any work stoppages and believes that its relationship with its
employees is good.
As of March 1, 1999, the Company also utilized 62 independent contract
drivers, primarily in stations outside of the United States. From time to time,
federal and state authorities assert that independent contractors in the
transportation industry, including those utilized by the Company, are employees,
rather than independent contractors. The Company believes that the independent
contractors utilized by the Company are not employees under existing
interpretations of federal and state laws. However, there can be no assurance
that federal and state authorities will not challenge this position, or that
other laws or regulations, including tax laws, or interpretations thereof, will
not change. If, as a result of any of the foregoing, the Company were held
liable for the acts of its contract drivers or required to pay for and
administer added benefits to them, the Company's operating costs would increase.
BUSINESS RISKS
When used in this filing, the words "may," "will," "expect," "anticipate,"
"believe," "continue," "estimate," "project," "intend," and similar expressions
are intended to identify forward-looking statements regarding events, conditions
and financial trends which may affect the Company's future plans of operations,
business strategy, operating results and financial position. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made. The Company undertakes no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events. Such statements are not guarantees of future
performance and are subject to risks and uncertainties and actual results may
differ materially from those included within the forward-looking statements as a
result of various factors. Such risks may relate to, among others:
1. Absence of Combined Operating History. The Company is the surviving
-------------------------------------
corporation of a merger completed on October 14, 1998 (the "Merger") between EPL
Resources (Delaware) Corp., a Delaware corporation ("EPLR"), and SkyNet
Holdings, Inc., a Nevada corporation ("SkyNet Nevada"). EPLR had been an
inactive company prior to the Merger and SkyNet Nevada had only been organized
since 1997 to consolidate the Company's operating subsidiaries. Prior to that,
each of these subsidiaries had been operating as independent legal entities. The
financial statements included within this registration statement reflect the
consolidated operations of the Company and each of its operating subsidiaries on
a consolidated basis for the fiscal years ended June 30, 1996, 1997 and 1998,
and for the six months ended December 31, 1997 and 1998. The absence of a
longer-term combined operating history may create uncertainty as to whether the
consolidated operations of the Company and its subsidiaries may be undertaken
profitably on a consolidated basis. This may subject an investor's evaluation of
the Company's long-term prospects to additional uncertainty.
11
<PAGE>
2. Profitability Likely to Depend Upon Success of Growth Strategy. The
--------------------------------------------------------------
Company has reflected only modest net income from operations during fiscal 1996
and fiscal 1998, and a net loss during fiscal 1997. Furthermore, the Company
incurred a net loss for the six months ended December 31, 1998. Management
attributes this loss to a number of factors, including an increase in the level
of corporate overhead associated with the Merger, the Company's anticipated
operations as a public company and the development and implementation of the
Company's growth strategy. If operations remain at current levels, the Company's
operating losses will most likely continue. As a result, the Company's future
profitability is likely to depend upon the successful implementation of its
business strategy, which primarily relies upon growth through acquisition.
3. Risks Related to Acquisition Strategy. One of the central elements of
-------------------------------------
the Company's business strategy is to grow through acquisitions. There can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or successfully integrate acquired businesses, if
any, into the Company without substantial costs, delays or other operational or
financial problems. Since the Company has just recently commenced this strategy,
its management does not have a track record in completing such acquisitions. In
addition, the current consolidation of the express courier, same-day delivery
and freight forwarding industries will likely result in increased competition
for acquisition candidates in which event there may be fewer acquisition
opportunities available to the Company as well as higher acquisition prices.
Furthermore, acquisitions involve a number of risks, including possible adverse
effects on the Company's operating results, diversion of management resources,
possible failure to retain key personnel, risks associated with unanticipated
liabilities and amortization of acquired intangible assets, some or all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Performance of, or other problems at, a
single acquired company could have an adverse effect on the Company's national
and international sales and marketing initiatives. In addition, there can be no
assurance that the Company or other courier service businesses acquired in the
future will achieve anticipated revenues and earnings. Finally, foreign laws
which restrict foreign investment or impose unduly restrictive regulations may
prevent the Company from completing acquisitions outside of the United States,
United Kingdom or Australia.
4. Need for Additional Financing; Risks Related to Acquisition Financing.
---------------------------------------------------------------------
The Company intends to use a substantial portion of the net proceeds of the
Private Placement to finance acquisitions in the short term. There can be no
assurances, however, that the net proceeds will be sufficient to finance any
material acquisitions. The Company will require further financing in order to
pursue its acquisition strategy beyond the short-term. The Company intends to
seek this financing through a combination of traditional debt financing and the
placement of debt and equity securities. Provided a liquid trading market for
the Company's Common Stock develops, the Company hopes to finance some portion
of its future acquisitions by using shares of its Common Stock for all or a
substantial portion of the consideration to be paid. However, in the event that
the Common Stock does not attain or maintain a sufficient market, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings.
12
<PAGE>
5. Limited Market for Common Stock; Possible Volatility of Stock Prices.
--------------------------------------------------------------------
The public trading market for shares of the Company's Common Stock has recently
commenced on the OTC Bulletin Board; however, in view of the minimal supply of
shares eligible for public resale, trading has been extremely limited. There can
be no assurances that a regular trading market for the Company's Common Stock
will develop, and if it develops, whether it can be sustained. By its very
nature, trading on the OTC Bulletin Board provides only limited market
liquidity. As a result of the limited market, purchasers of the Shares may have
difficulty in effecting sales of their Shares and/or obtaining a satisfactory
price for such Shares. The trading market for the Shares may be adversely
effected by the subsequent influx into the market of approximately 4,785,000
shares which the Company has agreed to register for resale under the Securities
Act and an additional 1,325,500 shares issued in the Private Placement which the
Company has also agreed to register for resale under the Securities Act by no
later than on or about February 19, 2000. As of March 12, 1999, the Company has
outstanding 17,424,500 shares of Common Stock of which approximately 100,000 are
eligible for public trading. The shares eligible for public resale will increase
dramatically when the Company effects the registration of the additional shares
for which it has granted registration rights. Although it is impossible to
predict market influences and prospective values for securities, it is possible
that, in and of itself, the substantial increase in the number of shares
available for public sale could have a depressive effect on the market. Until
its trading market develops, if at all, the market price for the Company's
Common Stock is likely to be volatile, and factors such as success or lack
thereof in acquiring suitable strategic targets, competition, governmental
regulation and fluctuations in operating results may all have a significant
effect. In addition, the stock markets generally have experienced, and continue
to experience, extreme price and volume fluctuations which have affected the
market price of many small capitalization companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's Common Stock.
6. Possible Limitations upon Trading Activities; Restrictions Imposed upon
-----------------------------------------------------------------------
Broker-Dealers Effecting Transactions in Certain Securities. The SEC has
- -----------------------------------------------------------
adopted regulations imposing limitations upon the manner in which certain low
priced securities (referred to as a "penny stock") are publicly traded. Under
these regulations, a penny stock is defined as any equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on the Nasdaq National Market
System or SmallCap Market and any equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000 if such issuer has
been in continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Also, under these regulations,
certain broker/dealers who recommend such securities to persons other than
established customers and certain accredited investors must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale.
If the Company's Common Stock trades below $5.00, it may be considered a
"penny stock." In which event, trading activities for the Company's Common Stock
will be made more difficult for broker-dealers than in the case of securities
not defined as "penny stocks." This may have the result of depressing the market
for the Company's securities and an investor may find it difficult to dispose of
such securities.
13
<PAGE>
7. Possible Adverse Impact of NASD Rule Change. The National Association
-------------------------------------------
of Securities Dealers, Inc. ("NASD") recently amended its rules applicable to
the OTC Bulletin Board. Under the new rules, "non-reporting" public companies
will no longer be eligible for quotation on the OTC Bulletin Board. Such
quotation will be available only to those companies which have securities
registered under the Exchange Act. Accordingly, in order for the Company's
Common Stock to remain eligible for quotation on the OTC Bulletin Board, the
Company is required to file a registration statement under the Exchange Act
which becomes effective no later than April 2000. The Company has prepared this
registration statement to register the Company's common stock under the Exchange
Act. Although management believes that this registration statement will be
effective prior to April 2000, in the event that it is not, the Company's common
stock would no longer be eligible for quotation on the OTC Bulletin Board which
would have a material adverse effect on its liquidity.
8. Possible Dilution. One of the principal elements of the Company's
-----------------
business strategy is to accomplish strategic acquisitions, principally through
the issuance of additional shares of the Company's Common Stock as purchase
price consideration. This would have the effect of increasing the number of
shares of Common Stock outstanding. In addition, in order to accomplish its
acquisition strategy on a longer-term basis, the Company is likely to require
additional financing to fund its acquisition strategy, which may entail the
issuance of additional shares of Common Stock or Common Stock equivalents, which
would have the further effect of increasing the number of shares outstanding. In
connection with other business matters, the Company will likely undertake the
issuance of more shares of Common Stock. This may be done in order to, among
others, facilitate a business combination, acquire assets or stock of another
business, compensate employees or consultants or for other valid business
reasons in the discretion of the Company's Board of Directors. Under Delaware
law, the Company can issue additional shares without notice to, or approval of,
existing stockholders. During November 1998, the Company adopted a stock option
plan pursuant to which it may grant options for the issuance of shares equal to
10% (currently 1,742,450) of the Company's outstanding shares of Common Stock.
In January 1999, the Company granted options to purchase approximately 920,000
shares of common stock under the plan. In addition, during October 1998, in
conjunction with the Merger, the Company granted options to purchase an
aggregate of 1,800,000 shares of Common Stock.
9. Reorganization of Subsidiary. DPE International, Inc. ("DPE"), a
----------------------------
wholly-owned subsidiary which operates the Company's Los Angeles and San
Francisco facilities, emerged from Chapter 11 reorganization proceedings on or
about September 2, 1996. Under its confirmed reorganization plan, DPE is
obligated to make payments to the Internal Revenue Service, the Employment
Development Department of the State of California and to certain creditors. As
of December 31, 1998, $551,000 is the aggregate amount due under the Plan.
Additional information is contained within Note 4 to the Consolidated Financial
Statements. DPE accounted for 11.6% of the Company's consolidated revenues
during the six months ended December 31, 1998.
14
<PAGE>
10. Competition. The Company faces intense competition from multinational,
-----------
regional and local companies in every market in which it operates. The
principal competitive factors within the courier services industry include
price, frequency and capacity of scheduled service, extent of geographic
coverage and reliability. Many of the Company's competitors have well
established reputations and significantly greater financial, marketing,
personnel and other resources than the Company. The Company's principal
competitors are DHL Worldwide Express, Federal Express, TNT Express Worldwide,
UPS and post offices providing express delivery services, all of which are
multinational, highly-visible and well-regarded enterprises. There can be no
assurance that the Company will be able to compete effectively against these or
any other competitors.
11. Control by Certain Stockholders. On the date of this registration
-------------------------------
statement, the Company's officers, directors and principal stockholders own
approximately 59% of the Common Stock of the Company. Consequently, under
applicable Delaware law, and in view of certain voting arrangements agreed
upon in connection with the Merger, these stockholders will be in a position to
elect all of the Company's directors and control the outcome of other corporate
matters without the approval of the Company's other stockholders. In addition,
applicable statutory provisions and the ability of the Board of Directors to
issue one or more series of preferred stock without stockholder approval could
deter or delay unsolicited changes in control of the Company by discouraging
open market purchases of the Company's stock or a non-negotiated tender or
exchange offer for such stock, which may be disadvantageous to a majority of the
Company's stockholders who may otherwise desire to participate in such a
transaction and receive a premium for their shares.
12. Reliance on Network Members; No Contractual Obligation. The Company's
------------------------------------------------------
operations are dependent upon its Network Members generating packages for
delivery through the Network and delivering packages in their respective regions
for other Network Members. The Network is a worldwide alliance of delivery
professionals and most Network Members are not bound by a formal licensing
agreement or other arrangement. Accordingly, most Network Members have no
contractual obligations to the Company or any other Network Member. Although
management believes that the absence of contractual obligations among Network
Members will not have an adverse effect upon the operations of the Company,
there can be no assurance that such Members will not enter into exclusive or
nonexclusive arrangements with competitive networks or others offering greater
benefits or lower costs.
13. Reliance on Commercial Air Carriers; No Contractual Obligation. The
--------------------------------------------------------------
Company relies on scheduled flights of commercial cargo and passenger aircraft
to provide its courier and freight forwarding services. Consequently, the
Company could be adversely affected by changes in policies and practices of air
carriers, such as pricing, payment terms, scheduling, and frequency of service.
The Company purchases cargo space from commercial air cargo and passenger
aircraft on an as-needed basis and has no contractual relationship with any
carrier for the procurement of such space. Although the Company has
historically been able to secure such space, there can be no assurance that it
will continue to be in a position to do so at rates acceptable to the Company,
if at all. The failure to obtain such space at acceptable rates, if at all,
would have a material adverse impact on the Company's results of operations.
14. Potential Liability Regarding Delivery of Shipments and Insurance
-----------------------------------------------------------------
Coverage. The Company assumes responsibility to its customers for the safe
- --------
delivery of shipments up to $100 in value. Upon the customer's request, the
Company insures amounts above $200 with various insurance companies. The
Company does not carry an umbrella insurance policy. The Company has, from time
to time, made payments to its customers for claims related to its shipments
which, to date, have not been material to the Company's results of operations.
Should the Company experience an increase in the number of such claims, there
can be no assurance that the Company's results of operations will not be
adversely affected.
15
<PAGE>
15. Liability Associated with Contracting Independent Owner/Operators.
-----------------------------------------------------------------
From time to time, federal and state authorities, including the Internal Revenue
Service, have asserted that independent owner/operators in the transportation
industry are employees rather than independent contractors, thus requiring the
payment of payroll and related taxes. The Company believes that the independent
contractors utilized by it and its Network Members are not employees under
existing interpretations of federal and state laws. However, there can be no
assurance that federal and/or state authorities will not challenge this
position, or that laws or regulations, including tax laws, or interpretations
thereof, will not change. If these independent contractors should be deemed to
be employees of the Company, the Company would be required to pay for and
administer added benefits to them. As a result, the Company's operating costs
would increase. Additionally, the Company could be liable for additional taxes,
penalties and interest for prior periods and additional taxes for future
periods, which could have a material adverse effect on the Company's business.
16. Dependence Upon Management Personnel and Executive Officers. The
-----------------------------------------------------------
Company's operations are dependent upon the continued services of Vjekoslav
Nizic its Chief Executive Officer and upon its ability to hire and retain other
qualified management and personnel. The loss of services of Mr. Nizic, any of
the Company's executive officers or other management or personnel, whether as a
result of death, disability or otherwise, would have a material adverse effect
upon the business of the Company. The Company does not maintain a key man life
insurance policy on Mr. Nizic.
17. Year 2000 Issues. The Company is presently attempting to respond to
----------------
Year 2000 issues. Year 2000 issues are the result of computer programs being
written using two digits rather than four to define the applicable year
associated with the program or an associated computation. Any such two-digit
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices or
engage in normal business activities. Management expects to have substantially
all of the systems application changes completed within the next 6 months and
believes that its level of preparedness is appropriate. In addition, to the
extent that any of the commercial cargo or passenger airlines utilized by the
Company rely upon computer programs which are subject to any Year 2000 issues,
the Company's financial condition and results of operation could be adversely
affected.
The total cost to the Company of these Year 2000 compliance issues is not
anticipated to be material to its financial position or results of operations in
any given year. These costs and the date on which the Company plans to complete
the Year 2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurances that
these estimates will be achieved and actual results could differ from those
plans.
16
<PAGE>
18. Risks Inherent In International Operations. A majority of the
------------------------------------------
Company's business is conducted outside the United States. As a result, the
operations of certain Network Members in less stable developing countries are
subject to various risks such as loss of revenue, property or equipment due to
expropriation, nationalization, war, insurrection, terrorism or civil
disturbance, the instability of foreign economies, currency fluctuations and
devaluations, adverse tax policies and governmental activities that may limit or
disrupt markets, restrict payments or the movement of funds or result in the
deprivation of contract rights which could negatively affect the Company's
business. Additionally, the ability of the Company to compete may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from vendors in, a particular
jurisdiction. The Company is subject to taxation in a number of jurisdictions,
and the final determination of its tax liabilities involves the interpretation
of the statutes and requirements of various domestic and foreign taxing
authorities, particularly Australia and the United Kingdom. Moreover, many of
the countries where the Company operates and plans to operate have legal systems
that differ from the United States legal system and may provide substantially
less protection for foreign investors.
19. Restrictions and Controls on Foreign Investments and Acquisitions of
--------------------------------------------------------------------
Majority Interests. Foreign investment by the Company in local joint ventures
- ------------------
or business acquisitions (including investments in Network Members) may be
restricted, controlled, limited or even prohibited by foreign laws. Other
foreign laws require governmental approval of investments by foreign persons and
limit the extent of any such investment. There can be no assurance that
additional or different foreign restrictions or adverse policies applicable to
the Company will not be imposed in the future. The presence of such laws and
regulations may prevent the Company from executing its acquisition strategy
outside of the United States, United Kingdom and Australia.
20. Dependence on International Trade. International trade is essential to
---------------------------------
the Company's revenues and has played an important role in the economic
development of the regions in which the Company currently operates.
International trade is influenced by many factors, including economic and
political conditions, employment issues, currency fluctuations and laws relating
to tariffs, trade restrictions, foreign investments and taxation. A reduction
in the level of international trade, material restrictions on trade or a
downturn in the economies of the United States, United Kingdom or Australia
could have a material adverse effect on the Company.
21. Currency Fluctuations. The Company currently bills only in U.S. and
---------------------
Australian dollars and British pounds. Specifically, approximately 80% of the
Company's revenues are generated outside of the United States and billed in
foreign currencies. Of these foreign currencies, approximately 84% are received
in the form of British pounds and the remainder in the form of Australian
dollars. Exchange rates for these currencies and other local currencies in
countries where the Company may operate in the future often fluctuate in
relation to the U.S. dollar and such fluctuations may have an adverse effect on
the Company's earnings or assets when local currencies are exchanged for U.S.
dollars. The Company does not currently engage in any hedging transactions in
international currencies. Accordingly, any weakening of the value of such local
currency against the U.S. dollar could result in lower revenues and earnings for
the Company.
22. Government Regulation. The Company's operations require licenses,
---------------------
permits and approvals in each jurisdiction in which it operates. Specifically,
the Company's domestic interstate and intrastate motor carrier operations are
regulated by the United States Department of Transportation and various State
Departments of Transportation which prescribe certain safety requirements which,
if not complied with, may result in fines or the revocation of existing
licenses. The loss or revocation of any existing licenses, permits or approvals
or the failure to obtain any necessary licenses, permits or approvals that the
Company may require in the future would have an adverse effect on the ability of
the Company to conduct it business and/or on its ability to expand into
additional jurisdictions. No assurance can be given that the Company will
obtain such licenses, permits or approvals. In addition, countries in which the
Company seeks to operate may have regulatory systems that impose other
impediments on the Company's operations which may prevent the Company from
executing its acquisition strategy outside of the United States, United Kingdom
and Australia.
17
<PAGE>
ITEM 2. FINANCIAL INFORMATION
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On March 15, 1999, the Company completed the acquisition of the operating
assets of Fleet Delivery Service ("Fleet"), a courier delivery service in the
states of Nevada, Arizona, California, Oregon and Washington. The consideration
for the assets acquired is approximately $3,059,000 (including approximately
$100,000 acquisition costs) which the Company satisfied by the issuance of
1,479,415 shares of the Company's Common Stock. The assets acquired include;
receivables, delivery vehicles, equipment, refundable deposits, licenses,
administrative material and equipment, records and documents, and all personal
property used in the operation of the business.
The Company accounted for the acquisition using the purchase method of
accounting with the assets acquired and liabilities assumed recorded at fair
values, and the results of the acquired business will be included in the
Company's consolidated financial statements from the closing date of the
acquisition.
On February 19 and March 5, 1999, the Company conducted closings with
respect to the Private Placement resulting in the issuance of an aggregate of
1,325,500 shares of Common Stock which generated net proceeds (after offering
costs of approximately $441,000) of approximately $2,210,000.
The unaudited pro forma condensed combined statements of operations and
balance sheet presented below reflect the acquisition of Fleet and the Private
Placement described above. The pro forma condensed combined statements of
operations are presented as if these transactions had taken place at the
beginning of the earliest period presented. The pro forma condensed combined
balance sheet is presented as if such transactions had taken place on December
31, 1998. The pro forma condensed combined financial statements should be read
in conjunction with the historical financial statements and notes thereto of the
Company appearing elsewhere herein. The unaudited pro forma financial statements
are not necessarily indicative of what the actual results of operations would
have been had such transactions occurred on July 1, 1997 or what the results of
operations of the Company will be in the future.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Skynet Fleet Pro forma Pro forma
Holdings Delivery Adjustments Combined
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Current assets $6,569,467 $1,622,181 $ (226,181)(1) $10,175,467
2,210,000 (2)
Property and equipment, net 758,891 203,110 121,890 (1) 1,083,891
Intangibles and other 266,051 19,840 1,620,160 (1) 1,906,051
---------- ---------- ----------
Totals $7,594,409 $1,845,131 $13,165,409
========== ========== ===========
Liabilities:
Current Liabilities $6,792,454 $1,552,358 $(1,250,358)(1) $7,094,454
Long-term debt 550,903 - 550,903
---------- ---------- -----------
Total Liabilities 7,343,357 1,552,358 7,645,357
2,210,000 (2)
Stockholders' Equity 251,052 292,773 2,807,227 (1) 5,520,052
---------- ---------- ----------
Totals $7,594,409 $1,845,131 $13,165,409
========== ========== ===========
</TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998
<TABLE>
<CAPTION>
Skynet Fleet Pro forma Pro forma
Holdings Delivery Adjustments Combined
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $16,947,089 $ 6,775,377 (64,787)(3) $23,657,679
(40,604)(3)
Costs and expenses 17,293,639 6,645,563 78,000 (4) 23,976,598
----------- ------------ -----------
Income (loss) from operations (346,550) 129,814 (318,919)
Other expense, net (408,622) (12,893) 12,893 (5) (408,622)
----------- ------------ -----------
Income before income taxes (755,172) 116,921 (727,541)
Income taxes (6,300) - (6,300)
----------- ------------ -----------
Net Income (loss) $ (761,472) $ 116,921 $ (733,841)
=========== ============ ===========
Basic net loss per share $(0.05)
===========
Fully diluted net loss per share $(0.05)
===========
Basic weighted average shares
outstanding (6) 16,215,283
===========
Fully diluted weighted average
shares outstanding (6) 16,215,283
===========
</TABLE>
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Skynet Fleet Pro forma Pro forma
Holdings Delivery Adjustments Combined
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $31,838,919 $ 13,631,414 (337,875)(3) $45,132,458
(385,363)(3)
Costs and expenses 31,257,942 13,542,218 136,000 (4) 44,550,797
----------- ------------- ----------
Income from operations 580,977 89,196 581,661
Other expense, net (229,523) (20,927) 21,093(5) (229,357)
----------- ------------- ----------
Income before income taxes 351,454 68,269 352,304
Income taxes (185,404) - (185,404)
----------- ------------- -----------
Net Income $ 166,050 $ 68,269 $ 166,900
=========== ============= ===========
Basic net income per share $0.02
===========
Fully diluted net income per share $0.01
===========
Basic weighted average shares
outstanding (6) 10,151,415
===========
Fully diluted weighted average
shares outstanding (6) 12,601,415
===========
</TABLE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction
- ------------
The accompanying pro forma combined statements of operations for the year
ended June 30, 1998, include the historical statements of operations of the
Company for that period plus the historical statements of operations of Fleet
for its year ended December 31, 1998. The pro forma statements of operations for
the six months ended December 31, 1998 include the historical financial
statements for that period plus the historical statements of operations of Fleet
for the six months ended December 31, 1998.
Note A - Pro forma adjustments to the condensed balance sheet are as follows:
(1) To record: i) the acquisition of the assets and the allocation of the
purchase price on the basis of the fair values of the assets acquired and
liabilities assumed and ii) the issuance of 1,479,415 shares of the
Company's Common Stock.
The components of the purchase price and its allocation to the assets and
liabilities acquired are as follows:
<TABLE>
<CAPTION>
Components of purchase price:
<S> <C>
Common Stock issued to sellers.......... $2,059,000
Acquisition costs....................... 100,000
----------
Total purchase price.................. $3,059,000
==========
Allocation of purchase price:
Current assets acquired................. $1,396,000
Property and equipment.................. 325,000
Liabilities assumed..................... (302,000)
Cost in excess of net assets acquired... 1,640,000
----------
Total purchase price.................. $3,059,000
==========
</TABLE>
(2) To record the net proceeds of $2,210,000 from the sale of 1,325,500
shares of the Company's Common Stock.
Note B - Pro forma adjustments to the condensed statements of operations are as
follows:
(3) To eliminate operations of those locations not acquired.
(4) To record additional depreciation expense (over 3 years) based on the
revised values of the depreciable assets and amortization (over 15 years)
of the excess of the fair value over net assets acquired as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, December 31,
1998 1998
---------- ----------------
<S> <C> <C>
Depreciation based on acquisition cost........ $102,000 $56,000
Historical depreciation....................... 76,000 38,000
-------- -------
Increase in depreciation...................... 26,000 18,000
Amortization of excess of fair value
over net assets acquired.................... 116,000 58,000
-------- -------
Increase in depreciation and amortization .... $142,000 $76,000
======== =======
</TABLE>
(5) To eliminate interest expense of acquired company.
(6) The weighted average shares outstanding were adjusted on a pro forma
basis to include the 1,479,415 additional shares of Common Stock
issued in connection with the Fleet acquisition plus 1,325,500
additional shares issued in a private placement.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's statements of operations for the years ended June 30, 1996, 1997 and
1998 and its balance sheets as of June 30, 1997 and 1998 are derived from the
Company's Consolidated Financial Statements which have been audited by BDO
Seidman, LLP. The selected consolidated financial data with respect to the
Company's statements of operations for the years ended June 30, 1994 and 1995,
and its balance sheets as of June 30, 1994, 1995 and 1996, are derived from
unaudited consolidated financial statements of the Company which in the opinion
of management present fairly the results of operations and financial position
for such periods. The selected consolidated financial data for the six month
periods ended December 31, 1997 and 1998 are derived from the unaudited
condensed consolidated financial statements of the Company, which in the opinion
of management include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations and
financial position for such period. The results of operations for the six months
ended December 31, 1998 are not necessarily indicative of the results of
operations to be expected for the year. The following data should be read in
conjunction with the Company's consolidated financial statements, the related
notes and the independent auditors' reports and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this registration statement.
<TABLE>
<CAPTION>
Statement of Operations Data: (1) Six Months Ended
Years Ended June 30, December 31,
--------------------------------------------------------------------- ------------------------
1994(2) 1995(2) 1996(3) 1997 1998 1997(2) 1998(2)
------------ ------------ -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $31,373,057 $33,041,182 $34,404,946 $36,151,763 $31,838,919 $16,182,102 $16,947,089
Gross Profit 10,200,664 9,952,232 11,621,140 11,758,535 12,715,451 5,970,506 6,845,275
Income (loss) before
income taxes and
extraordinary income (860,308) (1,238,103) 317,909 (125,268) 351,454 (151,465) (755,172)
Net income (loss) (1,022,933) (1,238,103) 1,297,321(3) (39,668) 166,050 (167,465) (761,472)
Basic income (loss) per
share:
Income (loss) before
Extraordinary income (0.26) (0.31) 0.01 (0.01) 0.02 (0.02) (0.06)
Net income (loss) (0.26) (0.31) 0.19 (0.01) 0.02 (0.02) (0.06)
Dilutive income (loss)
Per share:
Income (loss) before
Extraordinary income (0.26) (0.31) 0.01 (0.01) 0.02 (0.02) (0.06)
Net income (loss) (0.26) (0.31) 0.14 (0.01) 0.02 (0.02) (0.06)
Weighted average number of
shares outstanding:
Basic 7,000,000 7,000,000 7,000,000 7,000,000 7,346,500 7,059,096 13,410,368
Diluted 7,000,000 7,000,000 9,450,000 7,000,000 9,796,500 7,059,096 13,410,368
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $6,658,413 $6,052,484 $7,305,317 $8,104,071 $6,885,815 $6,988,264 $7,594,409
Long-term Debt 229,384 711,628 662,056 662,056 877,441 626,472 550,903
Total Liabilities 7,899,951 8,613,902 8,555,011 9,397,540 7,572,040 8,346,049 7,343,357
(footnotes appear on next page)
</TABLE>
____________________
(1) The financial data presented above reflects the relevant Statement of
Operations Data of Skynet Holdings, Inc., a Nevada corporation ("Skynet
Nevada"). Skynet Nevada was acquired by EPL Resources (Delaware) Corp., a
Delaware corporation ("EPLR"), by virtue of a merger transaction that was
completed on October 14, 1998 (the "Merger"). Upon completion of the
Merger, EPLR changed its name to "Skynet Holdings, Inc." Since the former
stockholders of Skynet Nevada acquired a controlling interest in EPLR, the
Merger has been accounted for as a "reverse acquisition." Accordingly, for
financial statement presentation purposes, Skynet Nevada is viewed as the
continuing entity and the related business combination is viewed as a
recapitalization of Skynet Nevada, rather than an acquisition by EPLR.
(2) Reflects unaudited data.
(3) Net income for the year ended June 30, 1996 includes extraordinary income
of $1,263,045 relating to the forgiveness of debt arising out of the former
reorganization of one of the Company's subsidiaries.
(4) Basic income (loss) per common share is based upon the weighted average
number of common shares outstanding for each period presented. Diluted
income (loss) per common share is based upon the weighted average number of
common shares plus the dilutive effect of the existing convertible
securities and options outstanding for each period presented.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company is a full service provider of international transportation
delivery services operating primarily as an express courier for time sensitive
documents and packages. The Company's services consist of: (i) time certain
deliveries within 24-48 hours of pickup; (ii) next flight out services for same
day expedited deliveries; (iii) local ground transport in select locations; (iv)
freight forwarding services; (v) bulk shipment of mass mailing materials for
local distributions; and (vi) global logistics services incorporating the
Company's proprietary computerized tracking system. These services are
formulated on a customized basis to meet the special needs of a diverse
international customer base. The Company provides these services through its
offices in London, England, Sydney, Melbourne and Brisbane, Australia, and New
York, San Francisco and Los Angeles, as well as through "SkyNet Worldwide
Express", a global network of over 1,000 offices which are independently owed
and operated in over 100 countries and functions as a worldwide network for its
members.
The Company has been formed as a result of two recent business
combinations. First, on October 1, 1997, SkyNet Nevada, a predecessor to the
Company, acquired the stock of four companies whose businesses provided
international express courier delivery services and freight forwarding services
for time sensitive documents and packages to customers throughout the world
under the name "SkyNet Express". These acquisitions were undertaken in order to
consolidate the Company's London offices with Network members in Sydney,
Melbourne and Brisbane, Australia and New York, San Francisco and Los Angeles.
These acquisitions were completed through an exchange of shares and were
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interest, whereby the Company's consolidated financial
statements have been restated to include the accounts and operations of the
merged companies for all periods presented prior to the merger.
On October 14, 1998, SkyNet Nevada merged with and into EPLR in a share
exchange transaction. Upon completion of the Merger, the combined companies
changed their name to "SkyNet Holdings, Inc.", a Delaware corporation. Prior to
the Merger, EPLR was an inactive company whose shares were eligible for
quotation on the OTC Bulletin Board. Since the former stockholders of SkyNet
Nevada acquired a controlling interest in EPLR in the Merger, the Merger has
been accounted for as a "reverse acquisition." Accordingly, for financial
statement presentation purposes, SkyNet Nevada is viewed as the continuing
entity and the related business combination is viewed as a recapitalization of
SkyNet Nevada, rather than an acquisition by EPLR.
Due to the size and nature of its particular industry segments, the Company
believes there is an opportunity to implement a market roll-up program through
selected acquisitions in the United States and overseas. Assuming it can
successfully implement this strategy, the Company intends to acquire
transportation service companies that fit into or compliment its current
operations, including express and same day courier businesses, as well as more
localized intra-city couriers, intra-regional couriers and global freight
forwarders. The Company intends to further enhance the Network's competitive
capabilities by focusing on initiatives designed to ensure a high standard of
quality control, global marketing and accelerated development of leading edge
technology, all of which, if successfully implemented, would enable the Company
to achieve greater global market penetration. Through the implementation of
this strategy, the Company believes it can enhance its position as a provider of
global delivery and transportation services.
20
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO 1997
REVENUES. Revenues for the six months ended December 31, 1998 amounted
to $16,947,089 compared to $16,182,102 for the six months ended December 31,
1997, an increase of 4.7%. The increase in revenues was attributable to higher
volume.
COST OF SALES. Cost of sales for the six months ended December 31, 1998
amounted to $10,101,814 compared to $10,211,596 for the six months ended
December 31, 1997. As a percentage of sales, such costs amounted to 59.6% for
the six months ended December 31, 1998 compared to 63.1% for the corresponding
period of the prior year. The improvement resulted from the elimination of
marginal business and improved rates received for existing business from
carriers utilized by the Company.
OPERATING EXPENSES. Compensation and compensation related costs increased
to $3,998,583 for the six months ended December 31, 1998 compared to $3,396,320
during the prior year. As a percentage of sales, compensation costs increased to
23.6% during the six months ended December 31, 1998 as compared to 21.0% for the
prior year. $271,527 of the increase relates to the addition of senior level
management personnel. The remainder of the increase principally relates to
additional staff level personnel.
Occupancy costs decreased to $277,156 for the six months ended December
31, 1998 compared to $277,394 during the prior year. Occupancy costs as a
percentage of sales remained constant during both periods. Communication
expense amounted to $375,670 during the six months ended December 31, 1998 as
compared to $304,392 for the prior year.
Other operating expenses for the six months ended December 31, 1998
amounted to $2,540,416 compared to $1,885,182 for the six months ended December
31, 1997. The increase in operating expenses resulted from: higher
communication expense of approximately $70,000, increased office expense of
approximately $63,000, increased audit fees of approximately $50,000, legal
costs of approximately $50,000 related to the Merger which was completed on
October 14, 1998, increased travel and related expenses of approximately
$140,000 and approximately $60,000 relating to a new regional office established
by the Company in the Far East.
YEAR ENDED JUNE 30, 1998 COMPARED TO 1997
REVENUES. Revenues for the year ended June 30, 1998 amounted to $31,838,919
compared to $36,151,763 for the year ended June 30, 1997, a decrease of 11.9%.
The decrease in revenues included the loss of a large customer in the United
Kingdom ($900,000) and management's decision to eliminate lower margin business
which resulted in a decrease in revenue of approximately $1,400,000.
COST OF SALES. Cost of sales for the year ended June 30, 1998 amounted to
$19,123,468 compared to $24,393,228 for the year ended June 30, 1997, a decrease
of 21.6%. As a percentage of sales, such costs amounted to 60.1% for the year
ended June 30, 1998 compared to 67.5% for the prior year. The improvement
during fiscal 1998 resulted from the elimination of marginal business and
improved rates received for existing business from carriers utilized by the
Company.
21
<PAGE>
OPERATING EXPENSES. Compensation and compensation related costs increased
to $7,178,941 for the year ended June 30, 1998 compared to $6,948,756 during the
prior year. As a percentage of sales compensation costs increased to 22.5%
during the year ended June 30, 1998 as compared to 19.2% for the prior year.
The increase as a percentage of sales resulted from a combination of lower sales
volume and wage increases as the number of employees during 1998 and 1997 was
approximately the same due to the retention of certain employees in spite of the
elimination of the low margin business described above.
Occupancy costs increased to $660,742 for the year ended June 30, 1998
compared to $529,876 during the prior year. Occupancy costs as a percentage of
sales increased from 1.5% during 1997 to 2.1% during 1998. During 1998 the
Company moved into larger facilities in London and Sydney. Communication
expense amounted to $630,221 during the year ended June 30, 1998 as compared to
$615,705 for the prior year.
Other operating expenses were approximately the same in both years and
included increased commissions of approximately $195,000.
YEAR ENDED JUNE 30, 1997 COMPARED TO 1996
REVENUES. Revenues for the year ended June 30, 1997 amounted to
$36,151,763 compared to $34,404,946 for the year ended June 30, 1996, an
increase of 5.1%. The increase in revenue resulted from higher volume.
COST OF SALES. Cost of sales for the year ended June 30, 1997 amounted to
$24,393,228 compared to $22,783,806 for the year ended June 30, 1996. As a
percentage of sales, such costs amounted to 67.5% for the year ended June 30,
1997 compared to 66.2% for the prior year.
OPERATING EXPENSES. Compensation and compensation related costs increased
to $6,948,756 for the year ended June 30, 1997 compared to $6,460,625 during the
prior year. As a percentage of sales compensation costs increased to 19.2%
during the year ended June 30, 1997 as compared to 18.8% for the prior year.
The increase as a percentage of sales resulted from wage increases plus the
addition of approximately 20 new employees during 1997.
Occupancy costs were approximately the same in both years at 1.5% of sales.
Communication expense amounted to $615,705 during the year ended June 30, 1997
as compared to $553,417 for the prior year. The increase in communication
expenses resulted from the expansion of the Company's business during 1997.
Other operating expenses were approximately the same in both years.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
A foreign subsidiary of the Company has a financing agreement with a bank
in London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables generated from accounts in the United Kingdom, which are
less than 90 days old up to a maximum of $1,700,000. The subsidiary pays an
administrative charge of .2% plus interest at the bank's base rate plus 2.25%
(10.0% at June 30, 1998). Borrowings under the agreement amounted to $1,466,422
and $782,012 at June 30, 1997 and 1998 and $1,068,690 at December 31, 1998.
Total cash and cash equivalents at December 31, 1998 amounted to
$78,455.
22
<PAGE>
Net cash provided by (used in) operating activities amounted to $387,511,
$(984,489) and $286,729 during the years ended June 30, 1996, 1997 and 1998. The
changes were primarily caused by fluctuations in receivables of $(1,119,315),
$(657,974) and $1,259,802 and fluctuations in payables and accrued liabilities
of $1,204,153, $(574,321) and $(1,356,475) during the years ended June 30, 1996,
1997 and 1998. Net cash used in operating activities during the six months ended
December 31, 1997 and 1998 amounted to $(338,304) and $(1,555,017). The increase
during the six months ended December 31, 1998 primarily results from the
increase in net loss of approximately $600,000 and changes in payables and
receivables.
Net cash used in investing activities, primarily the acquisition of
property and equipment, amounted to $282,381, $315,827 and $244,212 during the
years ended June 30, 1996, 1997 and 1998, and $69,191 and $253,269 during the
six months ended December 31, 1997 and 1998.
Net cash provided by (used in) financing activities amounted to $1,416,850
and $(70,867) during the years ended June 30, 1997 and 1998. The Company
received $1,466,422 from bank borrowings during the year ended June 30, 1997 and
repaid $684,410 during the year ended June 30, 1998. During the year ended June
30, 1998, the Company received net proceeds in the amount of $398,000 from the
sale of 258,000 shares of the Company's Common Stock at $2.00 per share. Net
cash provided by financing activities during the six months ended December 31,
1997 and 1998 amounted to $33,558 and $1,495,678. The increase in 1998 resulted
from increased bank borrowings of $286,678, proceeds from short term borrowings
of $1,195,538 and $500,000 received as part of the merger with EPLR partially
offset by repayments of long-term debt of $486,538.
At June 30, 1998 and December 31, 1998, management provided 100% valuation
allowances amounting to approximately $722,000 against the net deferred tax
asset represented by its net operating loss carry forwards due to the
indeterminate nature of the Company's ability to realize this deferred asset. On
December 1, 1998, the Company enhanced its liquidity through the repayment of an
aggregate of $1,145,000 of outstanding indebtedness through the issuance of
572,500 shares of Common Stock. See "Item 7 - Certain Relationships and Related
Transactions - Repayment of Indebtedness" and "Item 10- Recent Sales of
Unregistered Securities."
CAPITAL RESOURCES
During the year ended June 30, 1998, the Company completed a private
placement offering and received net proceeds in the amount of $398,000. In
connection with the Merger transaction, the Company received approximately
$500,000 from the sale of EPLR shares in a private placement transaction prior
to the Merger.
On February 19 and March 5, 1999, the Company conducted closings with
respect to the Private Placement resulting in the issuance of an aggregate of
1,325,500 shares of Common Stock which generated net proceeds (after offering
costs of approximately $441,000) of approximately $2,210,000. The Company
intends to use the net proceeds of the Private Placement for general working
capital and general corporate purposes, primarily to finance the Company's
business plan which includes an acquisition and consolidation strategy and to
upgrade the Company's information technology.
The Company anticipates incurring capital expenditures in the amount of
between $150,000 and $200,000 during the quarter ending June 30, 1999 in
connection with the upgrade of the Company's existing information technology.
This represents the initial software development and installation costs as well
as the additional hardware needed to effectively implement and operate the
proposed new system.
Management believes that with the completion of the Private Placement, the
Company's existing capital resources will be sufficient to fund its planned
growth in the short term. In addition, the Company is seeking suitable
acquisitions, which would accelerate the Company's growth and might require
additional capital. The Company may seek additional funds from public or private
offerings of debt or equity securities or from bank-financing facilities to the
extent available to the Company.
23
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject it to
material market risk exposures, except for such risks related to interest rate
fluctuations and foreign currency exchange rates. The carrying value of bank
debt and long-term debt approximates fair value at June 30, 1997 and 1998 and
September 30, 1998 since these notes substantially bear interest at floating
rates based upon the lenders' "prime" rate. The fair value of long-term debt in
the amount of $330,000 at September 30, 1998 related to the reorganization of a
subsidiary under bankruptcy cannot be estimated due to the court-mandated nature
of the debt.
Although the Company currently bills only in U.S. and Australian dollars
and British pounds, exchange rates for these and other local currencies in
countries where the Company may operate in the future may fluctuate in relation
to the U.S. dollar and such fluctuations may have an adverse effect on the
Company's earnings or assets when local currencies are exchanged for U.S.
dollars. Any weakening of the value of such local currency against the U.S.
dollar could result in lower revenues and earnings for the Company. To date,
gains and losses related to foreign currency transactions and foreign currency
translation have not been material for the Company.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1997 and December 31, 1998 are the net assets (liabilities) of the Company's
United Kingdom subsidiary of approximately $410,000, $469,000 and $853,000 and
the Company's Australian subsidiary of approximately $212,000 and $(230,000) and
$(48,000) for the same periods.
SEASONALITY
Company revenues in certain geographic regions appear to be subject to
certain seasonal fluctuations. These seasonal fluctuations have not, to date,
been apparent in the Company's overall results of operations.
INFLATION
The Company does not believe that inflation has to date had a material
impact on its operations. Significant increases in labor, food, or other
operating costs could have a material adverse affect on the Company's results if
the Company were for some reason unable to pass along cost increases due to
general inflation by increasing its prices.
YEAR 2000 ISSUES
The Company is currently addressing Year 2000 issues. Year 2000 issues are
the result of computer programs being written using two digits rather than four
to define the applicable year associated with the program or an associated
computation. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
Management expects to have substantially all of the systems application changes
completed within the next 6 months and believes that its level of preparedness
is appropriate.
Management is currently replacing the accounting software used throughout
the Company with an updated version which includes accounts payable and accounts
receivable modules that are Year 2000 compliant. Management expects that the
upgrade will be completed by June 30, 1999. In addition, the Company has
received representations from its independent consultant that the SkyComs system
is Year 2000 compliant.
The Company also relies, both domestically and internationally, upon
airlines, government agencies (partially the Federal Aviation Administration),
utility companies, telecommunication service companies and other service
providers outside of the Company's control. The Company is monitoring
information provided by several national and international associations which
pursue common year 2000 objectives and are active in a global and industry-wide
effort to understand the year 2000 compliance status of airports, airlines, air
traffic systems, customs clearance and other U.S. and international government
agencies, and common vendors and suppliers. However, there is no assurance that
suppliers, governmental agencies, or other third parties will not suffer a year
2000 business disruption. Such failures could have a material adverse affect on
the Company's financial condition, liquidity or results of operations.
24
<PAGE>
The total cost to the Company of these Year 2000 compliance issues is not
anticipated to be material to its financial position or results of operations in
any given year. These costs and the date on which the Company plans to complete
the Year 2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurances that
these estimates will be achieved and actual results could differ from those
plans.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The statement requires
restatement of all prior period earnings per share (EPS) data presented. The
new standard requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company adopted SPAS 128 for the period ending June 30, 1998
and for prior periods as presented in the financial statements. Adoption of
this standard did not result in a restatement of prior periods EPS data.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") is effective for financial
statements ending after December 15, 1997. SFAS 129 reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS 128. The
Company adopted SFAS 129 on June 30, 1998, and it did not have any effect on its
consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This standard was adopted during
fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segment of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
The Company does not expect adoption of SFAS 131 to have a material effect, if
any, on its consolidated results of operations.
Statement of Financial Accounting Standards No. 132, Employers' Disclosure
About Pensions and Other Postretirement Benefits ("SFAS 132") issued by the FASB
is effective for financial statements with fiscal years beginning after December
15, 1997. SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. The Company does not expect adoption of SFAS 132
to have a material effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133") issued by the FASB is
effective for financial statements with fiscal years ending June 15, 1999 and
later. SFAS 133 establishes accounting and reporting standards for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Company does not expect adoption of
SFAS 133 to have a material effect, if any, on its financial position or results
of operations.
Statement of Financial Accounting Standards No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale By A Mortgage Banking Enterprise ("SFAS 134") issued by the FASB
is effective for financial statements with fiscal years beginning after December
15, 1998. SFAS 134 amends SFAS No. 65, Accounting for Certain mortgage Banking
Activities, which establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that conduct
operations which are substantially similar to the primary operations of a
mortgage banking enterprise. The Company does not expect adoption of SFAS 134 to
have a material effect, if any, on its financial position or results of
operations.
ITEM 3. PROPERTIES
As of March 1, 1999, the Company operated from six leased facilities.
These facilities are principally used for operations, general and administrative
functions. The facilities are located in London, England, Sydney and Melbourne,
Australia and New York, San Francisco and Los Angeles. In addition, the
Company's principal executive office is located in the leased facility in Los
Angeles. The Company's aggregate rental expense for the fiscal year ended June
30, 1998 amounted to $648,901. See Note 9 to the Company's Consolidated
Financial Statements. Management believes that the Company's facilities are
adequate for its current and reasonably foreseeable operations.
25
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 12, 1999, by (i) each
person who, to the knowledge of the Company, beneficially owned more than 5% of
the Common Stock; (ii) each director and executive officer of the company; and
(iii) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
- ------------------ ---------------------- ----------
<S> <C> <C>
Vjekoslav Nizic 6,650,878(3) 39.1%
Christian J. Weber 200,000(4) 1.2%
Martin G. Paravato 50,000(5) *
Andrew Lovell 162,500 1.0%
Noel John Holmes 335,000(6) 2.0%
John Cathcart 1,600,000(7) 9.4%
Vincent J. Marold 1,680,151(8) 9.9%
All Directors, and Executive
Officers as a Group (5 persons) 7,398,378 42.5%
</TABLE>
______________________
*Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of Vjekoslav Nizic, Martin G. Paravato, Andrew Lovell is in
care of the Company, 343 South Glasgow Avenue, Inglewood, California 90301,
the address of Christian J. Weber is c/o Skynet International Limited,
Stockley Close, West Drayton, England, UB7 9BL, the address of Noel John
Holmes is PO Box 320, Coolangatta, QLD 4225, Australia, the address of John
Cathcart is 774 Mays Boulevard #10-450, Incline Village, NV 89451 and the
address of Vincent J. Marold is c/o Synergy Group International, Inc. 3725
East Sunrise Drive, Tucson, Arizona 85718.
(2) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
rules and regulations promulgated under the Exchange Act, and accordingly,
may include securities owned by and for among others the spouse and/or
minor children of an individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which such person
has the right to acquire within 60 days after the date of this filing
pursuant to the exercise of options, or otherwise. Beneficial ownership
may be disclaimed as to certain of the securities. This table has been
prepared based on 17,424,500 shares of Common Stock outstanding as of
March 12, 1999.
(3) Includes 3,121,023 shares of Common Stock held by Fir Construction Pty.
Ltd., of which Mr. Nizic is the managing director. Also includes 3,425,879
shares which are subject to an irrevocable proxy in favor of Mr. Nizic
which vests Mr. Nizic with the sole power to vote such shares with respect
to the election of directors and any amendment to the Company's Certificate
of Incorporation or By-Laws which (i) affects the size or composition of
the board of directors of the Company; or (ii) effects the supermajority
vote provisions required for board approval of certain transactions. Does
not include 700,000 shares issuable upon the exercise of options subject to
vesting commencing October 14, 2000.
(4) Consists of Common Stock owned of record by Deansley Limited, an affiliate
of Mr. Weber. Does not include 400,0000 shares issuable upon exercise of
options subject to vesting commencing October 14, 1999 which Mr. Weber
acquired from Synergy Group International, Ltd. Does not include 700,000
shares issuable upon the exercise of options granted in connection with the
Merger which were subsequently transferred to John Cathcart.
(5) Consists of shares issuable upon exercise of options.
(6) Consists of shares held by Pearlgold Pty Ltd, an entity affiliated with Mr.
Holmes.
(7) Includes 50,000 shares held of record by Mr. Cathcart which are subject to
options granted by Mr. Cathcart to third parties. Does not include 700,000
shares issuable upon the exercise of options transferred from Mr. Weber
which are subject to vesting commencing October 14, 2000.
(8) Includes shares held of record by Synergy Group International, Inc. of
which Mr. Marold is the sole shareholder. Does not include 170,000 shares
held of record by adult family members of Mr. Marold and 100,000 shares
held by a family trust, of which Mr. Marold has a 20% beneficial
interest.
26
<PAGE>
MATERIAL VOTING ARRANGEMENTS
Pursuant to the Merger, Christian J. Weber, Vjekoslav Nizic, John Cathcart,
Deansley Limited and Fir Construction Pty. Ltd. (collectively, the "Historic
Principal Shareholders") who held, as of the closing of the Merger, an aggregate
of 8,673,128 shares of the Company's Common Stock, have agreed that until
October 14, 2000, they will vote their shares at every annual meeting of
stockholders, at any special meeting of stockholders called for the purpose of
electing directors, or action by written consent or otherwise take such action
as is required, to vote for and elect a Board of Directors in the manner
described below in "ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS BOARD OF
DIRECTORS." In addition, the Historic Principal Shareholders have also agreed
not to vote their shares to amend the Company's Bylaws or Certificate of
Incorporation in a manner inconsistent with the provisions described below in
"ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS MATTERS OF CORPORATE GOVERANCE." On
February 26, 1999, Christian J. Weber and his affiliates, Deansley Ltd. and
Moontown Ltd., sold an aggregate of 3,425,879 shares of Common Stock to certain
institutional investors. The purchasers of such shares have executed an
irrevocable proxy in favor of Mr. Nizic vesting him with the sole power to vote
such shares in the manner described above until no later than on or about May
19, 2001.
MATERIAL ESCROW ARRANGEMENTS
3,750,000 shares of the Company's outstanding Common Stock are subject to
cancellation upon the terms set forth in Escrow Agreements entered into in
connection with the Merger. Specifically, the Historic Principal Shareholders
and the Company are parties to an Escrow Agreement pursuant to which the
Historic Principal Shareholders deposited an aggregate of 3,000,000 shares of
Common Stock into escrow to secure their indemnification obligations under the
Merger Agreement with respect to certain of their representations and
warranties. 1,250,000 of these shares were released upon completion of audited
financial statements of SkyNet Nevada by BDO Seidman LLP. An additional
1,000,000 of these shares are subject to release on or about April 13, 1999 and
the remaining 750,000 shares are subject to release on October 13, 1999 so long
as no claims for indemnification under the Merger Agreement are pending against
the Historic Principal Shareholders.
In addition, certain historic principal shareholders of EPLR, including
Vincent J. Marold, and the Company are parties to an Escrow Agreement pursuant
to which these shareholders placed 2,000,000 shares into escrow to secure the
obligation of EPLR to complete a private placement of Company's securities to
raise net proceeds of at least $2,500,000. In order to satisfy this obligation,
the Company undertook the Private Placement pursuant to which it realized net
proceeds of approximately $2,210,000. The Company has agreed to extend the
deadline to raise the additional capital until March 31, 1999. In the event that
an additional $300,000 of net proceeds is not raised by March 31, 1999, these
shares will be surrendered and returned to the Company for cancellation.
RESTRICTIONS UPON RESALE
In addition to any prohibition on transfers or sales under applicable
federal or state securities laws, the Historic Principal Shareholders may not
sell, transfer, encumber or otherwise dispose of the shares of the Company's
Common Stock issued to them in the Merger until October 14, 2000.
Notwithstanding this limitation, commencing January 14, 1999, the Historic
Principal Shareholders shall be permitted to sell up to an aggregate of 160,000
shares of the Company's Common Stock; provided, however, that any sale of such
shares prior to October 14, 1999 shall be on terms and to parties reasonably
acceptable to Mr. Marold's designee to the Company's Board of Directors. See
"ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS - BOARD OF DIRECTORS." In this
regard, the Company has agreed to include these shares in a registration
statement to permit the public resale thereof. Subject to compliance with
applicable federal and state securities laws and regulations, during the one
year period commencing October 14, 1999, each Historic Principal Shareholder
shall be permitted to sell up to 50,000 additional shares of the Company's
Common Stock.
In connection with the Private Placement, the directors and executive
officers of the Company entered into lock up agreements (the "Placement Agent
Lock-Up Agreement") with Puglisi Howells & Co., Inc. (the "Placement Agent").
Under the Placement Agent Lock-Up Agreement, such executive officers and
directors have agreed not to directly or indirectly, offer for public sale,
publicly sell, or otherwise publicly dispose of, directly or indirectly, any of
the shares of the Company's Common Stock which they may own legally or
beneficially for a lock-up period commencing February 19, 1999 and terminating
on the last to occur of: (i) August 19, 2000; (ii) the date ninety (90) days
after the effectiveness of the registration statement covering the resale of the
shares sold in this Private Placement; and (iii) the date ninety (90) days after
the effectiveness of the registration statement covering the shares issuable
upon exercise of the warrants issued to the Placement Agent, however, in any
event, such lock-up period shall expire no later than on or about May 19, 2001.
Notwithstanding the above, during such lock-up period, the executive officers
and directors are permitted to: (i) with the consent of a majority of the
Company's disinterested directors, engage in private resales, pledges or gifts
of the shares so long as the purchaser, pledgee or donee acquiring the shares
agrees to hold such shares in accordance with the restrictions identified herein
for the remainder of the lock-up period applicable to such shares; or (ii)
engage in private transfers or gifts of the shares to "affiliates" (as the term
is defined under the Securities Exchange Act of 1934) or family members, so long
as the transferee or donee acquiring the shares agrees to hold such shares in
accordance with the restrictions identified herein for the remainder of the
lock-up period applicable to such shares.
As described in "ITEM 9 - MARKET PRICE OF THE DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND STOCKHOLDER MATTERS," the Company has agreed to file a shelf
registration statement covering the public resale of approximately 4,785,000
shares of the Company's Common Stock. In connection with the Private Placement,
holders of 1,000,000 of these shares have agreed not to directly or indirectly,
offer for public sale, publicly sell, or otherwise publicly dispose of such
shares without the prior written consent of the Placement Agent for a lock-up
period commencing on February 19, 1999 and terminating sixty (60) days after the
later of (i) the date the shares of common stock issued in the Private Placement
are first eligible for public resale under either SEC Rule 144 or pursuant to an
effective registration statement under the Securities Act; or (ii) the
effectiveness of a registration statement under the Securities Act covering the
resale of the shares underlying the warrants issued to the Placement Agent,
however, in any event, such lock-up period shall expire no later than on or
about May 19, 2000. With the consent of a majority of the disinterested members
of the Company's Board of Directors, third-party private resales, pledges or
gifts of these shares will be permitted as long as the purchaser, pledgee or
donee of any such shares agrees to remain bound by the aforesaid restrictions
upon resale for the remainder of the lock-up period applicable to such shares.
Private transfers or gifts to affiliates or family members are also permitted as
long as the transferee or donee of any such shares agrees to remain bound by the
aforesaid restrictions upon resale for the remainder of the lock-up period
applicable to such shares.
27
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME Age Office
---- --- ------
<S> <C> <C>
Vjekoslav Nizic 45 President, Chief Executive
Officer and Director
Christian J. Weber 55 Chairman and Managing
Director of SIL
Martin G. Paravato 57 Chief Financial Officer,
Treasurer and Secretary
Andrew Lovell 40 Chief Operating Officer of
SkyNet Worldwide Express
Noel John Holmes 50 Director
</TABLE>
The following is a brief summary of the business experience of each of the
above-named individuals:
VJEKOSLAV ("VIC") NIZIC currently serves as the President, Chief Executive
Officer and Director of the Company. Mr. Nizic has been involved in the courier
business since 1978 when he founded Skyroad Express as a domestic courier
company in Australia, offering overnight and same-day service. Skyroad Express
became the largest privately-owned express courier company in Australia at that
time. In 1983, Mr. Nizic sold Skyroad Express and formed DPE International Pty.
Ltd., an international courier providing service from Australia to the rest of
the world. In 1987, Mr. Nizic sold DPE International Pty. Ltd., retaining DPE
International, Inc., its U.S. subsidiary, which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in 1995, emerging from the Chapter 11
proceedings in 1996. Mr. Nizic graduated from the University of New South Wales
in Australia.
CHRISTIAN J. WEBER currently serves as the Chairman of the Board of
Directors of the Company and the Managing Director of SIL. Mr. Weber has been
involved in the courier business since 1978, when he co-found Sky Courier
International, a company engaged in international courier services. In 1978,
Mr. Weber was also a founder of SkyNet, and in 1980 he purchased, with partners,
a controlling interest in SIL and its subsidiaries, which currently comprise the
largest of the Company's operating subsidiaries. In 1992, Mr. Weber developed
the SkyCom system used by the Company. Mr. Weber has acted as the managing
director of SIL since that time.
MARTIN G. PARAVATO has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1998. Prior to joining the Company, from
1996 to 1998 Mr. Paravato was Sr. Vice President Finance and Special Projects
with Koo Koo Roo, Inc. a public company that owns and operates restaurants.
Prior to joining Koo Koo Roo, Mr. Paravato was an audit partner with the
international accounting firm of BDO Seidman, LLP specializing in serving
publicly held companies. Mr. Paravato has over 25 years experience in public
accounting. Mr. Paravato is a CPA and a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants. He holds a Bachelor of Science - Business degree from California
State University at Northridge, California.
28
<PAGE>
ANDREW LOVELL joined the Company September 1, 1998 as Chief Operating
Officer of SkyNet Worldwide Express. Prior to joining the Company, he was
founder, managing director and part owner of a South African company, which is
one of the largest and most successful Members of the SkyNet Network. Prior to
that, he served as managing director of Sky Couriers, another Network Member.
Mr. Lovell has over 18 years experience in the courier delivery and freight
forwarding industries and holds a business management diploma from Damelin
College in Johannesburg, South Africa.
NOEL JOHN HOLMES has served as a director of the Company since November 16,
1998. Mr. Holmes is a chartered accountant and has been a partner with Holmes &
Partners Pty Ltd., an accounting firm on the Gold Coast, Australia since 1986.
Mr. Holmes has over 30 years of public and private accounting experience and is
a fellow of the Institute of Chartered Accountants in Australia, the Taxation
Institute of Australia and the Australian Institute of Company Directors, among
others.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
The Board of Director presently consists of three (3) members. However, in
conjunction with the Merger, the Company agreed to maintain a Board of Directors
consisting of five (5) members including: (i) a designee of Vincent J. Marold, a
former EPLR board member and a principal stockholder of the Company; (ii) two
(2) designees of the Historic Principal Shareholders; (iii) a designee of the
disignee under item (i) above who shall be acceptable to the Historic Principal
Shareholders; and (iv) an additional designee of the Historic Principal
Shareholders who is acceptable to the designee under item (i) above. Mr. Nizic
and Mr. Weber are the designees under item (ii) above and Mr. Holmes is the
designee under item (iv) above. As of the date of this registration statement,
Mr. Marold has not designated the member covered under item (i) above.
MATTERS OF CORPORATE GOVERNANCE
Until October 13, 2000, the Company's Bylaws require that certain
fundamental corporate transactions require the approval of 80% of the members of
the Company's Board of Directors. These include (i) any merger, consolidation,
sale of all or substantially all of the assets of the Company or a
recapitalization involving the Company; (ii) transactions between the Company
and any interested party (including all directors, executive officers or persons
holding in excess of 5% of the Company's outstanding shares); (iii) any
modification to the terms of the Merger or any other agreements entered into in
connection with the Merger; (iv) any issuance of shares of the Company's Common
Stock, preferred stock or securities exercisable or convertible into shares of
the Company's Common Stock or preferred stock equal to or exceeding 10% of the
Company's then outstanding shares of Common Stock or voting power; and (v) any
amendment to the Company's Bylaws or Certificate of Incorporation. The Historic
Principal Shareholders have further agreed not to take any action inconsistent
with the foregoing, including voting any shares of the Company's Common Stock to
amend the Company's Bylaws or Certificate of Incorporation in a manner
inconsistent with the foregoing.
29
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer,
Chairman of the Board and all other executive officers who earned more than
$100,000 (salary and bonus) (the "Named Executive Officers") for all services
rendered in all capacities to the Company during the fiscal years ended June 30,
1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation COMPENSATION AWARDS
-------------------------- ---------------------
RESTRICTED
NAME AND PRINCIPAL Fiscal Other Annual STOCK OPTIONS/
Position Year Salary BONUS COMPENSATION Awards SARs (#)
-------- ---- ------ ----- ------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Vjekoslav Nizic 1998 $128,863 -- -- -- --(2)
President and Chief 1997 $ 58,692 -- -- -- --
Executive Officer 1996 $ 59,829 -- -- -- --
Christian J. Weber 1998 $199,980 $20,625 -- -- --(3)
Chairman of the Board 1997 $196,350 $48,950 -- -- --
1996 $130,350 $69,135 -- -- --
</TABLE>
__________________________
(1) With respect to each of the executive officers named in the table, if not
separately reported the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(2) Does not reflect 700,000 options granted to Mr. Nizic in conjunction with
the Merger.
(3) Does not reflect 700,000 options granted to Mr. Weber in conjunction with
the Merger, which were subsequently transferred to one of the Company's
principal stockholders.
EMPLOYMENT ARRANGEMENTS
The Company has employment agreements with each of Messrs. Nizic, Weber and
Paravato. Messrs. Nizic and Weber are employed for terms of three (3) years
commencing October 14, 1998, at annual base salaries of $175,000 and $200,000,
respectively. Mr. Paravato has been employed for a renewable term of one (1)
year, commencing October 14, 1998, at an annual base salary of $125,000, subject
to a mandatory bonus of $25,000 for fiscal 1999. Each of Messrs. Nizic, Weber
and Paravato are entitled to participate in the Company's fringe benefit, bonus,
profit-sharing and incentive plans adopted by the Company. They are also
entitled to reimbursement for certain Company-related travel expenses, including
use of an automobile and related expenses.
The Company also entered into a consulting agreement with a corporation
wholly-owned by Mr. Lovell, pursuant to which such corporation has agreed to
provide Mr. Lovell's services to the Company for a term of one year commencing
September 1, 1998, at an annual rate of $168,000.
30
<PAGE>
DIRECTORS COMPENSATION
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. Non-employee directors
receive a maximum annual compensation of $2,500, a fee of $500 for each meeting
attended and reimbursement of reasonable expenses incurred in attending
meetings. All directors are also eligible to participate in the Company's 1998
Stock Incentive Plan.
STOCK INCENTIVE PLAN; OUTSTANDING OPTIONS
The Company's Board of Directors and stockholders adopted the "SkyNet
Holdings, Inc. 1998 Stock Incentive Plan" (the "1998 Plan") during November
1998. The 1998 Plan covers the greater of 1,609,900 or 10% of the total number
of shares of the Company's Common Stock outstanding on each December 31,
beginning on December 31, 1998, provided, however, that the foregoing formula
-------- -------
shall never result in a decrease in the maximum number of shares available under
the 1998 Plan. Under its terms, officers, directors, key employees and
consultants of the Company are eligible to participate in the 1998 Plan. The
1998 Plan permits: (i) the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) the grant of non-qualified stock options; (iii) the issuance or sale of
Common Stock, with or without vesting or other restrictions; (iv) the grant of
Common Stock upon the attainment of specified performance goals; and (v) the
grant of stock appreciation rights ("SARs"). The 1998 Plan contains certain
limitations on the maximum number of Shares of Common Stock that may be awarded
to any one individual in any calendar year for the purposes of Section 162(m) of
the Code.
The 1998 Plan is administered by the Board of Directors or a committee
consisting of no less than three members designated by the Board of Directors
(the "Plan Administrator".) Subject to the provisions of the 1998 Plan, the
Plan Administrator has full power and authority to determine, from among the
persons eligible for grants or awards under the 1998 Plan: (i) the individuals
to whom grants or awards will be made; (ii) the combination of grants or awards
to participants; and (iii) the specific terms of each grant or award. Incentive
stock options may be granted only to officers or other employees of the Company
or its subsidiaries, including members of the Board of Directors who are also
employees of the Company or its subsidiaries.
Incentive stock options granted under the 1998 Plan are exercisable for a
period of up to 10 years from the date of grant and at an exercise price that is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the 1998
Plan to a stockholder owning more than 10% of the outstanding Common Stock may
not exceed five years and the exercise price of an incentive stock option
granted to such a stockholder may not be less than 110% of the fair market value
of the Common Stock on the date of the grant. Non-qualified stock options may
be granted on terms determined by the Plan Administrator. SARs, which give the
holder the privilege of surrendering such rights for the appreciation in the
Company's Common Stock between the time of grant and the surrender, may be
granted on any terms determined by the Plan Administrator.
Incentive stock options granted under the 1998 Plan are non-transferable,
except upon death, by will or by operation of the laws of descent and
distribution, and may be exercised during the employee's lifetime only by the
optionee. Under the terms of the 1998 Plan, the aggregate fair market value
(determined as of the date of grant) of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
employee during any calendar year (under all such plans of the Company and any
parent and subsidiary corporation of the Company) may not exceed $100,000.
31
<PAGE>
Options granted under the 1998 Plan may be exercised within 12 months after
the date of an optionee's termination of employment by reason of death or
disability, or within three months after the date of termination by reason of
retirement or voluntary termination approved by the Plan Administrator, but only
to the extent the option was otherwise exercisable on the date of termination.
The 1998 Plan will expire on November 1, 2008, unless terminated earlier by
the Board of Directors. The 1998 Plan may be amended by the Board of Directors
without stockholder approval, except that, in general, no amendment that
increases the maximum aggregate number of shares that may be issued under the
1998 Plan, decreases the minimum exercise price of options provided under the
Plan, or changes the class of employees who are eligible to participate in the
1998 Plan, shall be made without the approval of a majority of the stockholders
of the Company. None of the above actions, if taken, may adversely affect any
right or obligation regarding any grants or awards previously made under the
1998 Plan without the written consent of the recipient. In the event of any
changes in the capital structure of the Company, such as a stock dividend or
split-up, the Board of Directors must make equitable adjustments to outstanding
unexercised awards to that the net value of the award is not changed.
As of February 28, 1999 options to purchase approximately 920,000 shares of
common stock have been granted under the 1998 Plan.
In connection with the Merger, the Company granted Vjekoslav Nizic and
Christian J. Weber options to purchase 700,000 shares of Common Stock at an
exercise price of $3.00 per share. The options have a term of five years and
are exercisable in full commencing two (2) years from the date of the Merger.
Subsequent to the Merger, Mr. Weber transferred his options to one of the
Company's principal stockholders. In connection with the Merger, the Company
also granted Synergy Group International, Inc., a Company controlled by Vincent
J. Marold, a principal stockholder of the Company, options to purchase 400,000
shares of Common Stock at an exercise price of $3.00 per share. These options
have a term of five years and vest in ratable installments over a three year
period commencing October 14, 1999. Subsequent to the merger these options were
transferred to Mr. Weber.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Waiver of Lock Up, Consent to Sale of Shares and Release from Escrow.
On February 26, 1999 the Company waived the application of the lock-up
provisions of the Merger Agreement in order to permit (i) Christian J. Weber and
his affiliates, Deansley Limited and Moontown Ltd., to sell an aggregate of
3,425,879 shares of Common Stock (the "Weber Shares"), (ii) Mr. Nizic to sell
100,000 shares of Common Stock (the "Nizic Shares"), and (iii) Mr. Cathcart to
sell 500,000 shares of Common Stock to certain institutional investors in
separate privately negotiated transactions. On March 15, 1999, Mr. Nizic sold
400,000 shares of Common Stock (the "Additional Nizic Shares") to his brother
in a private negotiated transaction. The Company also consented to the transfer
of the Weber Shares, Nizic Shares and Additional Nizic Shares in accordance with
the Placement Agent Lock Up Agreement in consideration of the purchasers of such
shares being bound by the Placement Agent Lock-Up Agreement which prohibits the
transfer or sale of such shares until no later than on or about May 19, 2001.
See "Item 4 -Security Ownership of Certain Beneficial Owners and Management --
Restrictions Upon Resale". Finally, the Company released 205,996 of the Weber
Shares from escrow.
Extension of Date for Surrender of Shares.
On February 26, 1999, the Company agreed to extend the deadline for EPLR to
raise net proceeds of at least $2.5 million until March 31, 1999. This extended
the date on which certain shares of Common Stock held by certain historical
stockholders of EPLR, including Vincent J. Marold, a principal stockholder of
the Company, will be subject to forfeiture and cancellation.
Issuance of Shares in Cancellation of Indebtedness
On December 1,1998, the Company issued 335,000 shares of its Common Stock
to Pearlgold Pty Ltd, an entity affiliated with Noel Holmes, a director of the
Company, in exchange for the cancellation of $670,000 short-term indebtedness.
On December 1, 1998, the Company issued 162,500 shares of its Common Stock
to Andrew Lovell, an officer, in exchange for the cancellation of $325,000
short-term indebtedness.
Transactions with Principal Stockholder
In October 1998, in connection with the Merger, the Company repaid $100,000
to John Cathcart, a principal stockholder. Mr. Cathcart had advanced these
funds to the Company in September 1997 pursuant to a non-interest bearing
promissory note. In addition, during the period July 1, 1998, through the date
hereof, the Company paid Mr. Cathcart consulting fees amounting to $68,000.
AGREEMENTS WITH OFFICERS AND DIRECTORS
The Company has entered into employment agreements with Messrs. Nizic,
Weber and Paravato and option agreements with Messrs. Nizic and Weber. See
"ITEM 6 EXECUTIVE COMPENSATION - EMPLOYMENT ARRANGEMENTS and STOCK INCENTIVE
PLAN; OUTSTANDING OPTIONS."
32
<PAGE>
SALE OF SHARES TO PRINCIPAL STOCKHOLDER
In September 1998, the Company issued 1,030,151 shares of Common Stock to
Vincent J. Marold, 100,000 shares to Marold Investment LLC, an entity affiliated
with Mr. Marold, and 170,000 shares to immediate family members of Mr. Marold,
in a private placement transaction. This offering was undertaken by EPLR prior
to the execution and closing of the definitive merger agreement with SkyNet
Nevada. At that time Mr. Marold was the sole officer and director of EPLR. These
shares were issued on the same terms and conditions as all other shares in such
private placement.
ITEM 8. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, although it
is involved from time to time in routine litigation incident to its business.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is listed for quotation on the OTC Electronic
Bulletin Board under the symbol "SKYN" however, the market for such shares is
extremely limited. No assurance can be given that a significant trading market
for the Company's Common Stock will develop or, if developed, will be sustained.
The Company's Common Stock has been eligible for such trading since May 15,
1998.
The following table sets forth the range of the high and low closing bid
prices of the Company's Common Stock during each of the calendar quarters
identified below. These bid prices were obtained from the National Quotation
Bureau, Inc. and do not necessarily reflect actual transactions, retail markups,
mark downs or commissions. The transactions include inter-dealer transactions.
Based on the very limited public float and trading in the Company's Common
Stock, management of the Company believes that such data is anecdotal and may
bear no relation to the true value of the Company's Common Stock or the range of
prices that would prevail in a fluid market.
<TABLE>
<CAPTION>
1999 High Low
---- ---- ---
<S> <C> <C>
1st Quarter (through
March 5, 1999) $7.25 $3.3125
1998 High Low
---- ---- ---
2nd Quarter * *
3rd Quarter $0.53125 $0.03125
4th Quarter $5.75 $0.03125
</TABLE>
* No bids reported
_______________________
The closing bid price of the Company's Common Stock as of March 5, 1999
was $7.25 per share.
33
<PAGE>
SHARES ISSUABLE UPON EXERCISE OF OPTIONS
The Company has issued options to purchase an aggregate of 2,492,000 shares
of the Company's Common Stock. Options to purchase 1,400,000 shares are subject
to vesting commencing October 14, 2000 and 920,000 shares are subject to vesting
commencing June 30, 1999. The remaining options to purchase 400,000 shares vest
in ratable installments over a three year period commencing October 14,
1999.
SHARES ELIGIBLE FOR PUBLIC RESALE AND REGISTRATION RIGHTS
As of December 18, 1998, no shares of Common Stock of the Company are
eligible for public resale pursuant to Rule 144 promulgated under the Securities
Act. The Company has granted shelf registration rights to the holders of
approximately 4,785,000 shares of the Company's Common Stock pursuant to which
the Company has agreed to register the public reoffer of such shares. This
includes 160,000 shares that may be offered by the Historic Principal
Shareholders. Management's preliminary plan, which remains subject to change, is
to file a registration statement for this purpose shortly after the effective
date of this Form 10. In addition, the Company has agreed to grant incidental
(piggy-back) registration rights under certain limited circumstances covering
the public resale of up the 1,325,500 shares issued in the Private Placement. In
the event that the resale of such shares has not been registered under the
Securities Act by February 19, 2000, the Company has agreed to file a shelf
registration statement to register the public reoffer of such shares.
HOLDERS
As of March 5, 1999, the number of stockholders of record of the Company's
Common Stock was approximately 125, although management believes that there are
additional beneficial owners of the Company's Common Stock who own their shares
in "street name."
DIVIDENDS
The Company has not paid any cash dividends to date, and has no intention
to pay any cash dividends on its Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. The timing, amount and form of dividends, if any,
will depend, among other things, on the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
Board of Directors.
34
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
1. On October 14, 1998, in connection with the Merger, the Company issued
9,901,500 shares of Common Stock to the holders of all outstanding shares of
capital stock of SkyNet Nevada and options to certain affiliates to purchase
1,800,000 shares of Common Stock. These securities were issued directly by the
Company without payment of any commissions in a private placement transaction
exempt from the registration requirements of the Securities Act pursuant to
Section (4)(2) thereof to the following accredited investors:
Name Number of Shares
---- ----------------
John Cathcart 2,100,000
Deansley Limited 3,152,841
Fir Construction Pty Ltd 3,121,023
Christian J. Weber 509,397
Earnest N. Schnesel 140,000
Ms. Anne Schnesel 12,733
David Schnesel 12,733
Mrs. Jodi Spector-Klein 12,733
Mrs. Shan Spector-Keats 12,733
Ms. Fran Lefkowitz 12,733
Mrs. Stephanie Bower 31,819
Ms. Jamie Bank 31,819
Melvyn Ian Smith 31,819
Moontown Limited 63,641
Vjekoslav Nizic 203,976
Swiss Bank fbo Kettering Trust 35,000
Dr. Thomas J. Slobig 13,125
Arthur Rockert 8,750
Segal Communication, Inc. 8,750
Mark Scatterday 8,750
Sandra M. Lindzon 26,250
Cathy Graham 17,500
John Scatterday 8,750
Donald S. Lindsay 8,750
Thomas Grant Peterson 8,750
Jeff Silverman SEP IRA 8,750
Vincent R. Williams 8,750
Mike Campbell 8,750
Roger Barrett 8,750
Christopher F. Nelson 43,750
Christopher J. Lang 43,750
James B. Norman 17,500
Stephen A. McConnell 17,500
William H. Fisher 26,250
Vincent & Lois Gann Trust 26,250
Helen Patricia Smith IRA 14,875
George Brooks (MOD Financial Services) 26,250
Nils and Patricia Selden 12,250
Marc Federighi 43,750
---------
Total 9,901,500
=========
35
<PAGE>
Name Number of Options
---- -----------------
Vjekoslav Nizic 700,000
Christian J. Weber 700,000
Synergy Group International, Inc. 400,000
----------
Total 1,800,000
==========
2. During September 1998, the Company issued and sold an aggregate of
4,625,000 shares of Common Stock raising gross proceeds of $555,000. This
offering was undertaken by EPLR prior to the execution and closing of the
definitive merger agreement with SkyNet Nevada. At that time EPLR was an
inactive Company with no assets or liabilities. Investors in such offering
were, therefore, subject to a number of risks and uncertainties, including the
material contingencies associated with the execution of the merger agreement and
closing of the Merger. These shares were issued directly by the Company without
payment of any commissions to the following accredited investors in a private
placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder:
Name Number of Shares
- ---- ----------------
Mr. Kim B. Acorn 10,000
Claire Behar, Guardian For Bryce Behar 5,000
Claire Behar, Guardian for Jaclyn Behar 5,000
Chase Trust 25,000
Mr. David Cohen 10,000
Jennifer Cohen 20,000
Susan Nussbaum Cohen 10,000
Mr. Rich Davimos 20,000
Mr. Robert Davimos 10,000
EBR Investments 100,000
Fincord Holding Co. 695,000
J. Scott Flasburg 10,000
Mr. Philip L. Franckel 25,000
John Freedom 5,000
Mr. Marvin Gersten 100,000
Mr. Martin A. Goldstein 10,000
Ms. Aimee Gremmo 20,000
Mr. Edward Gurrieri 30,000
Mark S. Howells Trust 50,000
Mr. Kenneth Kirschenbaum 100,000
Larlan Investors Ltd 416,667
Mr. Howard Lindzon 75,000
Ms. Sandra Lindzon 130,000
Mr. Frank Marold 150,000
Mr. Franklin Marold 20,000
Vincent Marold 1,030,151
Marold Investment LLC 100,000
Mr. Jonathan Mazinter 2,500
Anna Maria Mintz 20,000
MCZ Investment Company 405,000
36
<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Mr. Casey O'Brien 20,000
Mr. Tomas Peterson 65,000
Mr. John Scott Polson 2,500
Mr. Jeffrey J. Puglisi 50,000
Ms. Linda Rufo 20,000
Ms. Rosemary SantaMaria 10,000
Mr. Charles Seavey 100,000
Mr. Mike Segal 20,000
Mr. Rob Segal 130,000
Jose Serrano 2,500
Patricia Trish Trust 20,000
Arnold Hendrik William van Hilton 10,000
Philip-Jan van Hilton 10,000
Veracruz Group Limited 333,182
c/o Bentley Agencies Limited
Wexler & Burkhart 35,000
Diane Winston 15,000
For Benefit of Elizabeth Cohen
Diane Winston 20,000
Custodian For Jarret Cohen
Ms. Diane Gail Winston 150,000
Mr. David M. Wrenn 2,500
---------
Total 4,625,000
=========
</TABLE>
3. On December 1, 1998, the Company issued an aggregate 572,500 shares of
Common Stock in exchange for the cancellation of $1,125,000 of short-term
indebtedness (including accrued interest), of which $670,000 had been
collectively advanced to the Company by an entity affiliated with a director.
These shares were issued directly by the Company without payment of any
commissions to the following accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Pearlgold Pty Ltd (affiliated with Noel
Holmes, a director of the Company) 335,000
Andrew Lovell 162,500
Ceceile Klein 75,000
-------
Total 572,500
=======
</TABLE>
4. On February 19 and March 5, 1999 the Company issued an aggregate of
1,325,500 shares of common stock raising gross proceeds of $2,651,000. Puglisi
Howells & Co., a registered/broker dealer, acted as placement agent to the
Company pursuant to which it received sales commissions and non-accountable
expenses equal to $265,100. The securities were issued to the following
accredited investors in a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder.
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Todd and Kay Ziplow 25,000
CLS Associates, L.P. 50,000
Michael Ohlhausen 13,000
Irvine Capital Partners, L.P. 100,000
Schottenfeld Associates, L.P. 100,000
Aaron and Cynthia Shenkman 100,000
Puglisi Capital Partners 100,000
Bruce Derrick 125,000
Delaware Charter Guarantee & Trust Co. 12,500
Delaware Charter Guarantee & Trust Co. 12,500
Knut Jensen 25,000
Alan and Susan Shaw 12,500
Joshua and Chanie Manela 12,500
Alan and Jan Kelsey 25,000
Lindzon Capital Partners 70,000
Michael and Fran Mallace 5,000
Brent Richardson 50,000
Delaware Charter Guarantee & Trust Co. 12,500
Ziad M. Sultan Al-Essa 25,000
Philip Van Hilten 15,000
Dr. Leon Zieter 17,500
Mike Campbell and Lorene Hernandez 5,000
Gibralt US, Inc. 125,000
Carolyn Siskin Gordon 17,500
Michael G. Rowe 25,000
Steve and Marion Elbaum 50,000
Bank Julius Baer & Co. Ltd. Zurich 50,000
Sidney Sands (Millworth) 20,000
Jeffrey J. Puglisi 100,000
John Orlando 25,000
---------
Total 1,325,500
=========
</TABLE>
37
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.0001 par value per share, of which 17,424,500 are issued and outstanding as of
March 5, 1999.
Holders of Common Stock have equal rights to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefor.
Holders of Common Stock have one vote for each share held of record and do not
have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
Within the limits and restrictions provided in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 5,000,000 shares of preferred stock, $.0001
par value per share (the "Preferred Stock"), in one or more series, and to fix,
as to any such series, the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms, conversion rights, voting
rights, and any other preference or special rights and qualifications. There
are presently no shares of Preferred Stock outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company more difficult or time consuming. For example, shares of Preferred
Stock could be issued with certain rights that might have the effect of diluting
the percentage of Common Stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
Board of Directors determines is not in the best interest of the Company and its
stockholders. The existence of Preferred Stock may, therefore be viewed as
having possible anti-takeover effects. A takeover transaction frequently
affords stockholders the opportunity to sell their shares at a premium over
current market prices. The Board of Directors has not authorized the issuance
of any series of Preferred Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends to date, and has no intention
to pay any cash dividends on its Common Stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the Board
of Directors and to certain limitations imposed by the General Corporation Law
of the State of Delaware. The timing, amount and form of dividends, if any,
will depend, among other things, on the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by
Board of Directors.
38
<PAGE>
Delaware Anti-Takeover Law
The Company will be governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware (the "GCL"), an anti-takeover
law. In general, the law prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with its affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
The provisions regarding certain business combinations under the GCL could
have the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management. A takeover transaction
frequently affords stockholders the opportunity to sell their shares at a
premium over current market prices.
TRANSFER AGENT
The transfer agent for the Company's securities is Stock Trans, Inc., 7
East Lancaster Avenue, Ardmore, Pennsylvania 19003, (610) 649-7300.
39
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws reflect the adoption
of the provisions of Section 102(b)(7) of the GCL, which eliminate or limit the
personal liability of a director to the Company or its stockholders for monetary
damages for breach of fiduciary duty under certain circumstances. The Company's
Certificate of Incorporation and Bylaws also provide that the Company shall
indemnify any person, who was or is a party to a proceeding by reason of the
fact that he is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with such proceeding if he acted in good faith and in a manner
he reasonably believed to be or not opposed to the best interests of the
Company, in accordance with, and to the full extent permitted by, the GCL. In
addition, the Certificate of Incorporation and Bylaws authorize the Company to
maintain insurance to cover such liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issuer.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index at "Item 15. Financial Statements and Schedules."
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE
40
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Consolidated Financial Statements of the Company Skynet
Holdings, Inc.
Index to Consolidated Financial Statements F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders Deficiency F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
Financial Statements of Acquired Company
Nevada Fleet Management, Inc.
Independent Auditor's Report F-19
Balance Sheets F-20
Statements of Operations F-21
Statements of Shareholders' Equity F-22
Statements of Cash Flows F-23
Notes to Financial Statements F-24
(b) Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger ("Merger Agreement"), dated as of
September 28, 1998, among SkyNet Holdings, Inc., EPL Resources
(Delaware) Corp., Christian J. Weber, Deansley Limited, John E.
Cathcart, Vjekoslav Nizic and FIR Construction Pty. Ltd (1)
2.2 First Amendment to Merger Agreement, dated October 8, 1998 (1)
3.1 Certificate of Incorporation, as amended (1)
3.2 Certificate of Merger (1)
3.3 By-Laws (1)
10.1 Employment Agreement, dated October 14, 1998, between
the Company and Vjekoslav Nizic (1)
10.2 Employment Agreement dated October 14, 1998, between the
Company and Christian J. Weber (1)
10.3 Employment Agreement dated October 14, 1998, between the
Company and Martin Paravato (1)
10.4 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Vjekoslav Nizic (1)
10.5 Option to Purchase 700,000 Shares of Common Stock of the
Company Granted to Christian J. Weber (1)
10.6 Option to Purchase 400,000 Shares of Common Stock of the
Company Granted to Synergy Group International, Inc.
("Synergy") (1)
10.7 Escrow Agreement, dated October 14, 1998, among the Company,
Synergy, certain shareholders of Synergy and the Company as
Escrow Agent (1)
10.8 Escrow Agreement, dated October 14, 1998, among the Company,
Synergy,Vjekoslav Nizic, John E. Cathcart, Christian J. Weber,
Deansley Limited, Fir Construction Pty Limited, the
principal shareholders of SkyNet Holdings, Inc.
and EPL Resources (Delaware) Corp. (1)
10.9 Consulting Agreement dated August 24, 1998 between Tradeserv 94,
Inc. and the Company (1)
10.10 The Company's 1998 Stock Incentive Plan. (1)
10.11 Asset Purchase Agreement dated March 11, 1999 by and among
SkyNet Holdings, Inc., and Fleet Acquisition Corp. as the
Buyers and Nevada Fleet Management, Inc. as Seller (1)
10.12 Vehicle Purchase Agreement dated March 15, 1999 by and among
SkyNet Holdings, Inc. and Fleet Acquisition Corp. as the
Buyers and Nevada Yellow Cab Corporation and Nevada Checker
Cab Corporation and Nevada Star Cab Corporation as Sellers. (1)
21.1 Subsidiaries of the Registrant (1)
27.1 Financial Data Schedule (1)
</TABLE>
(1) Filed herewith
41
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized.
SKYNET HOLDINGS, INC.
Date: March 23, 1998
By: /s/ Vjekoslav Nizic
-------------------------------------
Vjekoslav Nizic
President and Chief Executive Officer
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Consolidated Financial Statements of the Company
Skynet Holdings, Inc.
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity (Deficiency) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Financial Statements of Acquired Company
Nevada Fleet Management, Inc.
Independent Auditor's Report F-19
Balance Sheets F-20
Statements of Operations F-21
Statements of Stockholders' Equity F-22
Statements of Cash Flows F-23
Notes to Financial Statements F-24
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and
Stockholders of
SkyNet Holdings, Inc.
We have audited the accompanying consolidated balance sheets of SkyNet Holdings,
Inc. and subsidiaries as of June 30, 1997 and 1998 and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
each of the three years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 SkyNet
Holdings, Inc. and subsidiaries as of June 30, 1997 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
November 2, 1998
Los Angeles, California
F-2
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------------- December 31,
1997 1998 1998
------------------------------------- ----------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 322,628 $ 337,314 $ 78,455
Accounts receivable trade, net of allowance
for doubtful accounts of $1,016,921, $734,257
and $950,769 6,824,929 5,646,209 6,025,176
Receivables -- other 92,091 11,009 106,253
Prepaid expenses and other 46,760 66,430 359,583
------------------------------------- ----------------
Total current assets 7,286,408 6,060,962 6,569,467
PROPERTY AND EQUIPMENT, net (Note 2) 665,064 704,296 758,891
INTANGIBLE AND OTHER ASSETS, net 152,599 120,557 266,051
------------------------------------- ----------------
$ 8,104,071 $ 6,885,815 $ 7,594,409
===================================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 6,095,321 $ 5,560,712 $ 4,243,573
Bank debt (Note 3) 1,466,422 782,012 1,068,690
Other accrued liabilities 507,484 107,514 941,098
Accrued payroll 230,421 209,368 291,027
Accrued income taxes 435,836 34,993 248,066
Current portion of long-term debt (Note 4) 72,615 424,619 78,245
------------------------------------- ----------------
Total current liabilities 8,808,099 7,119,218 6,870,699
------------------------------------- ----------------
LONG-TERM DEBT, net of current portion (Note 4) 589,441 452,822 472,658
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 5 & 6)
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized; 2,450,000, 2,450,000
and 0 shares issued and outstanding
(liquidation preference $7,000,000) 245 245 -
Common stock, $.001 par value, 50,000,000 shares
authorized; 7,000,000, 7,451,000 and 16,099,000
shares issued and outstanding 700 745 1,610
Additional paid-in capital 4,455 402,568 2,046,948
Foreign currency translation adjustment 10,296 53,332 107,081
Accumulated deficit (1,309,165) (1,148,115) (1,904,587)
------------------------------------- ----------------
Total stockholders' equity (deficiency) (1,293,469) (686,225) 251,052
------------------------------------- ----------------
$ 8,104,071 $ 6,885,815 $ 7,594,409
===================================== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SKYNET HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------------------------------- ----------------------------
1996 1997 1998 1997 1998
---------------------------------------------- ----------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ 34,404,946 $ 36,151,763 $ 31,838,919 $16,182,102 $ 16,947,089
COST OF SALES 22,783,806 24,393,228 19,123,468 10,211,596 10,101,814
---------------------------------------------- ----------------------------
GROSS PROFIT 11,621,140 11,758,535 12,715,451 5,970,506 6,845,275
---------------------------------------------- ----------------------------
OPERATING EXPENSES
Compensation 6,460,625 6,948,756 7,178,941 3,396,320 3,998,583
Occupancy costs 522,483 529,876 660,742 277,394 277,156
Communication expense 553,417 615,705 630,221 304,392 375,670
Other operating expenses 3,625,893 3,693,705 3,664,570 1,885,182 2,540,416
---------------------------------------------- ----------------------------
Total operating expenses 11,162,418 11,788,042 12,134,474 5,863,288 7,191,825
---------------------------------------------- ----------------------------
INCOME (LOSS) FROM OPERATIONS 458,722 (29,507) 580,977 107,218 (346,550)
OTHER INCOME (EXPENSE)
Interest expense (106,904) (169,817) (199,714) (95,439) (162,899)
Other (33,909) 74,056 (29,809) (163,244) (245,723)
---------------------------------------------- ----------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY INCOME 317,909 (125,268) 351,454 (151,465) (755,172)
Income tax (expense) benefit (Note 7) (283,633) 85,600 (185,404) (16,000) (6,300)
---------------------------------------------- ----------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY 34,276 (39,668) 166,050 (167,465) (761,472)
INCOME
EXTRAORDINARY INCOME (Note 8) 1,263,045 - - - -
---------------------------------------------- ----------------------------
NET INCOME (LOSS) $ 1,297,321 $ (39,668) $ 166,050 $ (167,465) $ (761,472)
============================================== ============================
BASIC INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary $ 0.01 $ (0.01) $ 0.02 $ (0.02) $ (0.06)
income
Extraordinary income 0.18 - - - -
---------------------------------------------- ----------------------------
Net income (loss) per share $ 0.19 $ (0.01) $ 0.02 $ (0.02) $ (0.06)
============================================== ============================
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 7,000,000 7,000,000 7,346,500 7,059,096 13,410,368
============================================== ============================
DILUTED EARNINGS (LOSS) PER COMMON
SHARE
Income (loss) before extraordinary $ 0.01 $ (0.01) $ 0.02 $ (0.02) $ (0.06)
income
Extraordinary income 0.13 - - - -
---------------------------------------------- ----------------------------
Net income (loss) per share $ 0.14 $ (0.01) $ 0.02 $ (0.02) $ (0.06)
============================================== ============================
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 9,450,000 7,000,000 9,796,500 7,059,096 13,410,368
============================================== ============================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SKYNET HOLDINGS, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Convertible Foreign
Preferred Stock Common Stock Additional Currency
----------------------- --------------------- Paid-In Translation Accumulated
Description Shares Amount Shares Amount Capital Adjustment Deficit
- ----------- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 2,450,000 $ 245 7,000,000 $ 700 $ 4,455 $ - $ (2,566,818)
Foreign currency translation
adjustment - - - - - 14,403 -
Net income - - - - - - 1,297,321
---------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 2,450,000 245 7,000,000 700 4,455 14,403 (1,269,497)
Foreign currency translation
adjustment - - - - - (4,107) -
Net loss - - - - - - (39,668)
---------------------------------------------------------------------------------------------
BALANCE, June 30, 1997 2,450,000 245 7,000,000 700 4,455 10,296 (1,309,165)
Sale of common stock (Note 5) - - 451,500 45 398,113 - -
Foreign currency translation
adjustment - - - - - 43,036 -
Net income - - - - - - 166,050
---------------------------------------------------------------------------------------------
BALANCE, June 30, 1998 2,450,000 245 7,451,500 745 402,568 53,332 (1,143,115)
Issuance of stock for debt (Note 6)
(unaudited) 572,500 57 1,144,943 - -
Adjustment - exchange of stock and
recapitalization (unaudited) (2,450,000) (245) 8,075,000 808 499,437 - -
Foreign currency translation
adjustment (unaudited) - - - - - 53,749 -
Net loss (unaudited) - - - - - - (761,472)
---------------------------------------------------------------------------------------------
Balance, September 30, 1998
(unaudited) - $ - 16,099,000 $1,610 $2,046,948 $107,081 $ (1,904,587)
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SKYNET HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Increase (decrease) in cash and cash equivalents)
<TABLE>
<CAPTION>
Six months ended
Years ended June 30, December 31,
-------------------------------------------- -----------------------------
1996 1997 1998 1997 1998
-------------------------------------------- -----------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,297,321 $ (39,668) $ 166,050 $ 167,465 $ (761,472)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in)
operating activities:
Extraordinary income (1,263,045) - - - -
Depreciation and amortization 278,479 294,646 237,022 77,159 53,182
Changes in operating assets and
liabilities:
Receivables (1,119,315) (657,974) 1,259,802 1,173,997 (474,211)
Prepaid expenses and other assets (10,082) (7,172) (19,670) (336,946) (293,153)
Accounts payable 1,092,869 (596,239) (534,609) (1,644,841) (1,317,139)
Accrued expenses and other 111,284 21,918 (821,866) (559,792) 1,237,776
liabilities
------------------------------------------- -----------------------------
Net cash provided by (used in)
operating activities 387,511 (984,489) 286,729 (338,304) (1,555,017)
------------------------------------------- -----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (310,709) (315,827) (244,212) (69,191) (107,777)
Other 28,328 - - - (145,492)
------------------------------------------- -----------------------------
Net cash used in investing activities (282,381) (315,827) (244,212) (69,191) (253,269)
------------------------------------------- -----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from private placement of
Common stock - - 398,158 - 500,000
Proceeds from issuance of notes - - 288,000 - 1,195,538
Bank borrowings (repayments) - 1,466,422 (684,410) (377,241) 286,678
Debt repayments - (49,572) (72,615) 410,799 (486,538)
------------------------------------------- -----------------------------
Net cash provided by (used in)
financing activities - 1,416,850 (70,867) 35,558 1,495,678
------------------------------------------- -----------------------------
EFFECT OF FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS 14,403 (4,107) 43,036 103,151 53,749
------------------------------------------- -----------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 119,533 112,427 14,686 (270,786) (258,859)
CASH AND CASH EQUIVALENTS,
beginning of period 90,668 210,201 322,628 322,628 337,314
------------------------------------------- -----------------------------
CASH AND CASH EQUIVALENTS, end of
period $ 210,201 $ 322,628 $ 337,314 $ 51,842 $ 78,455
=========================================== =============================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 1.- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
SkyNet Holdings, Inc. (the "Company") was incorporated in Nevada on
September 16, 1997. The Company was incorporated for the purpose of acquiring
the outstanding shares of four companies whose businesses provide international
express courier delivery services and freight forwarding services for time
sensitive documents and packages to customers throughout the world under the
name SkyNet Express.
On October 1, 1997, the acquisition described above was completed through
an exchange of 2,800,000 shares of the Company's common stock and 1,400,000
shares of the Company's preferred stock for all shares of each of the companies
acquired. The transaction was accounted for as a reorganization of entities
under common control in a manner similar to a pooling of interest, whereby the
Company's consolidated financial statements have been restated to include the
accounts and operations of the merged companies for all periods presented prior
to the merger.
The Company currently operates (i) through its own courier facilities
located in London, Bristol and Manchester, England, Los Angeles and San
Francisco, California, New York, New York, and Sydney and Melbourne, Australia
and (ii) through the "SkyNet Worldwide Express" network, a global alliance of
independent express courier service companies that functions as a worldwide
delivery network for its members.
RECAPITALIZATION
EPL Resources (Delaware) Corp. ("EPLR") was organized December 15, 1994,
under the laws of the State of Florida. EPLR had no operations and was
considered a development stage company. EPLR was formed for the purpose of
raising capital and acquiring a suitable business opportunity through a merger
with, or acquisition of, a private business enterprise seeking to obtain the
perceived benefits of being a publicly owned company. During September 1998,
EPLR issued and sold an aggregate of 4,625,000 shares of Common Stock raising
gross proceeds of $555,000).
On October 14, 1998 EPLR acquired 100% of the outstanding capital stock
of SkyNet Holdings, Inc., a Nevada corporation ("SkyNet Nevada"), in exchange
for 9,901,500 shares of EPLR common stock. Concurrent with this transaction,
EPLR reincorporated in the State of Delaware and changed its name to SkyNet
Holdings, Inc. ("Skynet Delaware").
For accounting purposes, the acquisition of SkyNet Nevada by SkyNet
Delaware has been treated as a reverse acquisition in substance equivalent to
the issuance of stock for the net monetary assets of SkyNet Delaware,
accompanied by a recapitalization. The historical operating results reflected in
the accompanying financial statements are those of SkyNet Nevada as SkyNet
Delaware's operations prior to October 14, 1998 were nominal.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances are
eliminated.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheet of the Company as of
December 31, 1998 and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the six months ended December 31,
1998 and 1997 have been prepared in accordance with generally accepted
accounting principles for interim periods and are unaudited; however, in
management's opinion, they include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of results for such
interim periods. Interim results are not necessarily indicative of results for
the full year.
F-7
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large number of customers comprising
the Company's customer base and their dispersion across different businesses and
geographic regions.
Included in the Company's consolidated balance sheets at June 30, 1998 and
1997, and December 31, 1998 are the net assets (liabilities) of the Company's
United Kingdom subsidiary of approximately $410,000, $469,000 and $853,000 and
the Company's Australian subsidiary of approximately $212,000, ($230,000) and
($48,000) for the same periods.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost and are being depreciated over
estimated useful lives of 5 to 7 years using the straight-line method.
Leasehold improvements are recorded at cost and are amortized over the lesser of
the estimated useful lives of the property or the lease term using the straight-
line method.
INTANGIBLE ASSETS
The Company owns the rights to certain trademarks. These assets are being
amortized on the straight-line method over 15 years. Amortization expense
charged to operations for the years ended June 30, 1996, 1997 and 1998 was $0,
$33,721 and $32,042, and $8,000 for each of the six months ended December 31,
1997 and 1998.
F-8
<PAGE>
SKYNET HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impariment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
established guidelines regarding when impairment losses on long-lived assets,
which include property and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The Company
periodically reviews such assets for possible impairment and expected losses, if
any, are recorded currently.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has cash, accounts receivable and accounts payable for which the
carrying value approximates fair value due to the short-term nature of these
instruments.
The carrying value of bank debt and long-term debt approximates fair value at
June 30, 1997, 1998 and December 31, 1998 since these notes substantially bear
interest at floating rates based upon the lenders' "prime" rate. The fair value
of notes related to the reorganization of a subsidiary under bankruptcy cannot
be estimated due to the court mandated nature of the debt.
REVENUE RECOGNITION
Revenue for delivery of packages is recognized upon delivery. Revenue from the
Skycom system, the Company's package tracking system, is billed monthly and is
recorded when billed. For the six months ended December 31, 1998, revenue from
Skycom represented approximately 2.0% of revenue.
Cost of Sales primarily includes charges for Linehaul, Pick-up and Delivery
including drivers salaries and other related costs.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at the current
exchange rate at the balance sheet date. Income and expenses are translated at
the average exchange rate in effect during the year. Resulting translation
adjustments are accumulated as a separate component of stockholders' equity.
Realized gains and losses related to other foreign currency transactions are
reported as income or expense in the current year. Such gains or losses were
not material for the years ended June 30, 1996, 1997 and 1998, and for the six
months ended December 31, 1997 and 1998.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." ("SFAS
No. 109"). SFAS No. 109 requires the use of the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
F-9
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the three months ended September 30, 1998 and 1997
is unaudited)
NOTE 1.- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The statement requires
restatement of all prior period earnings per share (EPS) data presented. The
new standard requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company adopted SPAS 128 for the year-end June 30, 1998 and
for prior years as presented in the accompanying financial statements. Adoption
of this standard did not result in a restatement of prior periods EPS data.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") is effective for financial
statements ending after December 15, 1997. SFAS 129 reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS 128. The
Company adopted SFAS 129 on June 30, 1998, and it did not have any effect on its
consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") is effective for financial statements with fiscal years
beginning after December 15, 1997. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. This standard was adopted during fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segment
of an Enterprise and Related Information" ("SFAS 131"), is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and condensed financial statements of interim periods issued to
stockholders. It also requires that public business enterprises report certain
information about their products issued to stockholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
The Company does not expect adoption of SFAS 131 to have a material effect, if
any, on its consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 132, Employers' Disclosures
About Pensions and Other Postretirement Benefits, ("SFAS 132") issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. The Company does not expect adoption of SFAS
132 to have a material effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, ("SFAS 133") issued by the FASB is effective
for financial statements with fiscal years ending June 15, 1999 and later. SFAS
133 establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. The Company does not expect adoption of SFAS 133 to have a
material effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 134, Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale By A Mortgage Banking Enterprise, ("SFAS 134") issued by the FASB
is effective for financial statements with fiscal years beginning after December
15, 1998. SFAS 134 amends SFAS No. 65, Accounting for Certain mortgage Banking
Activities, which establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that conduct
operations which are substantially similar to the primary operations of a
mortgage banking enterprise. The Company does not expect adoption of SFAS 134
to have a material effect, if any, on its financial position or results of
operations.
F-10
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share of common stock is computed by dividing net
earnings (loss) by the weighted average number of common shares. Diluted
earnings per share is computed based on the weighted average number of shares of
common stock and dilutive securities outstanding during the period. Dilutive
securities are options that are freely exercisable into common stock at less
than market exercise prices, the convertible debentures (after giving
retroactive effect to the elimination of interest expense, net of tax) and
convertible preferred stock. Dilutive securities are not included in the
weighted average number of shares when the inclusion would increase the earnings
per share or decrease the loss per share.
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------
1996 1997 1998
---------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER COMMON SHARE:
NUMERATOR
Income (loss) before extraordinary income $ 34,276 $ (39,668) $ 166,050
Extraordinary income 1,263,045 - -
---------------------------------------------
Net earnings (loss) available to common
shareholders $ 1,297,321 $ (39,668) $ 166,050
=============================================
DENOMINATOR
Weighted average common shares outstanding 7,000,000 7,000,000 $ 7,346,500
=============================================
PER SHARE AMOUNTS
Basic earnings (loss) before extraordinary income $ 0.01 $ (0.01) $ 0.02
Extraordinary income 0.18 - -
---------------------------------------------
Basic earnings (loss) $ 0.19 $ (0.01) $ 0.02
=============================================
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
NUMERATOR
Income (loss) before extraordinary income $ 34,276 $ (39,668) $ 166,050
Extraordinary income 1,263,045 - -
---------------------------------------------
Net earnings (loss) available to common shareholders $ 1,297,321 $ (39,668) $ 166,050
=============================================
DENOMINATOR
Weighted average common shares outstanding 7,000,000 7,000,000 7,346,500
Effect of dilutive securities:
Convertible preferred stock outstanding 2,450,000 - 2,450,000
---------------------------------------------
Weighted average common shares and assumed
conversions outstanding 9,450,000 7,000,000 9,796,500
=============================================
PER SHARE AMOUNTS
Diluted earnings (loss) before extraordinary income $ 0.01 $ (0.01) $ 0.02
Extraordinary income 0.13 - -
---------------------------------------------
Diluted earnings (loss) $ 0.14 $ (0.01) $ 0.02
=============================================
</TABLE>
F-11
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
---------------------------------- December 31,
1997 1998 1998
================================== =================
<S> <C> <C> <C>
Leasehold improvements $ 212,941 $ 193,494 $ 200,992
Computer equipment 926,780 1,162,905 1,195,737
Furniture, fixtures and equipment 596,572 668,709 705,280
Transportation equipment 170,294 67,723 98,599
---------------------------------- -----------------
1,906,587 2,092,831 2,200,608
Less accumulated depreciation and amortization 1,241,523 1,388,535 1,441,717
---------------------------------- -----------------
Net property and equipment $ 665,064 $ 704,296 $ 758,891
================================== =================
</TABLE>
NOTE 3. BANK DEBT
A foreign subsidiary of the Company has a financing agreement with a bank in
London. The agreement provides borrowing for the subsidiary based on 75% of
customer receivables less than 90 days old up to a maximum of $1,700,000. The
subsidiary pays an administrative charge of .2% plus interest at the bank's base
rate plus 2.25% (10.0% at June 30, 1998). Borrowings under the agreement
amounted to $1,466,422 and $782,012 at June 30, 1997 and 1998 and $1,068,690 at
December 31, 1998.
NOTE 4. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30,
--------------------------- December 31,
1997 1998 1998
=========================== ================
<S> <C> <C> <C>
Promissory notes, payable in monthly payments
with an interest rate of 18%, due June 2004 $ 250,000 $ 350,000 $ 250,000
Creditors debt, non-interest bearing debt, payable
in annual installments, maturing June 2001 100,000 100,000 100,000
Internal Revenue Service debt, payable in sixty equal
Monthly principal and interest payments of $4,511
with interest charged at 8.0%, due May 2001 179,880 138,649 116,767
California State Employment Development Department debt,
payable in sixty equal monthly principal and interest
payments of $3,402 with interest charged at 8.0%, due 132,176 100,792 84,136
April 2001
Bridge financing, all principal and interest due at
maturity - 188,000 -
with interest charged at 24%, due September 1998
--------------------------- ----------------
662,056 877,441 550,903
Amount due within one year (72,615) (424,619) (78,245)
--------------------------- ----------------
Total long-term debt $ 589,441 $ 452,822 472,658
=========================== ================
</TABLE>
F-12
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 4. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term obligations as of June 30, 1998 are as follows:
Years ending June 30, Amount
-----------
1999 $ 424,619
2000 150,575
2001 189,915
2002 64,906
2003 47,426
-----------
$ 877,441
===========
NOTE 5. PRIVATE PLACEMENTS
During December 1997, the Company completed a private placement of 258,000
shares of its common stock at $2.00 per share. The Company received net
proceeds of $398,158 after deducting offering costs of $117,842.
On December 9, 1998, the Company signed a letter of intent with a Placement
Agent for the purpose of offering (the "Offering") up to 2,000,000 shares of
Common Stock, par value $.0001 per share (the "Shares"), at a purchase price of
$2.00 per Share on a "best efforts, 1,000,000 Shares or none" basis. If the
sale of 1,000,000 shares of Common Stock at $2.00 per share is consummated the
Company will receive estimated net proceeds (after offerings cost) of
approximately $1,710,000. If 2,000,000 shares are sold, the Company will
receive estimated net proceeds (after offering costs) of approximately
$3,505,000. The Company intends to use the net proceeds of the Offering for
general working capital and general corporate purposes, primarily to finance the
Company's business plan which includes an acquisition and consolidation
strategy.
On February 19 and March 5, 1999, the Company conducted closings with
respect to the Private Placement resulting in the issuance of an aggregate of
1,325,500 shares of Common Stock which generated net proceeds (after offering
costs of approximately $441,000) of approximately $2,210,000. The Company
intends to use the net proceeds of the Private Placement for general working
capital and general corporate purposes, primarily to finance the Company's
business plan which includes an acquisition and consolidation strategy.
NOTE 6. DEBT CONVERSION
During the six months ended December 31, 1998, the Company received proceeds
from short-term notes of $950,000. In addition, on October 14 and November 30,
1998, the Company received proceeds from short-term borrowings in the amount of
$245,000 from a corporate officer. The proceeds of the above noted borrowings
were used to repay existing outstanding indebtedness of $298,000 with the
balance added to working capital.
On December 1, 1998, outstanding indebtedness described above of $1,145,000,
including accrued interest was converted by the holders into 572,500 shares of
the Company's common stock. Of these shares, 495,000 were issued to related
parties.
NOTE 7. INCOME TAXES
The income tax provision (benefit) in the consolidated statement of operations
consists of the following components:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1996 1997 1998
---------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ - $ - $ -
State - - -
Foreign 283,633 (85,600) 185,404
---------------------------------------------------
283,633 (85,600) 185,404
---------------------------------------------------
Deferred
Federal - - -
State - - -
Foreign - - -
---------------------------------------------------
- - -
---------------------------------------------------
Total $ 283,633 $ (85,600) $ 185,404
===================================================
</TABLE>
F-13
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 7. INCOME TAXES (CONTINUED)
Deferred tax assets net included in the consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------
1997 1998
-------------------------------------
<S> <C> <C>
Temporary differences resulting in future deductible amounts $ 340,534 $ 184,842
Federal net operating loss carryforwards 352,455 459,407
State net operating loss carryforwards 62,198 83,802
-------------------------------------
Deferred tax assets 755,187 728,051
Deferred tax liability (3,535) (6,198)
Valuation allowance (751,652) (721,853)
-------------------------------------
Deferred tax assets - net $ - $ -
=====================================
</TABLE>
At June 30, 1998 and 1997, management provided a 100% valuation allowance
against the net deferred tax asset due to the indeterminate nature of the
Company's ability to realize this deferred asset.
Reconciliations of the provision for income taxes to the expected income tax
based on the statutory rates are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1996 1997 1998
-----------------------------------------------
<S> <C> <C> <C>
Provision (benefit) Federal statutory rate $ 108,089 $ (42,713) 119,494
Increase (decrease) in income tax resulting from
foreign taxes 175,544 (42,887) 65,910
-----------------------------------------------
$ 283,633 $ (85,600) 185,404
===============================================
</TABLE>
At June 30, 1998, the Company has approximately $1.4 million of federal net
operating loss carryovers (expiring through 2013) and approximately $1.3 million
of state net operating loss carryovers (expiring through 2013) which may be
available to reduce future taxable income. Among potential adjustments which may
reduce available loss carryforwards, the Internal Revenue Code of 1986, as
amended ("IRC"), reduces the extent to which net operating loss carryforwards
may be utilized in the event there has been an "ownership change" of a company
as defined by applicable IRC provisions.
The Company believes that such a change may have occurred in 1997 and intends
to analyze the impact of such transfers on the continued availability, for tax
purposes, of the Company's net operating losses incurred through June 30, 1998.
Future ownership changes, as defined by the IRC, may reduce the extent to which
any net operating losses may be utilized.
Income taxes have been provided for foreign operations based upon the various
tax laws and rates of the countries in which the Company's operations are
conducted. There is no direct relationship between the Company's overall
foreign income tax provision and foreign pre-tax book income due to the
different methods of taxation used by countries throughout the world.
F-14
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 7. INCOME TAXES (CONTINUED)
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $48,000 at June 30, 1998. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for United States federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both United States income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred United States income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
NOTE 8. EXTRAORDINARY INCOME
During 1995, one of the Company's subsidiaries filed for protection under the
bankruptcy laws of the State of California. In connection with the Plan of
Reorganization, approved by the court in August 1996, certain indebtedness of
the subsidiary was discharged by the court. Accordingly, the subsidiary
recognized extraordinary income in the amount of $1,263,045 during the fiscal
year ended June 30, 1996.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under noncancellable operating leases, which
expire at various dates through July 2016.
Future minimum payments, by year and in the aggregate, under noncancellable
operating leases with initial or remaining terms of one year or more consist of
the following at June 30, 1998:
Operating
Year Leases
--------------
1999 $ 560,148
2000 500,349
2001 357,480
2002 357,480
2003 354,060
Thereafter 2,480,358
--------------
Total minimum lease payments $ 4,609,875
==============
Rent expense for the fiscal years ended June 30, 1996, and 1997 and 1998
amounted to $522,483, $529,876 and $660,742.
In October 1998, three executive officers signed employment agreements for
periods ranging from one to three years and providing for aggregate annual
compensation of approximately $500,000, plus benefits. In addition, five-year
options to purchase an aggregate of 1,400,000 shares of restricted common stock
at an exercise price of $3.00 per share were issued to two executive officers.
Five-year options to purchase 400,000 shares of restricted common stock at an
exercise price of $3.00 per share were issued to a principal stockholder.
F-15
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------------------- ---------------------------
1996 1997 1998 1997 1998
------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Interest $ 105,430 $ 165,638 $ 191,112 $ 98,006 $ 114,996
Income taxes 184,232 - 230,487 147,042 26,756
=========================================== ===========================
</TABLE>
F-16
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 11. RELATED PARTY TRANSACTIONS
During September 1997, a major shareholder loaned the Company $100,000 in the
form of a non-interest bearing demand note. The note was repaid from proceeds
in connection with the merger described in Notes 1 and 10. During the year
ended June 30, 1998, the Company paid a major shareholder consulting fees
amounting to $10,000.
NOTE 12. COMPREHENSIVE INCOME
The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------------------- ---------------------------
1996 1997 1998 1997 1998
-------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 1,297,321 $ (39,668) $ 166,050 $ (167,465) $ (761,472)
Foreign currency translation
adjustments 14,403 (4,107) 43,036 103,151 53,749
------------------------------------------- ---------------------------
Comprehensive income (loss) $ 1,311,724 $ (43,775) $ 209,086 $ (64,314) $ (707,723)
============================================ ============================
</TABLE>
F-17
<PAGE>
SKYNET HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the six months ended December 31, 1998 and 1997
is unaudited)
NOTE 13. GEOGRAPHIC INFORMATION
The Company operated in one principal industry segment: the delivery of
time sensitive documents and packages. A summary of the Company's geographic
information is presented below:
<TABLE>
<CAPTION>
United
States Europe Australia Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales to Customers 1998 $5,962,396 $21,250,613 $4,625,910 $31,838,919
1997 7,597,883 24,079,365 4,474,515 36,151,763
1996 7,714,977 22,661,783 4,028,186 34,404,946
Operating Income (Loss) 1998 (384,849) 630,936 334,890 580,977
1997 107,664 (381,347) 244,176 (29,507)
1996 (341,921) 701,310 99,333 458,722
Identifiable Assets 1998 882,250 5,066,925 936,640 6,885,815
1997 918,546 6,199,922 985,603 8,104,071
1996 1,102,830 5,502,766 699,721 7,305,317
</TABLE>
NOTE 14. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Write-offs Balance at
beginning of costs and against end of
Description period expenses reserve period
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for possible losses
Year ended June 30,
1998 $1,016,921 $400,955 $(683,619) $734,257
1997 999,506 329,841 (312,426) 1,016,921
1996 808,447 246,170 (55,111) 999,506
</TABLE>
F-18
<PAGE>
[LETTERHEAD OF]
MCGLADREY & PULLEN, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Nevada Fleet Management, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Nevada Fleet Management, Inc.
dba Fleet Delivery Service as of December 31, 1998 and 1997 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nevada Fleet Management, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As disclosed in Note 1 to the financial statements, there has been a change in
reporting entity from the prior year.
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
January 11, 1999
F-19
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
- ------------------------------------------------------------------------------
Cash $ 382,446 $ 403,185
Accounts receivable, less allowance for doubtful
accounts 1998 $71,412 and 1997 $76,652 1,095,377 1,021,243
Due from related party (Note 6) 68,625 25,325
Other assets (Note 2) 75,733 87,783
-------------------------
Total current assets 1,622,181 1,537,536
Vehicles and equipment, net (Note 3) 203,110 295,724
Deposits 19,840 28,488
-------------------------
$ 1,845,131 $ 1,861,748
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts payable $ 146,923 $ 462,025
Accrued expenses (Note 4) 545,491 623,219
Accident claim liability (Note 5) 515,000 606,000
Due to related party (Note 6) 344,944 -
-------------------------
Total current liabilities 1,552,358 1,691,244
Commitments and Contingencies (Notes 5 and 9)
Stockholders' Equity
Common stock, no par value, 2,500 shares
authorized, 1,500 shares issued and
outstanding $ 6,000 6,000
Additional Paid-in Capital 10,689,879 10,635,879
Accumulated Deficit (10,403,106) (10,471,375)
---------------------------
292,773 170,504
---------------------------
$ 1,845,131 $ 1,861,748
===========================
See Notes to Financial Statements.
F-20
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Courier revenue $13,501,266 $13,024,519
Record retention revenue 130,148 104,824
----------------------------------
Total revenue 13,631,414 13,129,343
----------------------------------
Operating expenses
Operating, including $166,179 and $649,550 incurred to a
related party in 1998 and 1997, respectively (Note 6) 11,538,951 12,080,083
General and administrative, including rent paid to
stockholders of $14,400 in 1998 and 1997 1,912,221 2,384,811
Depreciation and amortization 87,191 102,514
Shop and garage 3,855 21,381
----------------------------------
Operating expenses 13,542,218 14,588,789
----------------------------------
Operating income (loss) 89,196 (1,459,446)
Nonoperating income (expense):
Interest income 4,028 269
Loss on disposition of assets (3,862) (23,832)
Interest expense, including $14,000 and $363,658, incurred
to related parties in 1998 and 1997, respectively (Note 6) (21,093) (367,848)
----------------------------------
Net income (loss) $ 68,269 $(1,850,857)
==================================
Proforma net income (unaudited):
Historical income before income taxes $ 68,269
Proforma provision for taxes 26,657
-----------
Proforma net income $ 41,612
===========
Proforma net income per share, basic and diluted $ 27.74
===========
Weighted average shares outstanding, basic and diluted 1,500
===========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,500 $6,000 $ 5,025,000 $ (8,620,518) $(3,589,518)
Stockholder contributions - - 5,610,879 - 5,610,879
Net loss - - - (1,850,857) (1,850,857)
-------------------------------------------------------------------------------
Balance at December 31, 1997 1,500 6,000 10,635,879 (10,471,375) 170,504
Stockholder contributions - - 54,000 - 54,000
Net income - - - 68,269 68,269
-------------------------------------------------------------------------------
Balance at December 31, 1998 1,500 $6,000 $10,689,879 $(10,403,106) $ 292,773
===============================================================================
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Cash received from courier revenue $ 13,557,280 $ 14,924,989
Cash paid to suppliers and employees (13,562,515) (14,450,927)
Interest received 4,028 269
Interest paid (21,093) (367,848)
-----------------------------------
Net cash provided by (used in) operating
activities (Note 7) (22,300) 106,483
-----------------------------------
Cash Flows from Investing Activities
Proceeds from sale of vehicles and equipment 2,661 300
Purchase of vehicles and equipment (1,100) (39,611)
-----------------------------------
Net cash provided by (used in) investing activities 1,561 (39,311)
-----------------------------------
Cash Flows from Financing Activities,
principal payments on notes payable - (8,981)
-----------------------------------
Net increase (decrease) in cash (20,739) 58,191
Cash
Beginning 403,185 344,994
-----------------------------------
Ending $ 382,446 $ 403,185
===================================
Supplemental Schedule of Noncash Investing and Financing Activities
Due to related party recorded as additional paid-in capital $ 54,000 $ 5,610,879
===================================
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
- ------------------
Nevada Fleet Management, Inc. dba Fleet Delivery Services, (the Company), a
Nevada corporation, operates principally as a courier service in Nevada,
California, Oregon, Utah, Arizona and Washington. The Company closed their Utah
operation during 1998. The Company also provides record retention storage
facilities in Nevada. Segment information is not presented since all of the
Company's revenue is attributed to a single reportable segment.
Change in reporting entity
- --------------------------
In the prior year, the Company's financial statements were presented on a
combined basis with Nevada Yellow Cab Corporation, Nevada Checker Cab
Corporation and Nevada Star Cab Corporation. Management has elected to present
the Company's financial statements on a stand-alone basis in the current year.
A summary of the Company's significant accounting policies follows:
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. A
significant estimate which is particularly susceptible to change in a short
period of time includes the determination of the accident claim liability.
Actual results could differ from those estimates.
Cash
- ----
At various times throughout the year, the Company maintained cash balances at
financial institutions that exceeded federally insured limits.
Vehicles and equipment
- ----------------------
Vehicles and equipment are stated at cost. Depreciation and amortization are
provided by the straight-line method over the following estimated useful lives.
Years
-----
Vehicles 5-6
Automotive radios and equipment 7-10
Furniture, fixtures and equipment 7-10
Leasehold improvements 7
Improvements to leased property are amortized over the lesser of the life of the
lease or the life of the improvements.
F-24
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (continued)
Revenue recognition
- -------------------
Revenue is recognized upon delivery.
Income tax
- ----------
The Company, with the consent of its stockholders, has elected to be taxed under
sections of the federal income tax laws which provide that, in lieu of
corporation income taxes, the stockholders separately account for their pro rata
shares of the Company's items of income, deduction, losses and credits.
Therefore, these financial statements do not include any provision for corporate
income taxes.
Concentration of credit risk
- ----------------------------
The Company has a major customer representing approximately 27% and 22% of
revenue for the years ended December 31, 1998 and 1997, respectively. During
the years December 31, 1998 and 1997 revenues and trade receivables from this
customer amounted to approximately $3,624,000 and $2,828,000 and $178,000 and
$334,000, respectively.
Reclassification of certain expenses
- ------------------------------------
Certain amounts for the year ended December 31, 1997 have been reclassified,
with no effect on net income, to be consistent with the classifications adopted
for the year ended December 31, 1998.
Pro forma income taxes and earnings per share
- ---------------------------------------------
The pro forma statement of operations information included in these financial
statements is to show what the significant effects might have been on the 1998
historical statements of operations had the Company not been treated as an S
corporation for income tax purposes. The pro forma information reflects a
provision for income taxes at an effective rate of 39%. The pro forma net
income per share is based on the weighted average number of shares of common
stock outstanding during the period.
Fair value of financial instruments
- -----------------------------------
The carrying amounts of due to and due from related parties are considered to
approximate fair value because the interest rates either approximate market
interest rates or the estimated fair values using current market rates are not
materially different from their carrying values.
F-25
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 2. Other Assets
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Prepaid expenses $ 66,515 $ 76,229
Other receivables 9,218 11,544
---------------------------------
$ 75,733 $ 87,783
=================================
</TABLE>
Note 3. Vehicles And Equipment
Vehicles and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Vehicles $ 245,642 $ 245,642
Automotive radios and equipment 350,463 364,030
Furniture, fixtures and equipment 79,462 78,364
Leasehold improvements 48,071 48,071
---------------------------------
723,638 736,107
Less accumulated depreciation and amortization (520,528) (440,383)
---------------------------------
$ 203,110 $ 295,724
=================================
</TABLE>
Note 4. Accrued Expenses
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Accrued salaries $210,180 $239,288
Accrued vacation 56,452 90,811
Other 278,859 293,120
--------------------------------
$545,491 $623,219
================================
</TABLE>
F-26
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Accident Claim Liability
The Company is involved in various claims and lawsuits resulting from injuries
and damages arising from vehicle accidents wherein substantial amounts are
claimed. The Company handles and settles smaller claims internally. Claims and
litigation with larger potential losses are referred to outside counsel. The
Company maintains insurance for claims but is generally self-insured for the
first $100,000. The Company has recorded approximately $515,000 and $606,000 at
December 31, 1998 and 1997, respectively, for the aggregate amount of estimated
losses from these known claims. This estimate is based on a range from counsel
on the larger claims and management's assessment and experience with smaller
claims. The upper end of the range of estimated loss is not reasonably
determinable.
Note 6. Related Party Balances and Transactions
The Company has entered into various transactions with the stockholders and a
company which is related by common ownership and management as disclosed below.
Due from related party consists of amounts due from Star Transit (Star), a
company affiliated through common ownership, for various operating expenses.
At December 31, 1998 and 1997, the amount due from Star is $68,625 and
$25,325, respectively.
Due to related party consists of amounts due to Nevada Yellow Cab Corporation
(YCC) for the payment of general operating expenses by YCC on behalf of the
Company. At December 31, 1998 and 1997, the amount due to YCC for these expenses
is $344,944 and $0, respectively. The amount due to related party accrues
interest at 6% per year. Included in interest expense is approximately $14,000
and $43,000 payable to YCC for the years ended December 31, 1998 and 1997,
respectively.
Interest expense also includes $0 and $320,658 for the years ended December 31,
1998 and 1997, respectively, payable to the stockholders.
In addition to YCC paying operating expenses on behalf of the Company, YCC
provides management services to the Company. Additionally, management entered
into an operating lease with YCC on January 7, 1995, whereby the Company leases
225 vehicles from YCC and YCC maintains them. These expenses are included in
operating expense as follows for the years ended December 31:
<TABLE>
<S> <C>
1998 1997
----------------------------------
Management fees $ - $ 49,950
Vehicle lease expense 40,000 510,000
Vehicle maintenance 126,179 50,000
Rent expense - parking lot - 39,600
----------------------------------
$ 166,179 $ 649,550
==================================
</TABLE>
F-27
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 6. Related Party Balances and Transactions (continued)
Approximately $54,000 and $5,600,000 of amounts due YCC was contributed to
additional paid in capital for the years ended December 31, 1998 and 1997,
respectively.
The Company leases office space from the stockholders. Rent expense for the
years ended December 31, 1998 and 1997 is $14,400.
Note 7. Cash Flows Statement
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities
Net income (loss) $ 68,269 $(1,850,857)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 87,191 102,514
Provisions for bad debts (5,240) (41,393)
Loss on disposition of assets 3,862 23,832
(Increase) decrease in:
Accounts receivable (68,894) 346,655
Other assets 12,050 (4,200)
Due from related party (43,300) -
Deposits 8,648 -
Increase (decrease) in:
Accounts payable (315,102) 85,855
Accrued expenses (77,728) (94,307)
Accident claim liability (91,000) 48,000
Due to related party 398,944 1,490,384
------------------------------------
Net cash provided by (used in) operating activities $ (22,300) $ 106,483
====================================
</TABLE>
Note 8. Employee Benefit Plan
The Company participates in a 401(k) plan established by a related party which
covers all qualified employees. Participants may elect to defer from 5% to 19%
of their annual compensation up to the maximum allowable amount. The Company is
required to match 1% of the participant's compensation if the participant has
made salary reductions for the prior three consecutive years. The Company's
contributions for the years ended December 31, 1998 and 1997 were $590 and
$510, respectively.
F-28
<PAGE>
NEVADA FLEET MANAGEMENT, INC.
dba Fleet Delivery Service
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Note 9. Lease Commitments
The Company leases certain facilities and equipment under noncancelable
operating leases with terms ranging from four to twenty years. Rental expense
under these leases amounted to $104,695 and $169,729 for the years ended
December 31, 1998 and 1997, respectively.
As of December 31, 1998, approximate future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
Years Ending December 31,
- -------------------------
<S> <C>
1999 $ 136,004
2000 55,541
2001 9,436
------------
$ 200,981
============
</TABLE>
Note 10. Geographic Information
The following table represents information about the Company's revenue and
long-lived assets by geographic area:
<TABLE>
<CAPTION>
Long-Lived
Revenue Assets
------------------------------
<S> <C> <C>
Las Vegas $ 2,468,000 $ 36,000
Reno 1,717,000 11,000
Washington 2,529,000 42,000
Portland 4,184,000 46,000
Other 2,733,000 68,000
------------------------------
$ 13,631,000 $ 203,000
==============================
</TABLE>
Note 11. Letter of Intent
In December 1998, the Company entered into a letter of intent with SkyNet
Holdings, Inc., (SkyNet) pursuant to which all tangible assets and certain other
intangible assets will be purchased. SkyNet will also assume liability on all
accounts payable entered into during the Company's ordinary course of business.
In addition, the key executives of the Company entered into an agreement which
restricts competition with SkyNet for a period of two years following the date
of closing. The financial statements do not include any adjustments which may
occur as a result of this transaction. As of January 11, 1999, the Company has
not entered into a definitive agreement with regards to this pending
transaction.
F-29
<PAGE>
EXHIBIT 2.1
-----------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EPL RESOURCES (DELAWARE) CORP.
SKYNET HOLDINGS, INC.
AND
THE PRINCIPAL SHAREHOLDERS OF
SKYNET HOLDINGS, INC.
Dated: September 28, 1998
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
ARTICLE I: MERGER OF SKYNET WITH AND INTO ACQUIROR AND RELATED MATTERS......... 1
1.1 The Merger................................................................ 1
1.2 Conversion of Stock....................................................... 3
1.3 Merger Consideration...................................................... 3
1.4 Escrow Agreement.......................................................... 4
1.5 Additional Rights; Taking of Necessary Action; Further Action............. 5
1.6 No Further Rights or Transfers............................................ 5
ARTICLE II: THE CLOSING........................................................ 5
2.1 Closing Date.............................................................. 5
2.2 Closing Transactions...................................................... 5
ARTICLE III: CERTAIN CORPORATE ACTION.......................................... 9
3.1 SkyNet Corporate Action................................................... 9
3.2 Acquiror Corporate Action................................................. 9
ARTICLE IV: REPRESENTATIONS AND WARRANTIES..................................... 9
4.1 Representations and Warranties of SkyNet and the Principal Shareholders... 9
4.2 Representations and Warranties of Acquiror................................ 21
ARTICLE V: AGREEMENTS OF THE PARTIES........................................... 24
5.1 Access to Information..................................................... 24
5.2 Confidentiality; No Solicitation.......................................... 24
5.3 Interim Operations........................................................ 27
5.4 Consents.................................................................. 29
5.5 Filings; Registration Statement........................................... 29
5.6 All Reasonable Efforts.................................................... 29
5.7 Public Announcements...................................................... 30
5.8 Notification of Certain Matters........................................... 30
5.9 Expenses.................................................................. 30
5.10 Financial Statements..................................................... 30
5.11 Lock-Up.................................................................. 31
5.12 Private Offering......................................................... 31
5.13 Documents at Closing..................................................... 31
5.14 Prohibition on Trading in Acquiror Stock................................. 31
5.15 Reservation of Shares.................................................... 32
5.16 Employment Agreements.................................................... 32
5.17 Acknowledgment of Approvals.............................................. 32
5.18 Matters of Corporate Governance.......................................... 32
5.19 Production of Schedules and Exhibits..................................... 33
</TABLE>
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EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
ARTICLE VI: CONDITIONS TO CONSUMMATION OF THE MERGER........................... 33
6.1 Conditions to Obligations of SkyNet and the Principal Shareholders........ 33
6.2 Conditions to Acquiror's Obligations...................................... 34
ARTICLE VII: INDEMNIFICATION................................................... 36
7.1 Indemnification........................................................... 36
ARTICLE VIII: TERMINATION...................................................... 37
8.1 Termination............................................................... 37
8.2 Notice and Effect of Termination.......................................... 38
8.3 Extension; Waiver......................................................... 38
8.4 Amendment and Modification................................................ 39
ARTICLE IX: MISCELLANEOUS...................................................... 39
9.1 Survival of Representations and Warranties; Remedies...................... 39
9.2 Notices................................................................... 40
9.3 Agreement; Assignment..................................................... 41
9.4 Binding Effect; Benefit................................................... 41
9.5 Headings.................................................................. 41
9.6 Counterparts.............................................................. 42
9.7 Governing Law............................................................. 42
9.8 Arbitration............................................................... 42
9.9 Severability.............................................................. 42
9.10 Release and Discharge.................................................... 42
9.11 Certain Definitions...................................................... 42
</TABLE>
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EXHIBITS AND SCHEDULES
EXHIBITS
- --------
Exhibit 1.3(b) - Allocation of Merger Consideration
Exhibit 1.4(a) - Acquiror Escrow Agreement
Exhibit 1.4(b) - Principal Shareholder Escrow Agreement
Exhibit 2.2(a)(ii) - Investment Letter
Exhibit 2.2(a)(x) - Weber Employment Agreement
Exhibit 2.2(a)(xi) - Weber Option Agreement
Exhibit 2.2(a)(xii) - Nizic Employment Agreement
Exhibit 2.2(a)(xiii) - Nizic Option Agreement
Exhibit 2.2(a)(xvii) - Amendment No. 1 to Subscription Agreement
SCHEDULES
- ---------
1.1(c)(vii) Officers and Directors of the Surviving Corporation
4.1(a) Articles of Incorporation and Bylaws of SkyNet and each
Subsidiary
4.1(c) Consents
4.1(d) Capitalization and Share Ownership
4.1(e) Financial Statements
4.1(f)(i) Location of Leased Property
4.1(f)(ii) Written Notice
4.1(g) No Contingent Liabilities
4.1(h) Litigation
4.1(i) Taxes
4.1(j)(i) Employee Benefit Plan
4.1(j)(ii) Employee Benefit Plan (for which SkyNet has obligation to
contribute)
4.1(j)(iv) Material Employment Arrangements, Contracts, etc.
4.1(k) Insurance Coverage
4.1(o) Intellectual Property
4.1(p) Accounts Receivable
4.1(r)(i) Labor Relations; Employees
4.1(r)(ii) List of Employees
4.1(r)(v) Strikes, grievance proceedings, arbitrations, etc.
4.1(r)(vii) Employment and Benefit Arrangements
4.1(s) Suppliers and Clients
4.1(t) Conflicting Interests
4.1(u) Absence of Certain Changes or Events
4.2(a) Certificate of Incorporation and Bylaws of Acquiror
4.2(e) Acquiror Financial Statements
4.2(g) Contingent Liabilities
4.2(h) Litigation
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of September 28, 1998, by and among EPL RESOURCES (DELAWARE) CORP., a
Delaware corporation, or its successor or assigns ("Acquiror"), SKYNET HOLDINGS,
INC., a Nevada corporation ("SkyNet"), Christian J. Weber, an individual
residing at _________________________________________ ("Weber"), DEANSLEY
LIMITED, an Isle of Man Corporation ("Deansley"), John E. Cathcart, an
individual residing at __________________________________ ("Cathcart"),
Vjekoslav Nizic, an individual residing at ______________________________
("Nizic") and FIR Construction Pty Limited, an Australian corporation ("FIR").
Weber, Deansley, Cathcart, Nizic and FIR are hereafter collectively referred to
as the "Principal Shareholders."
RECITALS
WHEREAS, Acquiror and SkyNet have determined that it is in the best
interests of their respective shareholders for SkyNet to merge with and into
Acquiror upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, Acquiror and SkyNet intend that the transactions evidenced by this
Agreement shall qualify, to the best extent possible, as a tax-free
reorganization under the applicable provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code") (although the parties recognize
that their intentions are not binding upon the Internal Revenue Service); and
WHEREAS, the respective Boards of Directors of Acquiror and SkyNet have
each approved this Agreement and the consummation of the transactions
contemplated hereby and approved the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
representations, warranties and agreements contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
MERGER OF SKYNET WITH AND INTO ACQUIROR
AND RELATED MATTERS
1.1 THE MERGER.
(a) Upon the terms and conditions of this Agreement, at the "Effective
Time" (as defined herein), SkyNet shall be merged with and into Acquiror (the
"Merger") in accordance with the provisions of the Delaware General Corporation
Law (the "DGCL") and the General
<PAGE>
Corporation Law of Nevada ("NGCL") and the separate corporate existence of
SkyNet shall cease, and Acquiror shall continue as the surviving corporation
under the laws of the State of Delaware.
(b) The Merger shall become effective as of the filing of a
certificate of merger with the Secretary of State of the State of Delaware (the
"Certificate of Merger") and the filing of articles of merger (the "Articles of
Merger") with the Secretary of State of the State of Nevada in accordance with
the provisions of Section 252 of the DGCL and Section 92A.190 of the NGCL,
respectively, and the confirmation by the Articles of Merger that the Merger is
effective as of such filing date. The date and time when the Merger shall
become effective is referred to herein as the "Effective Time."
(c) At the Effective Time:
(i) Acquiror shall continue its existence under the laws of the State
of Delaware as the surviving corporation as "SkyNet Holdings, Inc.";
(ii) the separate corporate existence of SkyNet shall cease;
(iii) all rights, title and interests to all assets, whether tangible
or intangible and any property or property rights owned by the SkyNet shall be
allocated to and vested in Acquiror as the surviving corporation without
reversion or impairment, without further act or deed, and without any transfer
or assignment having occurred, but subject to any existing liens or other
encumbrances thereon, and all liabilities and obligations of SkyNet shall be
allocated to Acquiror as the surviving corporation, which shall be the primary
obligor therefor and, except as otherwise provided by law or contract, no other
party to the Merger, other than Acquiror as the surviving corporation, shall be
liable therefor;
(iv) the Certificate of Incorporation of the surviving corporation
shall be the Certificate of Incorporation of Acquiror as in effect immediately
prior to the consummation of the Merger;
(v) Each of Acquiror and SkyNet shall execute and deliver, and file or
cause to be filed with the Secretary of State of the State of Delaware, the
Certificate of Merger and with the Secretary of State of the State of Nevada,
the Articles of Merger, with such amendments thereto as the parties hereto shall
deem mutually acceptable.
(vi) the Bylaws of the surviving corporation shall be the Bylaws of
Acquiror as in effect immediately prior to the consummation of the Merger, and
shall continue in full force and effect until thereafter amended as provided by
law and such Bylaws; and
(vii) the officers and directors of Acquiror shall resign
upon the Effective Time and the officers and directors of the surviving
corporation shall consist of those individuals identified on Schedule
1.1(c)(vii), and such persons shall serve in such positions for their respective
terms provided by law or in the Bylaws of the surviving corporation and until
their respective successors are elected and qualified.
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<PAGE>
1.2 CONVERSION OF STOCK.
(a) At the Effective Time:
(i) the shares representing 100% of the issued and outstanding common
stock of SkyNet ("SkyNet Common Stock") as of the Closing, other than SkyNet
Shareholders who elect to exercise dissenters' rights (the "Dissenting
Shareholders"), shall, by virtue of the Merger and without any action on the
part of any holder thereof, be converted into and represent the right to
receive, and shall be exchangeable for the merger consideration identified at
Section 1.3 hereafter (the "Merger Consideration");
(ii) each share of capital stock of SkyNet held in treasury as of the
Effective Time shall, by virtue of the Merger, be canceled without payment of
any consideration therefor and without any conversion thereof;
(iii) each share of Common Stock of SkyNet outstanding as of the
Effective Time, by virtue of the Merger, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist.
(b) From and after the Effective Time, there shall be no transfers on
the stock transfer books of SkyNet of shares of SkyNet Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates for shares of SkyNet Common Stock that were outstanding
immediately prior to the Effective Time, shall be delivered to SkyNet, they
shall be canceled and exchanged for the consideration to be received therefor in
connection with the Merger as provided in this Agreement.
1.3 MERGER CONSIDERATION.
(a) Subject to the provisions of Section 1.4 (b) hereafter, the Merger
Consideration, consisting of the total purchase price payable to the
shareholders of SkyNet (the "SkyNet Shareholders") in connection with the
acquisition by merger of SkyNet, shall be delivered, and, subject to adjustment
pursuant to Section 1.3(d) hereof, shall consist exclusively of 9,901,500 newly
issued shares of Common Stock, $.001 par value per share, of Acquiror (the
"Acquiror Shares").
(b) The Merger Consideration shall be allocated among the SkyNet
Shareholders in the proportion of their share ownership of the outstanding
SkyNet Common Stock at the Closing as set forth on Exhibit 1.3(b). It is
intended that the delivery of the Merger Consideration shall qualify as a tax-
free exchange under the Code.
(c) The shares of Acquiror Common Stock to be delivered at the Closing
shall be fully paid and non-assessable and shall be free and clear of all liens,
levies and encumbrances except that (i) all of such Acquiror Common Stock shall
be "restricted securities" pursuant to Rule 144, promulgated under the
Securities Act of 1933, as amended (the "Act"); and (ii) the shares of Acquiror
Common Stock issued to the Principal Shareholders will be subject to the lock-up
provisions set forth in Paragraph 5.11 hereof.
3
<PAGE>
(d) No fractional shares of stock shall be issued in the Merger, and
each holder of SkyNet Capital Stock entitled to receive as part of the Merger
Consideration fractional shares shall receive that number of shares of stock
rounded to the nearest whole number.
(e) In addition to the Merger Consideration, Weber and Nizic shall, in
consideration for entering into employment agreements with Acquiror, receive
options to purchase an aggregate of 1,400,000 shares of Acquiror's Common Stock.
The options shall have a term of five (5) years and shall be subject to an
exercise price equal to $3.00 per share. The options shall vest two (2) years
after the Closing. The options shall be granted solely in accordance with the
terms of the Option Agreements attached hereto as Exhibit 2.2(a)(xi) and
2.2(a)(xiii).
1.4 ESCROW AGREEMENT.
(a) In order to secure Acquiror's obligation to timely complete the
Private Offering identified at Section 5.12 hereafter, upon the Closing,
Acquiror shall have secured the agreement of certain of its principal
stockholders to place an aggregate of 2 million shares of Common Stock of the
Acquiror into escrow pursuant to the terms of the escrow agreement attached
hereto as Exhibit 1.4(a) (the "Acquiror Escrow Agreement"). The shares
deposited into escrow pursuant to the Acquiror Escrow Agreement (the "Acquiror
Escrow Shares") shall be released from escrow upon the closing of the "Minimum
Offering", as defined in Section 5.12 hereafter. In the event that a closing
with respect to the Minimum Offering is not completed within fifteen (15) days
after the date required for Closing of the Private Offering under Section 5.12,
250,000 of the Acquiror Escrow Shares shall be surrendered to Acquiror for
cancellation. At the conclusion of each additional fifteen (15) day period
thereafter that the Minimum Offering is not completed, an additional 250,000
Acquiror Escrow Shares shall be surrendered to Acquiror for cancellation. In
the event that the Private Offering fails to close, all of the Acquiror Escrow
Shares shall be surrendered to Acquiror for cancellation. While retained in
escrow, the beneficial owners of the Acquiror Escrow Shares shall retain full
voting rights with respect to any such Acquiror Escrow Shares.
(b) In order to secure the Principal Shareholders' indemnification
obligations under Article 7 hereof, 2 million shares of Acquiror Common Stock
issuable to the Principal Shareholders hereunder (the "Principal Shareholder
Escrow Shares") shall be placed into escrow pursuant to the escrow agreement
attached hereto as Exhibit 1.4(b) (the "Principal Shareholder Escrow
Agreement"). Subject to the terms of the Principal Shareholder Escrow
Agreement, 1,250,000 of the Principal Shareholder Escrow shares shall be
released from escrow upon completion of Audited Financial Statements in
compliance with Section 5.10 hereunder. Also subject to the terms of the
Principal Shareholder Escrow Agreement, the remaining Principal Shareholder
Escrow Shares (less those shares that are subject to claims for indemnification
under Section 7.1 hereunder and the Principal Shareholder Escrow Agreement)
shall be released to the Principal Shareholders one (1) year after the Closing.
4
<PAGE>
1.5 ADDITIONAL RIGHTS; TAKING OF NECESSARY ACTION; FURTHER ACTION.
Each of Acquiror, SkyNet and the Principal Shareholders, respectively,
shall use their best efforts to take all such action as may be necessary and
appropriate to effectuate the Merger under the NGCL and DGCL as promptly as
possible, including, without limitation, the filing of the Articles of Merger
and Certificate of Merger consistent with the terms of this Agreement. If at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement, the officers of such corporations
are fully authorized in the name of their corporations or otherwise, and
notwithstanding the Merger, to take, and shall take, all lawful and necessary
action.
1.6 NO FURTHER RIGHTS OR TRANSFERS.
At and after the Effective Time, the SkyNet Capital Stock outstanding
immediately prior to the Effective Time shall cease to provide the SkyNet
Shareholders thereof any rights as a shareholder of SkyNet, except for the right
to surrender the certificate or certificates representing such shares and to
receive the Merger Consideration to be received in the Merger as provided in
this Agreement.
ARTICLE II
THE CLOSING
2.1 CLOSING DATE.
Subject to satisfaction or waiver of all conditions precedent set
forth in Section 6 of this Agreement, the closing of the Merger (the "Closing")
shall take place at the offices of SkyNet at 343 South Glasgow Ave., Inglewood,
CA 90301, at 10:00 a.m., local time on (a) the later of: (i) the first Business
Day following the day upon which all appropriate Acquiror corporate action and
SkyNet corporate action have been taken in accordance with Section 3 of this
Agreement; or (ii) the day on which the last of the conditions precedent set
forth in Article 6 of this Agreement is fulfilled or waived; or (b) at such
other time, date and place as the parties may agree, but in no event shall such
date be later than October 2, 1998 unless such date is extended by the mutual
agreement of the parties.
2.2 CLOSING TRANSACTIONS.
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
(a) SKYNET AND THE PRINCIPAL SHAREHOLDERS WILL DELIVER, OR SHALL CAUSE
TO BE DELIVERED, TO THE ACQUIROR, THE FOLLOWING DOCUMENTS AND SHALL TAKE THE
FOLLOWING ACTIONS:
(i) The SkyNet Shareholders (other than Dissenting Shareholders) shall
surrender and deliver to Acquiror as the surviving corporation the certificate
or certificates representing all of such shares of SkyNet Common Stock;
5
<PAGE>
(ii) The SkyNet Shareholders (other than Dissenting Shareholders)
shall, to the extent necessary to comply with applicable federal and state
securities laws, execute and deliver at the Closing a copy of an Investment
Letter in the form attached to this Agreement as Exhibit 2.2(a)(ii) ("Investment
Letter");
(iii) Any outstanding shareholder agreements relating to the SkyNet
Capital Stock shall have been terminated and evidence of such termination
satisfactory to Acquiror shall have been delivered to Acquiror;
(iv) SkyNet and the Principal Shareholders shall execute and deliver,
and file or cause to be filed with the Secretary of State of the State of
Nevada, Articles of Merger with such amendments thereto as the parties hereto
shall deem mutually acceptable;
(v) A certificate shall be executed by an authorized officer of SkyNet
and the Principal Shareholders to the effect that all representations and
warranties made by SkyNet and each of the Principal Shareholders under this
Agreement are true and correct as of the Closing, as though originally given to
Acquiror on said date;
(vi) A certificate of good standing shall be delivered by SkyNet and
the Principal Shareholders from the Secretary of State of the State of Nevada,
dated at or about the Closing, to the effect that such corporation is in good
standing under the laws of such state, similar good standing certificates shall
be provided for each of the Subsidiaries (as that term is defined in Section
4.1(a)(ii) hereof);
(vii) An incumbency certificate shall be delivered by SkyNet signed by
all of the officers thereof dated at or about the Closing;
(viii) Certified Articles of Incorporation shall be delivered by
SkyNet dated at or about the Closing and a copy of the Bylaws of SkyNet
certified by the Secretary of SkyNet dated at or about the Closing; similar
articles, Bylaws or other governing instruments will be delivered by each of the
Subsidiaries;
(ix) Certified Board and shareholder resolutions shall be delivered by
the Secretary of SkyNet dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(x) The employment agreement by and between the Acquiror and Weber
(the "Weber Employment Agreement") in the form attached to this Agreement as
Exhibit 2.2(a)(x) shall be executed and delivered by Weber;
(xi) The Option Agreement by and between the Acquiror and Weber (the
"Weber Option Agreement") in the form attached to this Agreement as Exhibit
2.2(a)(xi) shall be executed and delivered by Weber;
(xii) The employment agreement by and between the Acquiror and Nizic
(the "Nizic Employment Agreement") in the form attached to this Agreement as
Exhibit 2.2(a)(xii) shall be executed and delivered by Nizic;
6
<PAGE>
(xiii) The Option Agreement by and between the Acquiror and Nizic (the
"Nizic Option Agreement") in the form attached to this Agreement as Exhibit
2.2(a)(xiii) shall be executed and delivered by Nizic;
(xiv) The Principal Shareholder Escrow Agreement in the form attached
hereto as Exhibit 1.4(b) shall be executed and delivered by the Principal
Shareholders;
(xv) The Principal Shareholder Escrow Shares shall be delivered into
escrow pursuant to the Principal Shareholder Escrow Agreement;
(xvi) SkyNet shall deliver a copy of the release with respect to that
certain letter agreement dated September 17, 1998, by and between SkyNet and
Arizona Capital Group, Inc. which shall be certified by the President of SkyNet
and delivered to Acquirer;
(xvii) Each person who was issued shares of preferred stock, $.001 par
value per share, of SkyNet pursuant to a Subscription Agreement ("Subscription
Agreement") in connection with that certain Agreement Concerning The Exchange of
Capital Stock dated as of September 30, 1997 by and among, inter alia, SkyNet
----- ----
and the Principal Shareholders, shall execute and deliver Amendment No. 1 to
Subscription Agreement ("Amendment No. 1") in the form attached to this
Agreement as Exhibit 2.2(a)(xvii), together with certificates evidencing the
shares of preferred stock; and
(xviii) Each of the parties to this Agreement shall have otherwise
executed whatever documents and agreements, provided whatever consents or
approvals and taken all such actions as are required under this Agreement.
(b) ACQUIROR WILL DELIVER, OR SHALL CAUSE TO BE DELIVERED, TO SKYNET
AND THE PRINCIPAL SHAREHOLDERS, THE FOLLOWING DOCUMENTS AND SHALL TAKE THE
FOLLOWING ACTIONS:
(i) Subject to Section 1.4(b), Acquiror shall deliver or shall cause
to be delivered to the SkyNet Shareholders (other than Dissenting Shareholders)
a certificate or certificates representing the number of shares of Acquiror
Common Stock as such holder is entitled to receive in connection with the
Merger;
(ii) Acquiror shall execute and deliver, and file or cause to be filed
with the Secretary of State of the State of Delaware, the Certificate of Merger
with such amendments thereto as the parties hereto shall deem mutually
acceptable;
(iii) Acquiror shall receive from the Secretary of State of Delaware a
final Certificate of Merger;
(iv) A certificate shall be executed by the Acquirer's President to
the effect that all representations and warranties of the Acquiror under this
Agreement are true and correct as of the Closing, as though originally given to
SkyNet and the Principal Shareholders on said date;
7
<PAGE>
(v) A certificate of good standing shall be delivered by Acquiror from
the Secretary of the State of Delaware dated at or about the Closing that
Acquiror is in good standing under the laws of said state;
(vi) Acquiror shall deliver the Acquiror Escrow Shares into Escrow
pursuant to the terms of the Acquiror Escrow Agreement;
(vii) An incumbency certificate shall be delivered by Acquiror signed
by all of its officers dated at or about the Closing;
(viii) Certified Certificate of Incorporation shall be delivered by
Acquiror dated at or about the Closing, and a copy of the Bylaws of Acquiror
certified by the Secretary of Acquiror dated at or about the Closing;
(ix) Certified Board and shareholder resolutions shall be delivered by
the Secretary of Acquiror dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(x) Acquiror will execute and deliver the Weber Employment Agreement
the form of which is attached to this Agreement as Exhibit 2.2(a)(x);
(xi) Acquiror will execute and deliver the Nizic Employment Agreement
the form of which is attached to this Agreement as Exhibit 2.2(a)(xi);
(xii) Acquiror will execute and deliver the Nizic Option Agreement the
form of which is attached to this Agreement as Exhibit 2.2(a)(xiii);
(xiii) Acquiror will execute and deliver the Weber Option Agreement
the form of which is attached to this Agreement as Exhibit 2.2(a)(xi);
(xiv) Acquiror will execute and deliver the Acquiror Escrow Agreement
to SkyNet and the Principal Shareholders the form of which is attached hereto as
Exhibit 1.4(a);
(xv) Each of the officers and directors of Acquiror shall have
tendered their resignation in form and substance satisfactory to SkyNet and the
Principal Shareholders; and
(xvi) Each of the parties to this Agreement shall have otherwise
executed whatever documents and agreements, provided whatever consents or
approvals and shall have taken all such actions as are required under this
Agreement.
8
<PAGE>
ARTICLE III
CERTAIN CORPORATE ACTION
3.1 SKYNET CORPORATE ACTION.
(a) SkyNet, acting through its Board of Directors, shall, in
accordance with applicable Nevada law, its Articles of Incorporation and Bylaws
(i) duly call, give notice of, convene and hold a special meeting ("Special
Meeting") of its shareholders as soon as practicable following the execution of
this Agreement for the purpose of considering and approving this Agreement or,
alternatively, obtain the unanimous written consent of its shareholders to this
Agreement; (ii) subject to its fiduciary duties under applicable law, include in
the proxy statement for, or any information statement with respect to, the
Special Meeting (or solicitation of unanimous written consents) the
recommendation of its board of directors that this Agreement be approved by the
shareholders of SkyNet; (iii) use its best efforts to obtain and furnish the
information relating to Acquiror which Acquiror shall request to be included in
such proxy statement or information statement in order that the offer and sale
of the Acquiror Common Stock to be issued in connection with the Merger shall
comply with the provisions of the Securities Act of 1933, as amended (the "Act")
and the rules and regulations promulgated thereunder including Regulation D and
Rule 506 thereunder; (iv) permit Acquiror to review such proxy statement or
information statement prior to the delivery of such proxy statement or
information statement to any shareholder of SkyNet; and (v) subject to the
fiduciary duties of the board of directors of SkyNet under applicable law, to
obtain the necessary approval of the Agreement by the shareholders of SkyNet.
(b) SkyNet shall cause to occur all other corporate action necessary
to effect the Merger and to consummate the other transactions contemplated
hereby.
3.2 ACQUIROR CORPORATE ACTION.
Acquiror shall cause to occur all corporate action necessary to effect
the Merger and to consummate the other transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SKYNET AND THE PRINCIPAL
SHAREHOLDERS.
As a material inducement to Acquiror to execute this Agreement and
consummate the Merger and other transactions contemplated hereby, SkyNet and the
Principal Shareholders, jointly and severally, hereby make the following
representations and warranties to Acquiror. The representations and warranties
are true and correct in all material respects at this date, and will be true and
correct in all material respects on the Closing as though made on and as of such
date.
(a) CORPORATE EXISTENCE AND POWER.
9
<PAGE>
(i) SkyNet is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the failure to
have any of the foregoing would not have a Material Adverse Effect. Except as
set forth on Schedule 4.1(a), SkyNet is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. True, correct and complete copies of the Articles of
Incorporation and Bylaws of SkyNet as amended to date are attached hereto as
Schedule 4.1(a) and are made a part hereof.
(ii) SkyNet owns no interest in any other entity other than DPE
International Limited, a California corporation, SkyNet Worldwide Express Pty
Limited, an Australian corporation, SkyNet, Inc., a New York Corporation, and
Sky International Limited, a corporation organized under the laws of England
(collectively the "Subsidiaries" and individually a "Subsidiary"). Each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the state or country of its incorporation, and has
all corporate powers and all government licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
failure to have any of the foregoing would not have a Material Adverse Effect.
Each Subsidiary is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) DUE AUTHORIZATION AND REQUISITE APPROVALS. (i) This Agreement has
been duly authorized, executed and delivered by SkyNet and the Principal
Shareholders and constitutes a valid and binding agreement of SkyNet and the
Principal Shareholders, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and
other similar laws relating to, limiting or affecting the enforcement of
creditors rights generally or by the application of equitable principles. As of
the Closing all corporate action on the part of SkyNet required under applicable
law in order to consummate the Merger will have occurred; and (ii) the Board of
Directors of SkyNet has approved the execution of this Agreement and the
consummation of the Merger Transaction and related actions contemplated hereby.
(c) NO CONTRAVENTION. The execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated hereby will not:
(i) conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of SkyNet or any of the Subsidiaries; or (ii) conflict
with or result in any violation or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of a right or obligation or loss under, any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, decree, or,
to the best of their knowledge, statute, law, ordinance, rule or regulation
applicable to SkyNet, any of the Subsidiaries or the Principal Shareholders or
their
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properties or assets, or result in the creation or imposition of any mortgage,
lien, pledge, charge or security interest of any kind ("Encumbrance") on any
assets of SkyNet or the Subsidiaries, except such as is not reasonably likely to
have a Material Adverse Effect or prevent SkyNet or the Principal Shareholders
from consummating the transactions contemplated by this Agreement. Except as set
forth on Schedule 4.1(c), no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by or with respect to SkyNet or any Subsidiary in
connection with the execution and delivery of this Agreement by SkyNet and the
Principal Shareholders or the consummation by SkyNet and the Principal
Shareholders of the transactions contemplated hereby, except the filing of the
Articles of Merger.
(d) CAPITALIZATION AND SHARE OWNERSHIP. The authorized capital stock
of SkyNet consists solely of Twenty Million (20,000,000) shares of common stock,
$.001 par value per share. There are currently 5,658,000 shares of SkyNet
Common Stock outstanding, of which the Principal Shareholders own 5,192,708
shares. The Principal Shareholders are the beneficial owners of a majority of
the outstanding shares entitled to vote on the Merger, and by their signatures
at the end hereof, have indicated their consent to the Merger and the
transactions contemplated hereby. The outstanding shares of capital stock of
SkyNet have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this
Section 4.1(d) and on Schedule 4.1(d), there are outstanding (A) no shares of
capital stock or other voting securities of SkyNet, (B) no securities of SkyNet
convertible into or exchangeable for shares of capital stock or voting
securities of SkyNet and (C) no options, warrants or other rights to acquire
from SkyNet, and no obligation of SkyNet to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of SkyNet, and there are no agreements or commitments to do
any of the foregoing. There are no voting trusts or voting agreements
applicable to any capital stock of SkyNet. The SkyNet Common Stock to be
surrendered in the Merger will be owned of record and beneficially, by the
SkyNet Shareholders, free and clear of all liens and encumbrances of any kind
and nature, and have not been sold, pledged, assigned or otherwise transferred.
There are no agreements (other than this Agreement) to sell, pledge, assign or
otherwise transfer such securities. Except as set forth on Schedule 4.1(d), all
of the issued and outstanding shares of Capital Stock of the subsidiaries are
owned by SkyNet.
(e) FINANCIAL STATEMENTS. SkyNet shall prepare and deliver to
Acquiror, no less than five (5) days prior to Closing, copies of unaudited
consolidated financial statements of SkyNet and the Subsidiaries for the fiscal
years ended June 30, 1998, June 30, 1997 and June 30, 1996 (collectively, the
"Financial Statements"). Such Financial Statements will have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods reported upon and will fairly present in all material
respects the financial position of SkyNet and its Subsidiaries as of the dates
thereof and the results of operations for the periods then ended.
(f) REAL PROPERTIES.
(i) SkyNet and the Subsidiaries currently lease real property at those
locations identified on Schedule 4.1(f)(i) hereto pursuant to the true, correct
and complete copies
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of the lease agreements attached to Schedule 4.1(f)(i). SkyNet and the
Subsidiaries own or lease no other real estate. None of the leasehold interests
held by SkyNet or the Subsidiaries is subject to any Encumbrance, except (a)
liens for ad valorem taxes not yet due or being contested in good faith; and (b)
contractual or statutory mechanics or materialmen's liens or other statutory or
common law Encumbrances relating to obligations of SkyNet that are not
delinquent or are being contested in good faith. There are no Encumbrances which
materially interfere with the present use of such leasehold interests.
(ii) Except as described on Schedule 4.1(f)(ii) hereto, neither SkyNet
nor any Subsidiary has received any written notice from any governmental entity
having jurisdiction over SkyNet or the Subsidiaries or over any of the real
property leased by SkyNet or the Subsidiaries of any violation by SkyNet or the
Subsidiaries of any law, regulation or ordinance relating to zoning,
environmental matters, local building or fire codes or similar matters relating
to any of the real property leased by SkyNet or the Subsidiaries or of any
condemnation or eminent domain proceeding.
(iii) Except such as has not had and is not reasonably likely to have
a Material Adverse Effect, all of the buildings leased by SkyNet or the
Subsidiaries and all plumbing, HVAC, electrical, mechanical and similar systems
are in good repair and adequate for their current use, ordinary wear and tear
excepted.
(iv) Except as described on Schedule 4.1(f)(iv), neither SkyNet nor
any Subsidiary is a party to any lease, sublease, lease assignment or other
agreement for the use or occupancy of any of the leasehold premises wherein
SkyNet or the Subsidiary is the landlord, sub-landlord or assignor, whether by
name, as successor-in-interest or otherwise. There are no outstanding
agreements with any party to acquire the leasehold premises or any portion
thereof or any interest therein.
(v) All certificates of occupancy and all other licenses, permits,
authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction over the leasehold premises
occupied by SkyNet or the Subsidiaries have been issued, are fully paid for and
are in full force and effect, will survive the Closing and will not be
invalidated, violated or otherwise adversely affected by the Merger or the other
transactions contemplated by this Agreement.
(g) NO CONTINGENT LIABILITIES. Except contained within the Financial
Statements or otherwise as described on Schedule 4.1(g), at the Closing, SkyNet
and the Subsidiaries shall have no material liabilities, whether related to tax
or non-tax matters, known or unknown, due or not yet due, liquidated or
unliquidated, fixed or contingent, determined or determinable in amount or
otherwise, and to the best knowledge of the Principal Shareholders, after due
inquiry, there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, except as and to the
extent reflected on this Agreement or any Schedule or Exhibit hereto or which
has been incurred in the ordinary course of business and as accurately reflected
on the books and records of SkyNet or the Subsidiaries.
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(h) LITIGATION. Except as described on Schedule 4.1(h) hereto there
is no action, suit, investigation or proceeding (or, to the knowledge of SkyNet
or the Principal Shareholders, any basis therefor) pending against, or to the
knowledge of SkyNet threatened, against or affecting SkyNet or the Subsidiaries
or any of their properties before any court or arbitrator or any governmental
body, agency or official that (i) if adversely determined against SkyNet or the
Subsidiaries, would have a Material Adverse Effect or (ii) in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the Merger or
any of the other transactions contemplated by the Agreement.
(i) TAXES. Except as disclosed on Schedule 4.1(i), SkyNet and the
Subsidiaries have timely filed all tax returns required to be filed by them, or
will timely file when due all tax returns required to be filed by them between
the date hereof and the Closing. SkyNet and the Subsidiaries have paid in a
timely fashion or will pay when due in a timely fashion, all taxes required to
be paid in respect of the periods covered by such returns, and the books and the
financial statements of SkyNet reflect, or will reflect, adequate reserves for
all taxes payable by SkyNet and the Subsidiaries which have been, or will be,
accrued but are not yet due. Neither SkyNet nor any of the Subsidiaries is
delinquent in the payment of any material tax, assessment or governmental
charge. No deficiencies for any taxes have been proposed, asserted or assessed
against SkyNet or any Subsidiary. SkyNet and the Principal Shareholders are not
aware of any facts which would constitute the basis for the proposal or
assertion of any such deficiency and there is no action, suit, proceeding, audit
or claim now pending or threatened against SkyNet or the Subsidiaries, asserting
any deficiency in the payment of taxes. All taxes which SkyNet or the
Subsidiaries are required by law to withhold and collect have been duly withheld
and collected, and have been timely paid over to the proper authorities to the
extent due and payable. For the purposes of this Agreement, the term "tax"
shall include all federal state, local and foreign income, property, sales,
excise and other taxes of any nature whatsoever. Neither SkyNet nor the
Subsidiaries nor any member of any affiliated or combined group of which SkyNet
is or has been a member has granted any extension or waiver of the limitation
period applicable to any tax returns. There are no Encumbrances for taxes upon
the assets of SkyNet or the Subsidiaries. There are no tax sharing or tax
allocation agreements to which SkyNet is now or ever has been a party. SkyNet
will not be required under Section 481(c) of the Internal Revenue Code of 1986,
as amended (the "Code"), to include any material adjustment in taxable income
for any period subsequent to the Merger. SkyNet (a) has not been a member of an
affiliated group filing a consolidated federal income tax return (other than a
group the common parent of which was SkyNet) and (b) has no liability for the
taxes of any person (other than SkyNet) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(j) ERISA.
(i) Schedule 4.1(j)(i) identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that is subject to any provision of ERISA, and either (i)
is maintained, administered or contributed to by SkyNet or any affiliate (as
defined below), (ii) covers any employee or former employee of SkyNet or any
affiliate or (iii) under which SkyNet or any affiliate has any liability.
Copies of such plans and, if applicable, related trust agreements) and all
amendments
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thereto and any written interpretations thereof have been furnished to Acquiror,
together, if applicable, with (x) the most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (y) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans." Any Form 5500 for any plan year of any Employee Plan that
has not been filed, but for which the filing date has passed on the date of this
Agreement, shall be filed prior to the date of the Merger. For purposes of this
Section, "affiliate" of any Person means any other Person which, together with
such Person, would be treated as a single employer for any purpose under Section
414 of the Code.
(ii) Schedule 4.1(j)(ii) identifies all Employee Plans to which SkyNet
currently has any obligation to contribute. SkyNet is not a party to any
multiemployer plan as defined in Section 4001(a) (3) of ERISA ("Multiemployer
Plans"), and neither SkyNet nor any affiliate has any outstanding liability to
contribute to any Multiemployer Plan, for delinquent contributions or for
withdrawal liability pursuant to Section 4201 of ERISA.
(iii) There are no Employee Plans that are intended to be qualified
plans under Section 401(a) of the Code, except as may have been shown and
identified as such on the list referred to in subparagraphs (i) or (ii) above.
Each Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Plan, other than any failure to comply that is not
reasonably likely to have a Material Adverse Effect.
(iv) Schedule 4.1(j)(iv) identifies each material employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or post-retirement
insurance, compensation or benefits that is not an Employee Plan and (A) is
entered into, maintained or contributed to, as the case may be by SkyNet, any
Subsidiary or any of their respective affiliates or (B) covers any employee or
former employee of SkyNet, or any Subsidiary or any of their respective
affiliates or (C) under which SkyNet, any Subsidiary or any of their respective
affiliates has liability. Such contracts, plans and arrangements as are
described above, copies of all of which have been furnished previously to
Acquiror, are referred to collectively herein as the "Benefit Arrangements."
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Benefit Arrangement other than
any failure to comply that is not reasonably likely to have a Material Adverse
Effect.
(v) Neither SkyNet nor any affiliate has or maintains and has
maintained any Employee Plan or Benefit Arrangement providing post-retirement
health or medical benefits in respect of any active or former employee of SkyNet
or any affiliate or former affiliate, except as may be required pursuant to the
provisions of COBRA.
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(k) INSURANCE COVERAGE. Schedule 4.1(k) sets forth a list of all
SkyNet key-man life insurance policies. SkyNet and the Subsidiaries maintain
insurance covering their assets, business, equipment, properties, operations,
employees, officers and directors with such coverage, in such amounts, and with
such deductibles and premiums as are consistent with insurance coverage provided
for other companies of comparable size and in comparable industries. All of
such policies are in full force and effect and all premiums payable have been
paid in full and SkyNet and the Subsidiaries are in full compliance with the
terms and conditions of such policies. Neither SkyNet nor any Subsidiary has
received any notice from any issuer of such policies of its intention to cancel
or refusal to renew any policy issued by it or of its intention to renew any
such policy based on a material increase in premium rates other than in the
ordinary course of business. None of such policies are subject to cancellation
by virtue of the Merger or the consummation of the other transactions
contemplated by this Agreement. There is no claim by SkyNet pending under any
of such policies as to which coverage has been questioned or denied.
(l) COMPLIANCE WITH LAWS. To the best of knowledge of the Principal
Shareholders, neither SkyNet nor any Subsidiary is in violation of, nor has any
such entity violated, any applicable provisions of any laws, statues, ordinances
or regulations, other than as would not be reasonably likely to have a Material
Adverse Effect or constitute a felony. Without limiting the generality of the
foregoing, to the best knowledge of the Principal Shareholders, SkyNet and the
Subsidiaries have all licenses, permits, certificates and authorizations needed
or required for the conduct of business of SkyNet and the Subsidiaries as
presently conducted and for the use of its properties and premises occupied by
it, except where the failure to obtain a licenses, permit, certificate or
authorization would not have a Material Adverse Effect.
(m) INVESTMENT BANKING FEES. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, SkyNet or the Principal Shareholders to act on its or their
behalf who might be entitled to any fee or commission from SkyNet, the Principal
Shareholders, Acquiror or any of their respective affiliates upon consummation
of the transactions contemplated by this Agreement.
(n) PERSONAL PROPERTY. SkyNet and the Subsidiaries have good and valid
title to all of their personal property, tangible and intangible, reflected on
the Financial Statements and to all other personal property owned by them, free
and clear of any Encumbrance. SkyNet and the Subsidiaries are the owner of all
of its personal property now located in or upon their leased premises and of all
personal property which is used in the operation of their business. All such
equipment, furniture and fixtures and other tangible personal property are in
good operating condition and repair and do not require any repairs other than
normal routine maintenance to maintain such property in good operating condition
and repair.
(o) INTELLECTUAL PROPERTY; INTANGIBLE PROPERTY. The corporate names
of SkyNet and the trade names and service marks listed on Schedule 4.1(o) are
the only names and service marks which are used by SkyNet in the operation of
its business (the "Names and Service Marks"). SkyNet and the Subsidiaries have
not done business and have not been known by any other name other than by its
Names and Service Marks. [SkyNet owns and has the exclusive right within the
states and countries in which it and its Subsidiaries operate, to use all
intellectual
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property presently in use by it and its Subsidiaries and necessary for the
operation of its businesses as now being conducted, which intellectual property
includes, but is not limited to, patents, trademarks, trade names, service
marks, copyrights, trade secrets, customer lists, inventions, formulas, methods,
processes and other proprietary information.] There are no outstanding licenses
or consents granting third parties the right to use any intellectual property
owned by SkyNet or the Subsidiaries. No royalties or fees are payable by SkyNet
to any third party by reason of the use of any of its intellectual property.
Neither SkyNet nor any subsidiary has received notice of any adversely held
patent, invention, trademark, copyright, service mark or tradename of any
person, or any claims of any other person relating to any of the intellectual
property subject hereto, and there is no reasonable basis for any such charge or
claim. There is no presently known or threatened use or encroachment of any such
intellectual property.
(p) ACCOUNTS RECEIVABLE. The accounts receivable of SkyNet and its
Subsidiaries referred to within the Financial Statements constitute valid claims
in the full amount thereof against the debtors charged therewith on the books of
SkyNet and its Subsidiaries to which each such account is payable and has been
acquired in the ordinary course of business. Except as set forth in Schedule
4.1(p), the accounts receivable are fully collectible to the extent of the face
value thereof (less the amount of the allowance for the doubtful accounts
reflected on the Financial Statements) in the due course of normal commercial
dealings. To the best knowledge of the Principal Shareholders, no account
debtor has any valid setoff, deduction or defense with respect thereto, and no
account debtor has asserted any such setoff, deduction or defense. There are no
accounts receivable which arise pursuant to an agreement with the United States
Government or any agency or instrumentality thereof.
(q) CONTRACTS, LEASES, AGREEMENTS AND OTHER COMMITMENTS. Neither
SkyNet nor any Subsidiary is a party to or bound by any oral, written or implied
contracts, agreements, leases, powers of attorney, guaranties, surety
arrangements or other commitments excluding equipment and furniture leases
entered into in the ordinary course of business (which do not exceed $100,000 in
liabilities or commitments in the aggregate), except for the following (which
are hereinafter collectively called the "Material Contracts"):
(i) The leases and agreements described on Schedules 4.1(f), 4.1(j)(i)
and (ii) and 4.1(r)(i); and
(ii) Agreements involving a maximum possible expenditure or obligation
on the part of SkyNet or any Subsidiary to expend more than Twenty-Five Thousand
Dollars ($25,000) separately or less than Fifty Thousand Dollars ($50,000) in
the aggregate.
The Material Contracts constitute all of the material agreements and
instruments which are necessary and desirable to operate the business as
currently conducted by SkyNet and the Subsidiaries. True, correct and complete
copies of each Material Contract described and listed under subsection 4.1(q)
will be made available to Acquiror within ten (10) business days prior to the
Closing Date. The term "Material Contract" excludes purchase orders entered
into in the ordinary course for personalty or inventory which may be returned to
the vendor without penalty. All of the Material Contracts are valid, binding
and enforceable against the respective parties
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thereto in accordance with their respective terms. Following the Merger, the
Acquiror as the surviving entity shall become entitled to all rights of SkyNet
under such of the Material Contracts as if the Acquiror were the original party
to such Material Contracts. All parties to all of the Material Contracts have
performed all obligations required to be performed to date under such Material
Contracts, and neither SkyNet, the Subsidiaries, and, to the best of their
knowledge, nor any other party, is in default or in arrears under the terms
thereof, and no condition exists or event has occurred which, with the giving of
notice or lapse of time or both, would constitute a default thereunder. The
consummation of this Agreement and the Merger will not result in an impairment
or termination of any of the rights of SkyNet or the Subsidiaries under any
Material Contract. None of the terms or provisions of any Material Contract
materially adversely affects the business, prospects, financial condition or
results of operations of SkyNet or the Subsidiaries.
(r) LABOR RELATIONS; EMPLOYEES.
(i) Set forth on Schedule 4.1(r)(i) is a list of:
(A) All collective bargaining agreements and other agreements
requiring arbitration of employment disputes, and any written amendments
thereto, as well as all arbitration awards decided under any such agreements,
and all oral assurances or modifications, past practices, and/or arrangements
made in relation thereto, to which SkyNet or any Subsidiary is a party or by
which it is bound; and
(B) All employment agreements, and all severance agreements which have
not been fully performed, to which SkyNet or any Subsidiary is a party or by
which it is bound.
(ii) Set forth on Schedule 4.1(r)(ii) is a list of all key management
employees of SkyNet or any Subsidiary, broken down by location, together with
their rate of compensation and title.
(iii) SkyNet will deliver to Acquiror true and correct copies of all
of the documents referred to on Schedule 4.1(r)(i) hereof and all of the
personnel policies, employee and/or supervisor handbooks, procedures and forms
of employment applications relating to the employees of SkyNet and its
Subsidiaries.
(iv) There is no union representing or purporting to represent any of
the employees of SkyNet or any Subsidiary, and neither SkyNet nor any Subsidiary
is subject to or currently negotiating any collective bargaining agreements with
any union representing or purporting to represent the employees of any of the
foregoing.
(v) Except as set forth on Schedule 4.1(r)(v) :
(A) There are no strikes, slow downs or other work stoppages,
grievance proceedings, arbitrations, labor disputes or representation questions
pending or, to the best knowledge of SkyNet and the Principal Shareholders,
threatened;
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(B) SkyNet and the Subsidiaries have complied in all material respects
with all laws relating to labor, employment and employment practices, including
without limitation, any provisions thereof relating to wages, hours and other
terms of employment, collective bargaining, nondiscrimination and the payment of
social security, unemployment compensation and similar taxes, and neither SkyNet
nor any Subsidiary is (1) liable for any arrearages of wages or any taxes or
penalties for failure to comply with any of the foregoing or (2) delinquent in
the payment of any severance, salary, bonus, commission or other direct or
indirect compensation for services performed by any employee to the date hereof,
or any amount required to be reimbursed to any employee or former employee; and
(C) There are no charges, suits, actions, administrative proceedings,
investigations and/or claims pending or threatened against SkyNet or any
Subsidiary, whether domestic or foreign, before any court, governmental agency,
department, board or instrumentality, or before any arbitrator (collectively
"Actions"), concerning or in any way relating to the employees or employment
practices of SkyNet or any Subsidiary, including, without limitation, Actions
involving unfair labor practices, wrongful discharge and/or any other
restrictions on the right of SkyNet or any Subsidiary to terminate its
respective employees, employment discrimination, occupational safety and health,
and workers' compensation.
(vi) There are no express or implied agreements, policies, practices,
or procedures, whether written or oral, pursuant to which any employee of SkyNet
or any Subsidiary is not terminable at will and except as required by law, no
employee is entitled to any benefit or to participate in any employee benefit
plan of SkyNet following such termination of employment.
(vii) Except as set forth in Schedule 4.1(r)(vii), SkyNet or any
Subsidiary is not a party to any oral or written (A) agreement with any
executive officer or other key employee of SkyNet or any Subsidiary (1) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving SkyNet of the nature of the
transactions contemplated by this Agreement, (2) providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (3) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment; or (B) agreement or plan which
will remain in effect after the Closing, including, without limitation, any
stock option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(viii) SkyNet has not taken any action which requires or, taken
together with the transactions contemplated hereby, would require the giving of
any notice under the Worker Adjustment Retraining and Notification Act or any
comparable state or local law or regulation.
(s) SUPPLIERS AND CUSTOMERS. Set forth on Schedule 4.1(s) is a list of
the ten largest customers of SkyNet and its Subsidiaries based on the percentage
of revenue represented
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by those customers for the fiscal year ended June 30, 1998. The relationship of
SkyNet and its Subsidiaries with their suppliers and customers are good
commercial working relationships and no material supplier or customer of SkyNet
and its Subsidiaries has canceled, curtailed or otherwise terminated or
threatened to cancel or otherwise terminate, his or its relationship with SkyNet
or any of its Subsidiaries. SkyNet and the Principal Shareholders have no
knowledge, or reason to believe, that the Merger or any other transaction
contemplated hereby would adversely affect any such material supplier or
customer relationship.
(t) CONFLICTING INTERESTS. Except as set forth on Schedule 4.1(t), no
director, officer, employee or SkyNet Shareholder, and no relative or affiliate
of any of the foregoing (i) sells or purchases goods or services from SkyNet or
has any pecuniary interest in any supplier or client of any of the foregoing or
in any other business enterprise with which SkyNet conducts business or with
which any of the foregoing is in competition, or (ii) is indebted to SkyNet
except for money borrowed and as set forth on the Financial Statements.
(u) ENVIRONMENTAL PROTECTION. Neither SkyNet nor any Subsidiary has
been notified by any governmental authority, agency or third party, and SkyNet
and the Principal Shareholders have no knowledge, of any violation by such
person of any Environmental Statute (as defined below). All registrations by
SkyNet with, licenses from or permits issued by governmental agencies pursuant
to environmental, health and safety laws are in full force and effect. The term
"Environmental Statutes" means all statutes, ordinances, regulations, orders and
requirements of common law concerning discharges to the air, soil, surface water
or groundwater and concerning the storage, treatment or disposal of any waste or
hazardous substance. There is no hazardous substance at any premises currently
or previously occupied by SkyNet or the Subsidiaries. Neither SkyNet nor any
Subsidiary has received any notice or any request for information, notice of
claim, demand or other notification that it may be potentially responsible with
respect to any investigation or clean-up of any threatened or actual release of
hazardous substances. All hazardous wastes and substances have been stored,
treated, disposed of and transported in conformance with all requirements
applicable to such hazardous substances and wastes.
(v) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to the extent
set forth on the Financial Statements, to the extent contained in this
Agreement, or as set forth on Schedule 4.1(v), between June 30, 1998 (the date
of the most recent Financial Statements) and the Closing, there will be no (i)
any material adverse change in the business, assets, properties, results of
operations, financial condition or prospects of SkyNet or any of its
Subsidiaries, (ii) any entry by SkyNet or any of its Subsidiaries into any
material commitment or transaction which is not in the ordinary course of
business; (iii) any change by SkyNet or any of its Subsidiaries in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (iv) any declaration, payment or setting aside
for payment of any dividends or other distributions (whether in cash, stock or
property) in respect of capital stock of SkyNet or any Subsidiary, or any direct
or indirect redemption, purchase or any other type of acquisition by SkyNet, or
any direct or indirect redemption, purchase or any other type of acquisition by
SkyNet of any shares of its capital stock or any other securities for an
aggregate sum not in excess of $5,000, (v) any agreement by SkyNet, whether in
writing or otherwise, to take any action which, if taken prior to the date of
this Agreement, would have made any
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representation or warranty in this Section 4.1 untrue or incorrect; (vi) any
acquisition of the assets of SkyNet, other than in the ordinary course of
business and consistent with past practice and not in excess of $5,000 in the
aggregate; or (vii) any execution of any agreement with any executive officer of
SkyNet providing for his or her employment, or any increase in the compensation
or in severance or termination benefits payable or to become payable by SkyNet
to its officers or key employees, or any material increase in benefits under any
collective bargaining agreement or in benefits under any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, insurance or other plan or
arrangement or understanding (whether or not legally binding) providing benefits
to any present or former employee of SkyNet. Since the date of the Financial
Statements, there has not been and there is not threatened, any material adverse
change in financial condition, business, results of operations or prospects of
the business or any material physical damage or loss to any of the properties or
assets of the business or to the premises occupied in connection with the
business, whether or not such loss is covered by insurance.
(w) INVESTMENT INTENT.
(i) The shares of Acquiror Common Stock are not being registered under
the Act on the basis of the statutory exemption provided by Section 4(2) thereof
and Regulation D promulgated thereunder, relating to transactions not involving
a public offering, and the Acquiror's reliance on the statutory exemption
thereof is based in part on the representations contained in this Agreement;
(ii) The Principal Shareholders of SkyNet represent (a) that they have
such knowledge and experience in financial and business matters that they are
capable of adequately evaluating the risk of investing in the Acquiror; (b) that
they have been advised that the shares of Acquiror Common Stock to be issued to
each of them by the Acquiror will not be registered under the Act and
accordingly, the SkyNet Shareholders may only be able to sell or otherwise
dispose of such shares in accordance with Rule 144 or as otherwise provided in
this Agreement; (c) that the shares of Acquiror Common Stock will be held for
investment and not with a view to, or for resale in connection with the public
offering or distribution thereof; (d) that the shares of Acquiror Common Stock
so issued will not be sold without registration thereof under the Act (unless
such shares are subject to registration or in the opinion of counsel to the
Acquiror an exemption from such registration is available), or in violation of
any law; (e) the shares of Acquiror Common Stock will be subjected to the lock-
up provisions set forth in Paragraph 5.11 hereof; and (f) that the certificate
or certificates representing the shares of Acquiror Common Stock to be issued
will be imprinted with a legend in form and substance substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION, OR THE
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AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
and Acquiror is hereby authorized to notify its transfer agent of the
status of the Shares and to take such other action including, but not limited
to, the placing of a "stop-transfer" order on the transfer agent's books and
records to assure compliance with the Act, as amended.
(iii) The Principal Shareholders have, either upon the date hereof or
before the Closing hereunder, been afforded the opportunity to review and is
familiar with all material information regarding Acquiror and have based their
decision to invest solely on the information contained therein, and the
information contained within this Agreement and the associated exhibits and
schedules, and have not been furnished with any other literature, prospectus or
other information except as included in such material or this Agreement;
(iv) The Principal Shareholders are able to bear the economic risks of
an investment in the shares of Acquiror Common Stock and that their overall
commitment to their investments which are not readily marketable is not
disproportionate to their net worth; and
(v) The Principal Shareholders understand that no federal or state
agency has approved or disapproved the shares of Acquiror Common Stock, passed
upon or endorsed the merits of the transfer of such shares set forth within this
Agreement or made any finding or determination as to the fairness of such shares
for investment.
(X) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by SkyNet or the Principal Shareholders to Acquiror in
connection with the Merger or the other transactions contemplated hereby,
contains or will contain any untrue statement of any material fact or omit or
will omit to state any material fact required to be stated in order to make such
statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. There is no fact known to
SkyNet or the Principal Shareholders which may have a Material Adverse Effect on
the business, prospects, financial condition or results of operations of SkyNet
or of any of its properties or assets which has not been set forth in this
Agreement as an exhibit or schedule hereto
4.2 REPRESENTATIONS AND WARRANTIES OF ACQUIROR.
As a material inducement to SkyNet and the Principal Shareholders to
execute this Agreement and to consummate the Merger and the other transactions
contemplated hereby, Acquiror hereby makes the following representations and
warranties:
(A) CORPORATE EXISTENCE AND POWER. Acquiror is presently a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
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Acquiror has all corporate powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted,
except where the failure to have any of the foregoing would not have a Material
Adverse Effect. Acquiror is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and Bylaws of Acquiror as amended to date are attached hereto as
Schedule 4.2(a) and are made a part hereof.
(B) DUE AUTHORIZATION. This Agreement, and as of the Closing the
other agreements described herein to which Acquiror is a party, has been, or as
of the Closing will be, duly authorized, executed and delivered by Acquiror and
constitutes, or as of the Closing will constitute, a valid and binding agreement
of Acquiror, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and
other similar laws relating to, limiting or affecting the enforcement of
creditors rights generally or by the application of equitable principles. As of
the Closing all corporate action on the part of Acquiror required under
applicable law in order to consummate the Merger will have occurred.
(C) NO CONTRAVENTION. The execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated thereby will not
(i) conflict with or result in any violation of any provision of the Certificate
of Incorporation or Certificate of Incorporation, or Bylaws of Acquiror or (ii)
conflict with or result in any violation or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any right or obligation or to a loss or a
benefit under, any provision of the charter or Bylaws of Acquiror or any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or its
properties or assets or result in the creation or imposition of any Encumbrance
on any asset of Acquiror, except, only as to clause (ii) above, such as is not
reasonably likely to have a Material Adverse Effect or prevent Acquiror from
consummating the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by or with
respect to Acquiror in connection with the execution and delivery of this
Agreement or the consummation them of the transactions contemplated hereby,
except the filing of a certificate of merger with the Secretary of the State of
Delaware.
(D) CAPITALIZATION.
(i) As of the Closing, the outstanding capital stock of the Acquiror
shall consist solely of 5,625,000 shares of common stock, par value $.001 per
share. All shares of capital stock of Acquiror outstanding as of the Closing,
will have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights, and upon the issuance of the shares
of Acquiror Common Stock to be issued in the Merger, such shares will be
22
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duly authorized, validly issued, fully paid and nonassessable shares of Acquiror
Common Stock. Other than the Options granted to Weber and Nizic, as more fully
described within Exhibits 2.2(a)(xi) and 2.2(a)(xiii), and other than options to
purchase 400,000 shares of Common Stock issued in connection with investment
banking services rendered (the "Investment Banking Options"), Acquiror shall as
of the Closing, have no outstanding options, warrants or other convertible
securities. The Investment Banking Options shall have a term of five (5) years
and shall be subject to an exercise price equal to $3.00 per share. The
Investment Banking Options shall vest pro rata over a four (4) year period
commencing one (1) year after the Closing.
(ii) Acquiror has a sufficient number of its authorized but unissued
shares of Acquiror Common Stock to permit it to issue the number of shares of
Acquiror Common Stock due in connection with the Merger and the related
transactions.
(E) FINANCIAL STATEMENTS. Acquiror shall deliver to SkyNet and the
principal Shareholders, no less than five (5) days prior to Closing, copies of
audited financial statements of Acquiror for the fiscal years ended December 31,
1997, December 31, 1996 and the interim period ended April 20, 1998
(collectively, the "Acquiror Financial Statements"). Such Acquiror Financial
Statements will have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods reported upon
and will fairly present in all material respects the financial position of
Acquiror as of the dates thereof and the results of operations for the periods
then ended.
(F) REAL PROPERTIES. Acquiror neither owns nor leases any real
property.
(G) NO CONTINGENT LIABILITIES. Except contained within the Acquiror
Financial Statements or otherwise as described on Schedule 4.2(g) or agreed to
by the parties hereto, at the Closing, Acquiror shall have no material
liabilities, whether related to tax or non-tax matters, known or unknown, due or
not yet due, liquidated or unliquidated, fixed or contingent, determined or
determinable in amount or otherwise, and to the knowledge of the Acquiror, there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, except as and to the
extent reflected on this Agreement or any Schedule or Exhibit hereto or which
has been incurred in the ordinary course of business and as accurately reflected
on the books and records of Acquiror.
(H) LITIGATION. Except as described on Schedule 4.2(h) hereto there
is no action, suit, investigation or proceeding (or, to the knowledge of
Acquiror any basis therefor) pending against, or to the knowledge of Acquiror
threatened, against or affecting Acquiror or any of its properties before any
court or arbitrator or any governmental body, agency or official that (i) if
adversely determined against Acquiror, would have a Material Adverse Effect or
(ii) in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the Merger or any of the other transactions contemplated by the Agreement.
(I) COMPLIANCE WITH LAWS. To the knowledge of Acquiror, the Acquiror
is not in violation of, nor has it violated, any applicable provisions of any
laws, statues, ordinances or regulations, other than as would not be reasonably
likely to have a Material Adverse Effect or constitute a felony.
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<PAGE>
(J) NON-REPORTING COMPANY. Certain shares of Common Stock of Acquiror
are eligible for trading on the OTC Electronic Bulletin Board by virtue of
certain broker-dealers having filed a Form 211 with the NASD and Acquiror having
provided information required under SEC Rule 15(c)2-11 to certain broker dealers
and all such information included therein is true and correct in all material
respects. Acquiror does not file reports under the Securities and Exchange Act
of 1934, as amended.
(K) INVESTMENT BANKING FEES. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by Acquiror to act on its behalf who might be entitled to any fee or
commission from SkyNet, the SkyNet Shareholders or Acquiror or any of their
respective affiliates upon consummation of the transactions contemplated by this
Agreement.
(L) STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Acquiror to SkyNet and the Principal Shareholders in
connection with the Merger or the other transactions contemplated hereby, or any
information furnished by Acquiror taken as a whole contains or will contain any
untrue statement of any material fact or omit or will omit to state any material
fact required to be stated in order to make such statement, information,
document or other instruments, in light of the circumstances in which they are
made, not misleading. There is no fact known to Acquiror taken as a whole which
may have a Material Adverse Effect on the business, prospects, financial
condition or results of operations of Acquiror taken as a whole or of any of its
properties or assets which has not been set forth in this Agreement as an
exhibit or schedule hereto.
ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 ACCESS TO INFORMATION.
At all times prior to the Closing or the earlier termination of this
Agreement in accordance with the provisions of Section 8, and in each case
subject to Section 5.2 below, each of the parties hereto shall provide to the
other parties (and the other parties' authorized representatives) full access
during normal business hours and upon reasonable prior notice to the premises,
properties, books, records, assets, liabilities, operations, contracts,
personnel, financial information and other data and information of or relating
to such party (including without limitation all written proprietary and trade
secret information and documents, and other written information and documents
relating to intellectual property rights and matters), and will cooperate with
the other party in conducting its due diligence investigation of such party.
5.2 CONFIDENTIALITY; NO SOLICITATION.
(A) CONFIDENTIALITY OF SKYNET-RELATED INFORMATION. With respect to
information concerning SkyNet that is made available to Acquiror pursuant to the
terms of this
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<PAGE>
Agreement, Acquiror agrees that it shall hold such information in strict
confidence, shall not use such information except for the sole purpose of
evaluating the Merger and related transactions and shall not disseminate or
disclose any of such information other than to its directors, officers,
employees, shareholders, affiliates, agents and representatives who need to know
such information for the sole purpose of evaluating the Merger and the related
transactions (each of whom shall be informed in writing by Acquiror of the
confidential nature of such information and directed by Acquiror in writing to
treat such information confidentially). If this Agreement is terminated pursuant
to the provisions of Section 8, Acquiror shall immediately return all such
information, all copies thereof and all information prepared by Acquiror based
upon the same; provided, however, that one copy of all such material may be
retained by Acquiror's outside legal counsel for purposes only of resolving any
disputes under this Agreement. The above limitations on use, dissemination and
disclosure shall not apply to information that (i) is learned by Acquiror from a
third party entitled to disclose it; (ii) becomes known publicly other than
through Acquiror or any party who received the same through Acquiror, provided
that Acquiror has no knowledge that the disclosing party was subject to an
obligation of confidentiality; (iii) is required by law or court order to be
disclosed by Acquiror; or (iv) is disclosed with the express prior written
consent thereto of SkyNet. Acquiror shall undertake all necessary steps to
ensure that the secrecy and confidentiality of such information will be
maintained in accordance with the provisions of this paragraph (a).
Notwithstanding anything contained herein to the contrary, in the event a party
is required by court order or subpoena to disclose information which is
otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party, at the expense of the non-disclosing
party in, obtaining a protective or similar order with respect to such
information; and (iii) provide only such of the confidential information as the
disclosing party is advised by its counsel is necessary to strictly comply with
such court order or subpoena.
(B) CONFIDENTIALITY OF ACQUIROR-RELATED INFORMATION. With respect to
information concerning Acquiror that is made available to SkyNet and the
Principal Shareholders pursuant to the provisions of this Agreement, SkyNet and
the Principal Shareholders agree that they shall hold such information in strict
confidence, shall not use such information except for the sole purpose of
evaluating the Merger and the related transactions, and shall not disseminate or
disclose any of such information other than to their directors, officers,
employees, shareholders, affiliates, agents and representatives who need to know
such information for the sole purpose of evaluating the Merger and the related
transactions (each of whom shall be informed in writing by SkyNet or the
Principal Shareholders of the confidential nature of such information and
directed by such party in writing to treat such information confidentially). If
this Agreement is terminated pursuant to the provisions of Section 8, SkyNet and
the Principal Shareholders agree to return immediately all such information, all
copies thereof and all information prepared by either of them based upon the
same; provided, however, that one copy of all such material may be retained by
SkyNet's outside legal counsel for purposes only of resolving any disputes under
this Agreement. The above limitations on use, dissemination and disclosure
shall not apply to information that (i) is learned by SkyNet or the Principal
Shareholders from a third party entitled to disclose it; (ii) becomes known
publicly other than
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<PAGE>
through SkyNet, the Principal Shareholders or any party who received the same
through SkyNet or the Principal Shareholders, provided that SkyNet or the
Principal Shareholders have no knowledge that the disclosing party was subject
to an obligation of confidentiality; (iii) is required by law or court order to
be disclosed by SkyNet; or (iv) is disclosed with the express prior written
consent thereto of Acquiror. SkyNet or the Principal Shareholders agree to
undertake all necessary steps to ensure that the secrecy and confidentiality of
such information will be maintained in accordance with the provisions of this
paragraph (b). Notwithstanding any thing contained herein to the contrary, in
the event a party is required by court order or subpoena to disclose information
which is otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party at the expense of the non-disclosing
party in obtaining a protective or similar order with respect to such
information; and (iii) provide only such of the confidential information as the
disclosing party is advised by its counsel is necessary to strictly comply with
such court order or subpoena.
(C) NONDISCLOSURE. Neither SkyNet, the Principal Shareholders nor
Acquiror shall disclose to the public or to any third party the existence of
this Agreement or the transactions contemplated hereby or any other material
non-public information concerning or relating to the other party hereto, other
than with the express prior written consent of the other party hereto, except as
may be required by law or court order or to enforce the rights of such
disclosing party under this Agreement, in which event the contents of any
proposed disclosure shall be discussed with the other party before release;
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, any party hereto may disclose this Agreement to any of its
directors, officers, employees, shareholders, affiliates, agents and
representative who need to know such information for the sole purpose of
evaluating the Merger, and to any party whose consent is required in connection
with the Merger or this Agreement. The parties anticipate issuing a mutually
acceptable, joint press release announcing the execution of this Agreement and
the consummation of the Merger.
(D) NO SOLICITATION. In consideration of the substantial expenditure
of time, effort and money to be undertaken by Acquiror in connection with the
transactions contemplated by this Agreement, the Principal Shareholders, SkyNet
or any of their respective affiliates will not, prior to the earlier of the
Closing or the termination of this Agreement, directly or indirectly, through
any officer, director, agent or otherwise: (i) solicit, initiate or encourage
the submission of inquiries, proposals or offers from any person or entity
relating to any acquisition or purchase of assets of or any equity interest in
SkyNet or any affiliate thereof or any tender offer (including a self-tender
offer), exchange offer, merger, consolidation, business combination, sale of a
substantial amount of assets or sale of securities, liquidation, dissolution or
similar transaction involving SkyNet or its affiliates (a "Transaction
Proposal"); (b) enter into or participate in any discussions or negotiations
regarding a Transaction Proposal, or furnish to any other person or entity any
information with respect to the business, properties or assets of SkyNet or its
affiliates in connection with a Transaction Proposal; or (c) otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek a Transaction Proposal. SkyNet or
the Principal Shareholders shall promptly notify Acquiror if
26
<PAGE>
any such proposal or offer, or any inquiry or contact with any person or entity
with respect thereto is made.
5.3 INTERIM OPERATIONS.
During the period from the date of this Agreement and continuing until
the Closing:
(A) INTERIM OPERATIONS OF SKYNET AND SUBSIDIARIES. SkyNet agrees
(except as expressly contemplated by this Agreement, including any Exhibits and
Schedules hereto, or to the extent that Acquiror shall otherwise consent in
writing) that:
(i) Ordinary Course. SkyNet and its Subsidiaries shall carry on their
---------------
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent with such business,
use all reasonable efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with them;
(ii) Dividends; Changes in Stock. SkyNet and its Subsidiaries shall
---------------------------
not and shall not propose to (a) declare, set aside or pay any dividend, on, or
make other distributions in respect of, any of their capital stock, (b) split,
combine or reclassify any of their capital stock or issue, authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of their capital stock (c) redeem, repurchase or
otherwise acquire any shares of their capital stock or (d) otherwise change
their capitalization.
(iii) Issuance of Securities. Except as contemplated by this
----------------------
Agreement, SkyNet shall not sell, issue, pledge, authorize or propose the sale
or issuance of, pledge or purchase or propose the purchase of, any shares of its
capital stock of any class or securities convertible into, or rights, warrants
or options to acquire, any such shares or other convertible securities.
(iv) Governing Documents. SkyNet shall not amend its Articles of
-------------------
Incorporation or its Bylaws. None of the Subsidiaries shall amend their
respective corporate charters or governing documents.
(v) No Dispositions. SkyNet and its Subsidiaries shall not sell,
---------------
lease, pledge, encumber or otherwise dispose of or agree to sell, lease, pledge,
encumber or otherwise dispose of, any of their material assets except in the
ordinary course of business consistent with prior practice and in no event
amounting in the aggregate to more than $100,000 in value of such assets.
(vi) Indebtedness. SkyNet and its Subsidiaries shall not incur any
------------
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others other than
in the ordinary course of business consistent with prior practice and in no
event amounting in the aggregate to more than $100,000.
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(vii) Benefit Plans; Etc. SkyNet and its Subsidiaries shall
------------------
not adopt or amend in any material respect any collective bargaining agreement
or Employee Benefit Plan (as defined herein).
(viii) Executive Compensation. SkyNet and its Subsidiaries
----------------------
shall not grant to any executive officer any increase in compensation or in
severance or termination pay, or enter into any employment agreement with any
executive officer.
(ix) Acquisitions. SkyNet and its Subsidiaries shall not acquire (by
------------
merger, consolidation or acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or subdivision thereof,
or make any investment by either purchase of stock or securities, contributions
to capital , property transfer or, except in the ordinary course of business,
purchase of any property or assets, of any other individual or entity.
(x) Tax Elections. SkyNet and its Subsidiaries shall not make any
-------------
material tax election or settle or compromise any material federal, state, local
or foreign tax liability.
(xi) Waivers and Releases. SkyNet and its Subsidiaries shall not
--------------------
waive, release, grant or transfer any rights of material value or modify or
change in any material respect any Material Agreement other than in the ordinary
course of business and consistent with past practice.
(xii) Other Actions. SkyNet and its Subsidiaries shall not
-------------
enter into any agreement or arrangement to do any of the foregoing. SkyNet and
its Subsidiaries shall not take any action, or fail to take any action, that is
reasonably likely to result in any of the representations and warranties of them
set forth in this Agreement becoming untrue in any material respect.
(B) INTERIM OPERATIONS OF ACQUIROR. Acquiror agrees (except as
expressly contemplated by this Agreement, including any Exhibits and Schedules
hereto, or to the extent that SkyNet and the Principal Shareholders shall
otherwise consent) that:
(i) Ordinary Course. Acquiror shall conduct no business activity
---------------
other than in connection with the transactions contemplated by this Agreement in
connection with the Merger.
(ii) Dividends; Changes in Stock. Except as necessary to effect a
---------------------------
reincorporation into Delaware, or to increase its outstanding shares so as to
satisfy the condition precedent identified at Section 6.1(h) hereof, Acquiror
shall not (and shall not propose to) (a) declare or pay any dividend, on, or
make other distributions in respect of, any of its capital stock, (b) split,
combine or reclassify any of its capital stock or issue, authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (c) repurchase or otherwise
acquire any shares of its capital stock or (d) otherwise change its
capitalization.
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(iii) No Dispositions. Acquiror shall not sell, lease,
---------------
pledge, encumber or otherwise dispose of, or agree to sell, lease, pledge,
encumber or otherwise dispose of, any of its assets that are material, or any
other assets except in the ordinary course of business consistent with prior
practice.
(iv) Placement Activities. Prior to the Closing, Acquiror shall have
---------------------
completed a private placement to accredited investors which, after expenses,
yields net proceeds of no less than $500,000 to Acquiror.
(v) Other Actions. Acquiror shall take any action, or fail to take
-------------
any action, that is reasonably likely to result in any of its representations
and warranties set forth in this Agreement becoming untrue in any material
respect.
5.4 CONSENTS.
(a) Aquiror, SkyNet and the Principal Shareholders shall cooperate and
use their best efforts to obtain, prior to the Closing, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the transactions contemplated by this Agreement; provided, however, that no loan
agreement or contract for borrowed monies shall be repaid and no contract shall
be amended materially to increase the amount payable thereunder or otherwise to
be materially more burdensome in order to obtain any such consent, approval or
authorization without first obtaining the written approval of the other parties
hereto.
5.5 FILINGS; REGISTRATION STATEMENT.
(a) Acquiror, SkyNet and the Principal Shareholders shall, as promptly
as practicable, make any required filing, and any other required submissions,
under any law, statute, order rule or regulation with respect to the Merger and
the related transactions and shall cooperate with each other with respect to the
foregoing.
(b) As promptly as possible following the completion of the Audited
Financial Statements, Acquiror shall prepare and file with the Securities and
Exchange Commission, a registration statement for the purposes of registering
the reoffer and redistribution of shares of Common Stock with the Securities and
Exchange Commission under the Act, and shall, by virtue of such undertaking,
become a "reporting company" under the Securities Exchange Act of 1934. The
shares of Acquiror's Common Stock to be included for public reoffer and
redistribution as part of the registration statement shall include the shares
sold in the Private Offering identified at Section 5.12 hereafter, the shares
previously issued by Acquiror as part of the private placement transaction
identified at Section 5.3(b)(iv) hereafter, as well as 150,000 shares issued to
the Principal Shareholders hereunder which the Principal Shareholders are
entitled to sell under Section 5.11 hereafter within the first year following
the Closing.
5.6 ALL REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement and to the
fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as
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<PAGE>
advised by their counsel, each of the parties to this Agreement shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, as soon as reasonable practicable, to consummate the Merger and
the other transactions contemplated by this Agreement.
5.7 PUBLIC ANNOUNCEMENTS.
Acquiror, SkyNet and the Principal Shareholders shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, this Agreement or the other transactions
contemplated by this Agreement and shall not issue any other press release or
make any other public statement without prior consultation with the other
parties, except as may be required by law or, with respect to Acquiror, by
obligations pursuant to any listing agreement with an national securities
exchange.
5.8 NOTIFICATION OF CERTAIN MATTERS.
SkyNet and the Principal Shareholders shall give prompt notice to
Acquiror, and Acquiror shall give prompt notice to SkyNet and the Principal
Shareholders, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would cause any of its representations or
warranties in this Agreement to be untrue or inaccurate in any material respect,
as to SkyNet and the Principal Shareholders, at or prior to the Closing, and, as
to Acquiror, as of the Closing and (b) any material failure of SkyNet and the
Principal Shareholders, on the one hand, or Acquiror, on the other hand, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by them under this Agreement; provided, however,
the delivery of any notice pursuant to this Section shall not limit or otherwise
affect the remedies available to the party receiving such notice under this
Agreement as expressly provided in this Agreement.
5.9 EXPENSES.
All costs and expenses incurred in connection with the Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated.
5.10 FINANCIAL STATEMENTS.
SkyNet and the Principal Shareholders shall cooperate with the
Acquiror following the Closing so that within sixty (60) days of the Closing,
Acquiror shall cause to be prepared an audit of the Financial Statements of
SkyNet (the "Audited Financial Statements"). The Audited Financial Statements
shall not reflect any material adverse changes from the Financial Statements.
For the purpose of this Section 5.10, the term "material adverse change" shall
mean any reduction reflected within the Audited Financial Statements of ten
percent (10%) or more of the SkyNet revenues, net income (loss) or shareholders'
equity from the corresponding period of the Financial Statements provided under
Section 4.1(e) only if such reduction exceeds $100,000.
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5.11 LOCK-UP.
In addition to any prohibition on transfers or sales under applicable
federal or state securities laws, the Principal Shareholders shall not sell,
transfer, encumber or otherwise dispose of the shares of Acquiror Common Stock
issued to them hereunder for a period of two (2) years following the Closing.
Notwithstanding such limitation, commencing 90 days after the Closing, the
foregoing lock-up provision shall be inapplicable to the resale by each of the
Principal Shareholders of 50,000 shares of Acquiror Common Stock; provided,
however, that any resale of such shares prior to one (1) year after the Closing
shall be on terms and to parties reasonably acceptable to the Acquiror Designee
to the Acquiror Board of Directors. During the one (1) year period commencing
one (1) year after the Closing, each Principal Shareholder shall be permitted to
resell up to 50,000 additional shares of Acquiror Common Stock in accordance
with Securities and Exchange Commission Rule 144, if applicable.
5.12 PRIVATE OFFERING.
Promptly following the Closing, Acquiror agrees to undertake a private
placement (the "Private Offering") to accredited and institutional investors
which is intended to yield proceeds, after payment of all sales commissions, of
between $2.5 million (the "Minimum Offering") and $5.0 million (the "Maximum
Offering") through the sale of shares of newly issued restricted common stock at
$2.00 per share. The Minimum Offering will be completed by the later of: (i)
ten (10) days after the completion of the Audited Financial Statements; or (ii)
sixty (60) days after the Closing. The Private Offering may be completed through
the use of broker-dealers who are registered with the Securities and Exchange
Commission and in good standing with the NASD, upon payment of a sales
commission not to exceed 7% of the gross proceeds. As more fully set forth
within Section 1.4 of this Agreement, the Acquiror has agreed to cause certain
of its principal stockholders to place 2 million shares of its Common Stock in
escrow in order to secure timely completion of the Minimum Offering.
5.13 DOCUMENTS AT CLOSING.
Each party to this Agreement agrees to execute and deliver at the
Closing those documents identified in Section 2.2.
5.14 PROHIBITION ON TRADING IN ACQUIROR STOCK.
SkyNet and the Principal Shareholders acknowledge that the United
States Securities Laws prohibit any person who has received material non-public
information concerning the matters which are the subject matter of this
Agreement from purchasing or selling the securities of the Acquiror, or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell securities
of the Acquiror. Accordingly, until the Closing, the Principal Shareholders
agree that they will not purchase or sell any securities of the Acquiror, or
communicate such information to any other person under circumstances in which it
is reasonably foreseeable that such person is likely to purchase or sell
securities of the Acquiror, until counsel for Acquiror believes that any such
non-public information has been adequately disseminated to the public.
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5.15 RESERVATION OF SHARES.
As of the Closing, Acquiror shall have authorized and reserved for
issuance sufficient shares of Common Stock to permit the issuance of the shares
of Acquiror Common Stock due in connection with the Merger and the transactions
contemplated by this Agreement.
5.16 EMPLOYMENT AGREEMENTS AND OPTION AGREEMENTS.
After the execution of this Agreement and prior to the Closing, the
Acquiror and each of Weber and Nizic shall use all reasonable efforts to
negotiate and agree upon the form of the employment agreements and option
agreements by and between Acquiror and each of Weber and Nizic.
5.17 ACKNOWLEDGMENT OF APPROVALS; WRITTEN CONSENT OF STOCKHOLDERS.
By virtue of their respective signatures to this Agreement, Acquiror,
SkyNet and the Principal Shareholders acknowledge their approval of this
Agreement and their consent to the consummation of the transactions identified
herein and, with respect to the Principal Shareholders, shall constitute their
approval of the Merger and this Agreement by written consent in accordance with
Section 78.320 of the Nevada General Corporation Law on and as of the date
hereof with respect to all of the shares of SkyNet Common Stock owned by such
Principal Shareholder on and as of the date hereof.
5.18 MATTERS OF CORPORATE GOVERNANCE.
(a) Concurrent with the Closing, members of Acquiror's Board of
Directors shall resign and shall be replaced with a Board of Directors of five
(5) members, consisting of: (i) one designee of Acquiror's Board of Directors
immediately prior to the Closing (the "Acquiror Designee"); (ii) two (2)
designees of the Principal Shareholders; (iii) a designee of the Acquiror
Designee, who shall be acceptable to the Principal Shareholders; and (iv) a
designee of the Principal Shareholders, who shall be acceptable to the Acquiror
Designee.
(b) For a period of two (2) years following the Closing, the Principal
Shareholders agree to vote their shares of Acquiror Common Stock at every Annual
Meeting of Stockholders, at any Special Meeting of Stockholders called for the
purpose of electing members to the Board of Directors, or will act by consent or
otherwise take such action as is required, to vote for and elect a Board of
Directors in the manner identified in subparagraph (a) above. The Principal
Shareholders further agree not to take any action inconsistent with this Section
5.18, including voting any shares of Acquiror Common Stock to amend the
Company's By-laws or Certificate of Incorporation in a manner inconsistent with
this Section 5.18.
(c) For a period of two years following the Closing, approval of any
of the following transaction shall require the affirmative vote of 80% of the
members of Acquiror's Board of Directors: (i) any merger, consolidation, sale of
all or substantially all of the assets of Acquiror or recapitalization involving
Acquiror; (ii) transactions between Acquiror and any interested party (including
all directors, executive officers, or principal (i.e., over 5%) stockholders);
(iii) any modification to the terms of this Agreement or any other agreements
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entered into upon the Closing; (iv) any issuance of shares of Acquiror's Common
Stock, Preferred Stock or securities exercisable or convertible into shares of
Acquiror's Common Stock or Preferred Stock, equal to or exceeding 10% of the
Acquiror's then outstanding shares of Common Stock or voting power; and (v) any
amendment to the Company's By-laws or Certificate of Incorporation.
Notwithstanding anything contained in this Agreement to the contrary, commencing
two years after the Closing, a super-majority vote of the Acquiror's Board of
Directors shall not be required to approve any transaction except as may be
required under applicable Delaware law.
5.19 PRODUCTION OF SCHEDULES AND EXHIBITS.
Within five (5) days prior to the Closing, each of the parties hereto
shall produce, to the extent not previously done, to the other, all of the
Schedules and Exhibits required to be produced pursuant to the Agreement. The
Schedules and Exhibits produced subsequent to the execution of this Agreement,
shall be given such force and effect as though such Schedules and Exhibits which
were produced upon execution of this Agreement.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF SKYNET AND THE PRINCIPAL SHAREHOLDERS.
The obligations of SkyNet and the Principal Shareholders to consummate
the Merger and the other transactions contemplated to be consummated by it at
the Closing are subject to the satisfaction (or waiver by SkyNet and the
Principal Shareholders) at or prior to the Closing (or at such other time prior
thereto as may be expressly provided in this Agreement) of each of the following
conditions:
(a) The representations and warranties of Acquiror set out in this
Agreement shall be true and correct in all material respects at and as of the
time of the Closing as though such representations and warranties were made at
and as of such time.
(b) Acquiror shall have complied in a timely manner and in all
material respects with the respective covenants and agreements set out in this
Agreement.
(c) The Merger shall have been approved by Acquiror in accordance with
the provisions of the DGCL. The Board of Directors and stockholders of Acquiror
shall have approved the execution of this Agreement and the Merger thereby.
(d) Acquiror shall enter into the Weber Employment Agreement and the
Nizic Employment Agreement.
(e) Acquiror shall enter into the Weber Option Agreement and the Nizic
Option Agreement.
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(f) Acquiror shall enter into, and the Acquiror Escrow Shares shall be
delivered pursuant to, the Acquiror Escrow Agreement the form of which is
attached hereto as Exhibit 1.4(a).
(g) There shall be delivered to SkyNet and the Principal Shareholders
an officer's certificate of Acquiror to the effect that all of the
representations and warranties of Acquiror set forth herein are true and
complete in all material respects as of the Closing, and the Acquiror has
complied in all material respects with the covenants and agreements set forth
herein that are required to be complied with by the Closing.
(h) Acquiror shall have completed a private placement to accredited
investors which, after expenses, produced net proceeds of no less than $500,000.
Acquiror shall, upon the Closing, have cash on deposit of no less than $500,000,
subject only to those liabilities reflected within the Acquiror Financial
Statements, Schedule 4.2(g) and any additional liabilities incurred in
connection with this transaction that have been agreed to by all parties hereto.
(i) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured.
(j) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or the related transactions.
6.2 CONDITIONS TO ACQUIROR'S OBLIGATIONS.
The obligation of Acquiror to consummate the Merger and the other
transactions contemplated to be consummated by it at the Closing are subject to
the satisfaction (or waiver by Acquiror) at or prior to the Closing (or at such
other time prior thereto as may be expressly provided in this Agreement) of each
of the following conditions:
(a) No SkyNet Shareholder shall have filed with SkyNet, prior to or
after the SkyNet shareholder meeting at which a vote is to be taken with respect
to a proposal to approve this Agreement, a written notice of intent to demand
payment for his, her or its shares of SkyNet Common Stock, as required by
Section 92A.420 of the NGCL in order for such shareholder to perfect the right
to dissent from such proposed action and no SkyNet Shareholder shall have the
right to make such demand at any time in the future;
(b) The representations and warranties of SkyNet and the Principal
Shareholders set out in this Agreement shall be true and correct in all material
respects at and as of the time of the Closing as though such representations and
warranties were made at and as of such time;
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(c) SkyNet and the Principal Shareholders shall have complied in a
timely manner and in all material respects with its covenants and agreements set
out in this Agreement;
(d) There shall be delivered to Acquiror an officer's certificate of
SkyNet to the effect that all of the representations and warranties of SkyNet
set forth herein are true and complete in all material respects as of the
Closing, and that SkyNet has complied in all material respects with covenants
and agreements set forth herein required to be complied with by the Closing; and
there shall be delivered to Acquiror a certificate signed by the Principal
Shareholders to the effect that the representations and warranties of the SkyNet
and the Principal Shareholders set forth herein are true and correct in all
material respects and that the Sky Net and the Principal Shareholders have
complied in all material respects with their covenants and agreements required
to be complied with them by Closing;
(e) Weber shall have entered into the Weber Employment Agreement with
Acquiror;
(f) Weber shall have entered into the Weber Option Agreement with
Acquiror;
(g) Nizic shall have entered into the Nizic Employment Agreement with
Acquiror;
(h) Nizic shall have entered into the Nizic Option Agreement with
Acquiror;
(i) The Principal Shareholders shall have entered into, and the
Principal Shareholder Escrow Shares be delivered pursuant to, the Principal
Shareholder Escrow Agreement the form of which is attached hereto as Exhibit
1.4(b);
(j) Each SkyNet Shareholder (other than Dissenting Shareholders) shall
have executed and delivered an Investment Letter;
(k) All persons who were parties to the Subscription Agreement shall
have executed and delivered Amendment No. 1 together with certificates
representing any shares of preferred stock purportedly issued under the
Subscription Agreement;
(l) SkyNet shall have entered into a release with Arizona Capital
Group, Inc. with respect to any and all of the rights and obligations of SkyNet
and Arizona Capital Group, Inc. under that certain letter agreement dated
September 17, 1998 by and between SkyNet and Arizona Capital Group, Inc.;
(m) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured;
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(n) The Acquiror shall have completed a due diligence investigation
with respect to the business, operations, financial condition and prospects of
SkyNet and its Subsidiaries and shall have been satisfied with the results of
its due diligence investigation with such satisfaction to be determined in the
sole and absolute discretion of Acquiror;
(o) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or the related transactions; and
(p) The Board of Directors of SkyNet and the SkyNet shareholders shall
have approved the Merger in accordance with the NGCL.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) Principal Shareholders. The Principal Shareholders shall
----------------------
indemnify, defend and hold harmless Acquiror from and against any and all
demands, claims, actions or causes of action, judgments, assessments, losses,
liabilities, damages or penalties and reasonable attorneys' fees and related
disbursements (collectively, "Claims") incurred by Acquiror which arise out of
or result from a misrepresentation, breach of warranty, or breach of any
covenant or agreement of SkyNet or the Principal Shareholders contained herein
or in the Schedules annexed hereto or in any deed, exhibit, closing certificate,
schedule or any ancillary certificates or other documents or instruments
furnished by SkyNet or the Principal Shareholder pursuant hereto or in
connection with the transactions contemplated hereby or thereby; provided that
such indemnification obligations hereunder shall be limited to the 2,000,000
shares of Acquiror Common Stock delivered into escrow pursuant to the Principal
Shareholder Escrow Agreement.
(b) Acquiror. Acquiror shall indemnify, defend and hold harmless
--------
SkyNet and the Principal Shareholders from and against any and all Claims, as
defined at subsection 7.1(a) above, incurred by SkyNet and/or the Principal
Shareholders which arise out of or result from a misrepresentation, breach of
warranty or breach of any covenant of Acquiror contained herein or in the
Schedules annexed hereto or in any deed, exhibit, closing certificate, schedule
or any ancillary certificates or other documents or instruments furnished by
Acquiror pursuant hereto or in connection with the transactions contemplated
hereby or thereby.
(c) Methods of Asserting Claims for Indemnification. All claims for
------------------------------------------------
indemnification under this Agreement shall be asserted as follows:
(i) Third Party Claims. In the event that any Claim for which a party
-------------------
(the "Indemnitee") would be entitled to indemnification under this Agreement is
asserted against or sought to be collected from the Indemnitee by a third party
the Indemnitee shall promptly notify the other party (the "Indemnitor") of such
Claim, specifying the nature thereof, the
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applicable provision in this Agreement or other instrument under which the Claim
arises, and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not
less than ten (10) days prior to when a responsive pleading or other document is
required to be filed but in no event less than ten (10) days from delivery or
mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a)
whether or not it disputes the Claim and (b) if liability hereunder is not
disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor
elects to defend by appropriate proceedings, such proceedings shall be promptly
settled or prosecuted to a final conclusion in such a manner as to avoid any
risk of damage to the Indemnitee; and all costs and expenses of such proceedings
and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control, any such
defense or settlement, it may do so at its sole cost and expense. If the
Indemnitor has disputed the Claim, as provided above, and shall not defend such
Claim, the Indemnitee shall have the right to control the defense or settlement
of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor
for its reasonable costs and expenses of such defense. Neither Indemnitee nor
Indemnitor shall be liable for any settlement of any Claim without the prior
written consent of the other party.
(ii) Non-Third Party Claims. In the event that the Indemnitee should
-----------------------
have a Claim for indemnification hereunder which does not involve a Claim being
asserted against it or sought to be collected by a third party, the Indemnitee
shall promptly send a Claim Notice with respect to such Claim to the Indemnitor.
If the Indemnitor does not notify the Indemnitee within the Notice Period that
it disputes such Claim, the Indemnitor shall pay the amount thereof to the
Indemnitee. If the Indemnitor disputes the amount of such Claim, the
controversy in question shall be submitted to arbitration pursuant to Section
9.8 hereafter.
(d) Right of Set-Off. Subject to the terms of the Principal
----------------
Shareholder Escrow Agreement, in the event a Claim arises pursuant to
subparagraph 7.1(a), Acquiror shall have the right to apply the amount of the
Claim which is agreed to by the other parties against the Principal Shareholder
Escrow Shares identified at subparagraph 1.4(b).
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
This Agreement may be terminated and the Merger may be abandoned at
any time prior to or at the Closing:
(a) by mutual written consent of Acquiror, SkyNet and the Principal
Shareholders;
(b) by any of Acquiror, SkyNet or the Principal Shareholders;
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(i) if the Closing shall not have occurred on or before October 15,
1998, unless otherwise extended in writing by all of the parties hereto;
provided, however, that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any governmental body,
regulatory or administrative agency or commission having appropriate
jurisdiction shall have issued an order, decree or filing or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) by SkyNet and the Principal Shareholders if any of the conditions
specified in Section 6.1 have not been met or if satisfaction of such a
condition is or becomes impossible (other than through the failure of SkyNet or
the Principal Shareholders to comply with their respective obligations under
this Agreement) and SkyNet and the Principal Shareholders have not waived such
conditions on or before the Closing; or
(d) by Acquiror if any of the conditions specified in Section 6.2 have
not been met or if satisfaction of such a condition is or becomes impossible
(other than through the failure of Acquiror to comply with their respective
obligations under this Agreement) and Acquiror has not waived such condition on
or before the Closing.
8.2 NOTICE AND EFFECT OF TERMINATION.
In the event of the termination and abandonment of this Agreement
pursuant to Section 8.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision pursuant to which such
termination is made. Upon termination, this Agreement shall forthwith become
void and all obligations of the parties under this Agreement will terminate
without any liability on the part of any party or its directors, officers or
shareholders and none of the parties shall have any claim or action against any
other party, except that the provisions of this Section 8.2 and Sections 5.2,
5.7 and 5.9, shall survive any termination of this Agreement. Nothing contained
in this Section 8.2 shall relieve any party from any liability for any breach of
this Agreement other than in the event of a termination pursuant to Section 8.1.
8.3 EXTENSION; WAIVER.
Any time prior to the Closing, the parties may (a) extend the time for
the performance of any of the obligations or other acts of any other party under
or relating to this Agreement; (b) waive any inaccuracies in the representations
or warranties by any other party or (c) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations.
Any agreement on the part of any other party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
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8.4 AMENDMENT AND MODIFICATION.
This Agreement may be amended, whether before or after the vote of the
SkyNet Shareholders or shareholders of Acquiror, by written agreement of
Acquiror, SkyNet and the Principal Shareholders; provided, however, that after
the approval, if any, of this Agreement by the SkyNet Shareholders, no such
amendment shall reduce or change the consideration to be received by any SkyNet
Shareholder in connection with the Merger as set out in Section 1.3 hereof or
shall otherwise adversely affect the rights under this Agreement of the SkyNet
Shareholders without the approval of such adversely affected shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of Acquiror, SkyNet and the Principal Shareholders.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDIES.
All representations and warranties contained in or made pursuant to
this Agreement or in any agreement, certificate, document or statement delivered
pursuant hereto shall survive the Closing for a period of one (1) year from the
Closing Date, unless otherwise specified in such agreement, certificate or
document; provided, however, that notwithstanding the foregoing, (i) the
representations and warranties set forth in Section 4.1(u) (relating to
environmental matters), Section 4.1(e) (relating to the Financial Statements),
Section 4.1(g) (relating to contingent liabilities) and Section 4.1(i) (relating
to taxes) and all covenants and agreements of the parties relating to the
subject matter(s) thereof shall survive the Closing forever. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
The rights and remedies of the parties to this Agreement are
cumulative, not alternative. In addition to their respective rights to damages
or other remedies they may have, and without limitation thereof, Acquiror shall
have the right to obtain injunctive relief to restrain any breach or otherwise
to specifically enforce the provisions of this Agreement, it being agreed by the
parties that money damages alone would be inadequate to compensate Acquiror for
such breach or other failure to perform the obligations of SkyNet and the
Principal Shareholders under this Agreement.
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9.2 NOTICES.
All notices requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date if delivered personally, or
upon the second business day after it shall have been deposited by certified or
registered mail with postage prepaid, or sent by telex, telegram or telecopier,
as follows (or at such other address or facsimile number for a party as shall be
specified by like notice):
(a) if to SkyNet, to it at: with a copy to:
343 South Glasgow Avenue
Inglewood, CA 90301
Attn.: Vic Nizic
(b) if to Acquiror to it at: with a copy to:
c/o Synergy Group International, Inc. Stephen M. Cohen, Esquire
4725 East Sunrise Drive Buchanan Ingersoll, P.C.
Tuscon, AZ 85718 Eleven Penn Center, 14th
Floor
Attn.: Vincent Marold Philadelphia, PA 19103
Fax: (215) 665-8760
(c) if to Christian J. Weber: with a copy to
Foxholes
Winter Hill Road
Cookham Dean SL6 6PJ
England
(d) if to Vjekoslav Nizic: with a copy to:
c/o SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
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(e) if to Deansley Limited: with a copy to:
71 Circular Road
Douglas, Isle of Man 1M1 1AZ
(f) if to John E. Cathcart: with a copy to:
774 Mays Blvd.
10-450
Incline Village, NV 89451
(g) if to Fir: with a copy to:
c/o SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
Attention: Vjekoslav Nizic
9.3 AGREEMENT; ASSIGNMENT.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
9.4 BINDING EFFECT; BENEFIT.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns. Nothing in this Agreement
is intended to confer on any person other than the parties to this Agreement or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.5 HEADINGS.
The descriptive headings of the sections of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
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9.6 COUNTERPARTS.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.7 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
9.8 ARBITRATION.
If a dispute arises as to the interpretation of this Agreement, it
shall be decided finally in an arbitration proceeding conforming to the Rules of
the American Arbitration Association applicable to commercial arbitration then
in effect at the time of the dispute. The arbitration shall take place in Los
Angeles, California. The decision of the Arbitrators shall be conclusively
binding upon the parties and final, and such decision shall be enforceable as a
judgment in any court of competent jurisdiction. The parties shall share equally
the costs of the arbitration.
9.9 SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its regulatory policy, the remainder of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.10 RELEASE AND DISCHARGE.
By virtue of their execution of this Agreement, as of the Closing and
thereafter, the Principal Shareholders hereby agree to release, remise and
forever discharge SkyNet from and against any and all debts, obligations,
liabilities and amounts owing from SkyNet to the Principal Shareholders prior to
the Closing, and SkyNet is not obligated to take any action or make any payments
to third parties on behalf of the Principal Shareholders.
9.11 CERTAIN DEFINITIONS.
As used herein:
(A) "AFFILIATE" shall have the meanings ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended to date (the "Exchange Act");
42
<PAGE>
(B) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
a day on which federally chartered financial institutions are not open for
business in the City of Philadelphia, Pennsylvania.
(C) "KNOWLEDGE" shall mean the actual current knowledge of the party ,
and/or the executive management of the party to this Agreement, as the case may
be, to whom knowledge is ascribed.
(D) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(E) "PERSON" means any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political subdivision or any agency or institution thereof; and
43
<PAGE>
IN WITNESS WHEREOF, Acquiror, SkyNet and the Principal Shareholders have caused
this Agreement to be signed by their respective officers hereunto duly
authorized, all as of the date first written above.
EPL RESOURCES (DELAWARE) CORP.,
a Delaware Corporation
By: /s/ Vincent Marold
------------------
Name: Vincent Marold
Title: President
SKYNET HOLDINGS, INC.,
a Nevada corporation.
By: /s/ Vjekoslav Nizic
-------------------
Vjekoslav Nizic
Chief Executive Officer
PRINCIPAL SHAREHOLDERS:
/s/ Vjekoslav Nizic
-------------------
Signature
Name: Vjekoslav Nizic
Address:
/s/ Christian J. Weber
----------------------
Signature
Name: Christian J. Weber
Address:
/s/ John Cathcart
-----------------
Signature
Name: John E. Cathcart
Address:
44
<PAGE>
DEANSLEY LIMITED, an
Isle of Man corporation
By: /s/ E.N. Bowers
---------------
Name: E.N. Bowers
Title: Director
FIR CONSTRUCTION PTY LIMITED,
an Australian Corporation
By: /s/ Vjekoslav Nizic
--------------------
Name: Vjekoslav Nizic
Title:Managing Director
45
<PAGE>
EXHIBIT 2.2
-----------
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EPL RESOURCES (DELAWARE) CORP.
SKYNET HOLDINGS, INC.
AND
THE PRINCIPAL SHAREHOLDERS OF
SKYNET HOLDINGS, INC.
Dated: October 8, 1998
<PAGE>
This FIRST AMENDMENT to the AGREEMENT AND PLAN OF MERGER is made and entered
into as of October __, 1998, by and among EPL RESOURCES (DELAWARE) CORP., a
Delaware corporation or its successors or assigns ("Acquiror"), SKYNET HOLDINGS,
INC., a Nevada corporation ("SkyNet"), Christian J. Weber ("Weber"), DEANSLEY
LIMITED, an Isle of Man Corporation ("Deansley"), John E. Cathcart ("Cathcart"),
Vjekoslav Nizic ("Nizic") and FIR Construction Pty. Limited, an Australian
corporation ("Fir"). Weber, Deansley, Cathcart, Nizic and Fir are hereafter
collectively referred to as the "Principal Shareholders."
Recitals:
---------
WHEREAS, the parties to that certain Agreement and Plan of Merger dated
September 28, 1998 (the "Merger Agreement") wish to amend the Merger Agreement
in accordance with the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing premises and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT OF THE PARTIES
------------------------
1. Principal Shareholder Escrow Shares. Section 1.4(b) is hereby amended to
------------------------------------
provide in its entirety as follows:
"In order to secure the Principal Shareholders' indemnification obligations
under Article 7 hereof, 3 million shares of Acquiror Common Stock issuable
to the Principal Shareholders hereunder (the "Principal Shareholder Escrow
Shares") shall be placed into escrow pursuant to the escrow agreement
attached hereto as Exhibit 1.4(b) (the "Principal Shareholder Escrow
Agreement"). Subject to the terms of the Principal Shareholder Escrow
Agreement, the Principal Shareholder Escrow Shares, unless otherwise
subject to claims for indemnification under Section 7.1 hereunder and the
Principal Shareholder Escrow Agreement, shall be released from escrow to
the Principal Shareholders in the following manner: (i) 1,250,000 of the
Principal Shareholder Escrow Shares shall be released upon completion of
Audited Financial Statements in compliance with Section 5.10 hereunder;
(ii) an additional 1,000,000 of the Principal Shareholder Escrow Shares
shall be released six (6) months after the Closing; and (iii) the remaining
Principal Shareholder Escrow Shares shall be released one (1) year after
the Closing."
2. Delivery of Stock Certificates. Section 2.2(b)(i) is hereby amended to
-------------------------------
include the following at the end of the section:
1
<PAGE>
"; provided, however, that Acquiror shall not issue any certificates
------------------
evidencing any shares of Acquiror Common Stock to any SkyNet Shareholder
unless and until such SkyNet Shareholder has delivered to Acquiror (X) an
executed Investment Letter; (Y) any and all certificates evidencing shares
of SkyNet Common Stock being surrendered in the Merger duly endorsed for
transfer or together with stock powers duly endorsed in blank; and (Z) if
applicable, an executed Amendment No. 1. In the event that a SkyNet
Shareholder is unable to deliver certificates evidencing his shares of
SkyNet Common Stock being surrendered in the Merger to Acquiror, Acquiror
shall accept, in lieu thereof, an Affidavit of Lost Note executed by such
SkyNet Shareholder which includes appropriate indemnification provisions in
favor of Acquiror, in form and substance acceptable to Acquiror."
3. Representations and Warranties of the Principal Shareholders.
-------------------------------------------------------------
(A) Section 4.1(y) is hereby added to provide in its entirety as follows:
"SKYCOMS LIMITED. Each of that certain (i) License Agreement dated as of
May 17, 1996 by and between Bunting-Duggan Associates Limited and SkyComs
Limited; (ii) Consultancy and Software Support Agreement dated as of June
1, 1996 by and among Bunting-Duggan Associates Limited, SkyComs Limited and
Sky International Limited; (iii) Shareholders Agreement relating to SkyComs
Limited dated as of May 17, 1996 by and among Sky International Limited,
Bunting-Duggan Associates Limited and SkyComs Limited; and (iv) NCC UK
Multi Licensee Escrow Agreement dated as of June 7, 1996 (Agreement No.
8060) by and between Bunting-Duggan Associates and the NCC Ltd. together
with the Confirmation Agreement forming Schedule 3 thereto executed by
SkyComs Limited as of June 7, 1996 (collectively the "SkyComs Agreements")
is valid, binding and enforceable against the respective parties thereto in
accordance with their respective terms and is in full force and effect on
and as of the date hereof. Following the Merger, the Acquiror as the
surviving entity shall become entitled to all rights of SkyNet under the
SkyComs Agreements. All parties to all of the SkyComs Agreements have
performed all obligations required to be performed to date under such
SkyComs Agreements, and neither SkyNet, the Subsidiaries, nor, to the best
of their knowledge, any other party, is in default or in arrears under the
terms thereof, and no condition exists or event has occurred which, with
the giving of notice or lapse of time or both, would constitute a default
thereunder. The consummation of this Agreement and the Merger will not
result in an impairment or termination of any of the rights of SkyNet or
the Subsidiaries under any SkyComs Agreement. None of the terms or
provisions of any SkyComs Agreement materially adversely affects the
business, prospects, financial condition or results of operations of SkyNet
or the Subsidiaries. In addition, that certain Exclusive Perpetual License
dated as of on or about May 17, 1996 by and between Bunting-Duggan
Associates and Tony Bunting-Duggan (the "Perpetual License Agreement") is
valid, binding and enforceable against the parties thereto in accordance
with its terms and is in full force and effect on and as
2
<PAGE>
of the date hereof. To the best of SkyNet's knowledge, each of the parties
to the Perpetual License Agreement has performed all obligations required
to be performed to date thereunder, and no party to the agreement is in
default or in arrears under the terms thereof, and no condition exists or
event has occurred which, with the giving of notice or lapse of time or
both, would constitute a default thereunder. The consummation of this
Agreement and the Merger will not result in an impairment or termination of
any of the rights of SkyNet or the Subsidiaries under the Perpetual License
Agreement. None of the terms or provisions of the Perpetual License
Agreement materially adversely affects the business, prospects, financial
condition or results of operations of SkyNet or the Subsidiaries."
(B) Section 4.1(z). Section 4.1(z) is hereby added to provide in its
---------------
entirety as follows:
"DISSENTER'S RIGHTS. Neither SkyNet nor any of the Principal Shareholders
has received any notice from any person that any SkyNet Shareholder intends
to assert his, her or its right to dissent from the Merger and demand
payment for his, her or its shares of SkyNet Common Stock as provided under
applicable Nevada law."
(C) Section 4.1(aa). Section 4.1(aa) is hereby added to provide in its
----------------
entirety as follows:
"YEAR 2000 PROBLEM. No computer program or application utilized by SkyNet
or any Subsidiary in the operation of its business is or will be unable to
recognize and properly perform date sensitive functions involving dates
prior to and after December 31, 1999 (the "Year 200 Problem"). The Year
2000 problem has not, and is not expected to, materially adversely effect
the business, prospects, financial condition or results of operations of
SkyNet or the Subsidiaries or require the expenditure of any material
amount of resources of SkyNet or the Subsidiaries"
4. Interim Operations of Acquiror. Section 5.3(b)(v) shall be amended to
-------------------------------
provide in its entirety as follows:
"Placement Activities. Prior to the Closing, Acquiror shall have completed
---------------------
a private placement to accredited investors which, after expenses, yields
net proceeds (exclusive of those costs and expenses set forth on Schedule
4.2(g) hereto) of no less than $500,000 to Acquiror."
5. Registration Statement. Section 5.5(b) shall be amended to delete the
-----------------------
number "150,000" and replace it with the number "160,000."
6. Private Offering. Section 5.12(b) is hereby amended to provide in its
-----------------
entirety as follows:
3
<PAGE>
"Promptly following the Closing, Acquiror agrees to undertake a private
placement (the "Private Offering") to accredited and institutional
investors which is intended to yield proceeds, after payment of all sales
commissions, of between $2.5 million (the "Minimum Offering") and $5.0
million (the "Maximum Offering") through the sale of shares of newly issued
restricted common stock at $2.25 per share. The Minimum Offering will be
completed within sixty (60) days of the completion of a standard and
customary private placement document relating to the Private Offering
(which shall include the Audited Financial Statements and be completed as
soon as reasonably practicable after completion of the Audited Financial
Statements). The Private Offering may be completed through the use of
broker-dealers who are registered with the Securities and Exchange
Commission and in good standing with the NASD, upon payment of a sales
commission not to exceed 7% of the gross proceeds. As more fully set forth
within Section 1.4 of this Agreement, the Acquiror has agreed to cause
certain of its principal stockholders to place 2 million shares of its
Common Stock in escrow in order to secure timely completion of the Minimum
Offering."
7. Appointment of Directors.
-------------------------
(A) Section 1.1(c)(vii) is hereby amended to include the following at the
end of the section:
";provided, however, nothing contained in this Section 1.1(c)(vii) or
------------------
Schedule 1.1(c)(vii) shall effect Acquiror's or the Principal Shareholders'
rights under Section 5.18 hereof to appoint persons to serve on the Board
of Directors of Acquiror."
(B) Section 5.18(a) is hereby amended to provide in its entirety as
follows:
"Concurrent with the Closing, members of Acquiror's Board of Directors
shall resign and shall be replaced with those persons identified on Exhibit
1.1(c)(vii) and as soon as reasonably practicable after Closing, the Board
of Directors shall be composed of five (5) members, consisting of: (i) one
designee of Acquiror's Board of Directors immediately prior to the Closing
(the "Acquiror Designee"); (ii) two (2) designees of the Principal
Shareholders; (iii) a designee of the Acquiror Designee, who shall be
acceptable to the Principal Shareholders; and (iv) a designee of the
Principal Shareholders, who shall be acceptable to the Acquiror Designee."
8. Use of Proceeds. Section 5.20 is hereby added to provide in its entirety as
---------------
follows:
"USE OF PROCEEDS AND REPAYMENT OF OUTSTANDING INDEBTEDNESS. Except as set
forth on Schedule 5.20 attached hereto and delivered herewith by the
Principal Shareholders, the $500,000 (less those expenses identified on
Schedule 4.2(g))
4
<PAGE>
raised in the private placement identified in Section 5.3(b)(v) shall not
be utilized by Acquiror after Closing to repay any existing indebtedness of
SkyNet or the Subsidiaries. In addition, the Principal Shareholders hereby
covenant and agree that Acquiror and the Subsidiaries will not repay the
principal amount due under that certain Loan Agreement dated as of August
31, 1998 by and among SkyNet, SkyNet Worldwide Express Pty Limited and
Pearlgold Pty Ltd. in the principal amount of AUD $1,000,000 in cash, but
rather shall repay such principal amount through the issuance of shares of
Acquiror Common Stock in the Private Offering."
9. Capitalized Terms. All capitalized terms used herein and not otherwise
------------------
defined herein shall have the same meaning ascribed thereto in the Merger
Agreement.
10. Full Force and Effect. All other provisions in the Merger Agreement shall
----------------------
remain in full force and effect except those identified within this First
Amendment to the Agreement and Plan of Merger.
11. Counterpart and Facsimile. This First Amendment to the Agreement and Plan
--------------------------
of Merger may be executed in two or more counterparts and delivered via
facsimile, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, Acquiror, SkyNet and the Principal Shareholders
have caused this Agreement to be signed by their respective officers hereunto
duly authorized, all as of the date first written above
EPL RESOURCES (DELAWARE) CORP.
By:/s/ Vincent Marold
Name: Vincent Marold
Title: Chief Executive Officer
SKYNET HOLDINGS, INC.
a Nevada corporation
By:/s/ Vjekoslav Nizic
Name: Vjekoslav Nizic
Title: Chief Executive Officer
PRINCIPAL SHAREHOLDERS:
/s/ Vjekoslav Nizic
Signature
Name: Vjekoslav Nizic
Address:_____________________________
_____________________________________
__________________________
/s/ Christian J. Weber
Signature
Name: Christian J. Weber
Address:_____________________________
_____________________________________
6
<PAGE>
/s/ John E. Cathcart
Signature
Name: John E. Cathcart
Address:_____________________________
_____________________________________
DEANSLEY LIMITED,
an Isle of Man corporation
/s/ E. N. Bowers
Signature
Name: E. N. Bowers
Title: Director
FIR CONSTRUCTION PTY LIMITED,
an Australian Corporation
/s/ Vjekoslav Nizic
Signature
Name: Vjekoslav Nizic
Title: Managing Director
7
<PAGE>
SCHEDULE 5.20
--------------
PAYMENT OF EXISTING SKYNET INDEBTEDNESS
- ---------------------------------------
$100,000 will be paid in satisfaction of pre-existing indebtedness of
SkyNet due either to John Cathcart or Pace & Sons. In the event that the
Closing occurs prior to October 10, the funds will be paid to Mr. Cathcart. In
the event that the Closing occurs after October 10, the funds will be paid to
Pace & Sons.
8
<PAGE>
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
EPL RESOURCES (DELAWARE) CORP.
1. The name of the Corporation is:
EPL RESOURCES (DELAWARE) CORP.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, Delaware 19801, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
3. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law
of the State of Delaware.
4. The Corporation is authorized to issue capital stock to the extent of:
(a) Fifty Million (50,000,000) Shares Common Stock
Par Value $.0001 per Share; and
(b) Five Million (5,000,000) Shares Preferred Stock
Par Value $.0001 Per Share (the "Preferred Stock")
The board of directors of the Corporation shall have the authority to issue
shares of Preferred Stock in series or subseries and to fix by resolution
the designations, powers, preferences, rights and the qualifications,
limitations, or restrictions in respect of any such series or subseries.
5. The name and mailing address of the Sole Incorporator is as follows:
Paula S. Belcher
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
6. The Corporation is to have perpetual existence.
7. Indemnification and Insurance:
(a) Right to Indemnification. Each person who was or is made a party or is
------------------------
threatened to be made a party or is involved in any action, suit or
proceeding, whether
<PAGE>
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director or officer, of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit: If a claim under paragraph (a) of
-------------------------------
this Section is not paid in full by the Corporation within thirty (30) days
after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
the claimant for
-2-
<PAGE>
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard or conduct, shall be
a defense to the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(c) Notwithstanding any limitation to the contrary contained in
subparagraphs 7(a) and 7(b), the Corporation shall to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law or agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
----------
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under Delaware General Corporation Law.
8. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director for any act or omission; provided, however,
that the foregoing shall not eliminate or limit the liability of a director
(a) for any breach of the director's duty or loyalty to the Corporation or
its stockholders, (b) for any act or omission not in good faith or which
involves intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, or (d)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this article by the stockholders of
the Corporation shall be prospective only, and shall not adversely affect
any limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
-3-
<PAGE>
9. In furtherance and not in limitation of the powers conferred by the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation is expressly authorized to make, alter, or repeal the By-Laws
of the Corporation.
10. Elections of directors need not be by written ballot except and to the
extent provided in the By-Laws of the corporation.
I, Paula S. Belcher, being the Sole Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying and
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 11th day of September, 1998.
/s/ Paula S. Belcher
--------------------
Paula S. Belcher, Sole Incorporator
-4-
<PAGE>
EXHIBIT 3.2
-----------
CERTIFICATE OF MERGER OF
SKYNET HOLDINGS, INC.
INTO
EPL RESOURCES (DELAWARE) CORP.
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
EPL Resources (Delaware) Corp. Delaware
SkyNet Holdings, Inc. Nevada
SECOND: That an Agreement and Plan of Merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
252 of the General Corporation Law of the State of Delaware.
THIRD: That the surviving corporation of the merger is EPL Resources
(Delaware) Corp.
FOURTH: Article 1 of the Certificate of Incorporation of the surviving
corporation shall be amended to read as follows:
"1. The name of the corporation is SkyNet Holdings, Inc."
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 3725 East Sunrise
Drive, Tucson, Arizona 85718.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished
by the surviving corporation, on request and without cost to any stockholder of
any constituent corporation.
SEVENTH: The authorized aggregate capital stock for SkyNet Holdings, Inc.
is Twenty Million (20,000,000) Shares of Common Stock Par Value $.001 per Share.
EIGHTH: The merger shall become effective upon the filing of this
Certificate of Merger with the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, EPL Resources (Delaware) Corp. has caused the
Certificate to be signed by Vince Marold, its authorized officer, this 2nd day
of October 1998.
EPL RESOURCES (DELAWARE), INC.
By: /s/ Vincent Marold
------------------
Vincent Marold, President
-2-
<PAGE>
EXHIBIT 3.3
-----------
BY-LAWS
OF
SkyNet Holdings, Inc.
I. OFFICES
-------
SkyNet Holdings, Inc. (hereinafter the "Corporation") may have offices
and places of business at such places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or the business of the
Corporation may require.
II. MEETING OF STOCKHOLDERS
-----------------------
2.1 Place of Meetings.
-----------------
All meetings of the stockholders for the election of directors shall
be held at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver
thereof.
2.2 Annual Meeting.
--------------
Annual meetings of stockholders commencing with the year 1998 shall be
held on the date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver thereof.
2.3 Special Meetings.
----------------
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Certificate of Incorporation,
may be called by the President or Board of Directors and shall be called by the
President or Secretary at the request in writing of stockholders owning not less
than one-fifth of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.4 Notice.
------
Written notice of each meeting of stockholders shall be given in the
manner prescribed in Article IV of these By-laws which shall state the place,
date and hour of the meeting and, in the case of a special meeting, shall state
the purpose or purposes for which the
<PAGE>
meeting is called. In the case of a meeting to vote on a proposed merger or
consolidation, such notice shall state the purpose of the meeting and shall
contain a copy of the agreement or brief summary thereof and, in the case of a
meeting to vote on a proposed sale, lease or exchange of all of the
Corporation's assets, such notice shall specify that such a resolution shall be
considered. Such notice shall be given to each stockholder of record entitled to
vote at the meeting not less than ten (10) nor more than sixty (60) days prior
to the meeting, except that where the matter to be acted on is a merger or
consolidation of the Corporation or a sale, lease or exchange of all or
substantially all of its assets, such notice shall be given not less than twenty
(20) nor more than sixty (60) days prior to such meeting. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
2.5 Business.
--------
Business transacted at any special meeting of stockholders shall be
limited to the purpose or purposes stated in the notice.
2.6 Quorum and Adjournment.
----------------------
Except as otherwise provided by the Delaware General Corporation Law
or the Certificate of Incorporation, the holders of a majority of the shares of
the Corporation issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall be necessary to and shall constitute a
quorum for the transaction of business at each meeting of stockholders but in no
event shall a quorum consist of less than one-third of the shares entitled to
vote at the meeting. If a quorum shall not be present at the time fixed for any
meeting, the stockholders present, in person or by proxy, and entitled to vote
thereat shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
At such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.7 Voting.
------
Unless otherwise provided in the Certificate of Incorporation and
subject to the provisions of Article VI, Section 4 of these By-laws, each
stockholder shall be entitled to one vote, in person or by proxy, for each share
of capital stock held by such stockholder. If the Certificate of Incorporation
provides for more or less than one vote for any share, on any matter, every
reference in these By-laws to a majority or other proportion of stock shall
refer to such majority or other proportion of the votes of such stock.
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2.8 Vote Required.
-------------
When a quorum is present at any meeting, in all matters other than the
election of directors, the vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote on the subject
matter shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the Delaware Corporation Law
or of the Certificate of Incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
2.9 Voting Lists.
------------
The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2.10 Proxy.
-----
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
2.11 Consents.
--------
Any action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting, without prior notice
and a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock 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 and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book
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in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Where corporate action is taken in
such manner by less than unanimous written consent, prompt written notice of the
taking of such action shall be given to all stockholders who have not consented
in writing thereto.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by statute to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
III. DIRECTORS
---------
3.1 Board of Directors.
------------------
The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, except as
provided in the Certificate of Incorporation.
3.2 Number; Election and Tenure.
---------------------------
The number of directors which shall constitute the whole Board shall
be determined by resolutioin of the Board of Directors. The first Board shall
consist of one (1) director. Thereafter, the number of directors shall be
determined by resolution of the Board of Directors but shall not exceed five
(5). The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 3 of this Article, and each director elected shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal. Any director may resign at any time upon written notice
to the Corporation. Directors need not be stockholders.
3.3 Vacancies.
---------
Vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, or until his earlier resignation or removal. If at any time, by reason
of death or resignation or other cause, the Corporation should have no directors
in office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder,
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or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or the By-laws or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
by statute.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
3.4 Meetings.
--------
The Board of Directors of the Corporation may hold its meetings, and
have an office or offices, within or without the State of Delaware.
3.5 Annual Meeting.
--------------
The annual meeting of each newly elected Board of Directors shall be
held with our notice other notice than this Bylaw immediately after and at the
same place as the annual meeting of Stockholders
3.6 Notice.
------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board. A special meeting of the Board may be called by the President or any
Vice President and a special meeting shall be called by the President on the
written request of two directors. Notice of each special meeting of the Board
of Directors, specifying the place, day and hour of the meeting, shall be given
in the manner prescribed in Article IV of these By-Laws and in this Section 6,
either personally or by mail, by courier, telex or telegram to each director, at
the address or the telex number supplied by the director to the Corporation for
the purpose of notice, at least 48 hours before the time set for the meeting.
Neither the business to be transacted at, nor the purpose of any meeting of the
Board, need be specified in the notice of the meeting.
3.7 Quorum and Voting.
-----------------
Except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation, a majority of the total number of directors shall
constitute a quorum for the transaction of business. The vote of the majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors; provided, however, until October 9, 2000
--------
approval of the following transactions shall require the vote of 80% of the
whole Board of Directors: (i) any merger, consolidation, exchange,
reorganization, recapitalization or
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reclassification of the Corporation's securities or the sale of all other
substantially owned assets of the Corporation; (ii) transactions between the
corporation and any director, executive officer, or person holding in excess of
five percent (5%) of the outstanding capital stock of the Corporation; (iii) any
issuance of shares of Common Stock or other voting securities of the Corporation
or securities exercisable or convertible into shares of Common Stock or other
voting securities of the Corporation, equal to or exceeding ten percent (10%) of
the Corporation's then outstanding shares of Common Stock or voting powers of
the Corporation; and (iv) any amendment to the Corporation's Certificate of
Incorporation or By-laws.
Members of the Board or members of any committee designated by the
Board may participate in meetings of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such meeting shall constitute presence in person at such meeting.
3.8 Consents.
--------
Unless otherwise restricted by the Certificate of Incorporation, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
3.9 Committees.
----------
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation or to authorize any transaction identified in Section
3.7 which requires approval by a supermajority vote of the whole Board; and,
unless the resolution, By-laws or Certificate of Incorporation provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence or disqualification of any
member of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such
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<PAGE>
absent or disqualified member. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors.
3.10 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
3.11 Compensation of Directors.
-------------------------
The directors as such, and as members of any standing or special
committee, may receive such compensation for their services as may be fixed from
time to time by resolution of the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
The directors may be paid their expenses, if any, for attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
3.12 Removal of Directors.
--------------------
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
IV. NOTICES
-------
4.1 Form of Notice.
--------------
Whenever, under the provisions of the Delaware General Corporation Law
or of the Certificate of Incorporation or of these By-laws, notice is required
to be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by first class or
express mail, addressed to such director or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail, except that, in the case of directors,
notice sent by first class mail shall be deemed to have been given 48 hours
after being deposited in the United States mail. Whenever, under these By-laws,
notice may be given by telegraph, courier or telex, notice shall be deemed to
have been given when deposited with a telegraph office or courier service for
delivery or, in the case of telex, when dispatched.
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<PAGE>
4.2 Waiver of Notice.
-----------------
Whenever notice is required to be given under any provisions of the
Delaware General Corporation Law or the Certificate of Incorporation or these
By-laws, a written waiver, signed by the person or persons entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or the By-laws.
V. OFFICERS
--------
5.1 Selection of Officers.
---------------------
The officers of the Corporation shall be chosen by the directors and
shall consist of a president and secretary. The Board of Directors may also
choose a treasurer, one or more vice presidents, and one or more assistant
secretaries. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these By-laws otherwise provide. A failure to
elect officers shall not dissolve or otherwise affect the Corporation.
5.2 Term of Office, Removal and Vacancies.
-------------------------------------
Each officer of the Corporation shall hold his office until his
successor is elected and qualifies or until his earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring by death, resignation, removal or otherwise, in any office of
the Corporation, shall be filled by the Board of Directors.
5.3 Compensation.
------------
The salaries of the officers of the Corporation may be fixed by the
Board of Directors.
5.4 Bond.
----
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
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5.5 The President.
-------------
The President shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall have the power to appoint and remove such subordinate
officers and agents other than those actually appointed or elected by the Board
of Directors as the business of the Corporation may require.
5.6 Vice President.
--------------
Each Vice President, if any, shall perform such duties as shall be
assigned to him by the Board of Directors or President, and, in the absence or
disability of the President, the most senior in rank of the Vice Presidents
shall perform the duties of the President.
5.7 Secretary.
---------
The Secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the proceedings of the meetings
of the Board of Directors and the stockholders in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or President. He shall be
the custodian of the seal of the Corporation and he, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it, and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature.
5.8 Assistant Secretary.
-------------------
The Assistant Secretary, if any, or assistant secretaries, if more
than one, shall perform the duties of the secretary in his or her absence and
shall perform such other duties as the Board of Directors, the President or the
Secretary may from time to time designate.
5.9 Treasurer.
---------
The Treasurer shall have custody of the corporate funds and securities
and shall keep, or cause to be kept, full and accurate amounts of receipts and
disbursements in books kept for that purpose. He shall deposit all monies, and
other valuable effects, in the name and to the credit of the Corporation, in
such depository as the Board of Directors shall designate. As directed by the
Board of Directors or the President, he shall disburse monies of the
Corporation, taking proper vouchers for such disbursements and shall render to
the President and directors an account of all his transactions as Treasurer and
of the financial condition of the Corporation. In addition, he shall perform
all the usual duties incident to the office of Treasurer.
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VI. CERTIFICATES OF STOCK AND TRANSFERS
-----------------------------------
6.1 Certificates of Stock; Uncertificated Shares.
--------------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution or resolutions
that some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by, the President or any Vice
President, and countersigned by the Secretary or any Assistant Secretary or the
Treasurer, representing the number of shares registered in certificate form.
Any or all the signatures on the certificate may be a 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 he were such officer, transfer
agent or registrar at the date of issue.
6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
-------------------------------------------------------------
Certificate or Uncertificated Shares.
------------------------------------
The Board of Directors may issue a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may to
require the owner of the lost, stolen or destroyed certificate, or his legal
representative to give the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate or
uncertificated shares.
6.3 Record Date.
-----------
In order that the Corporation may determine the stockholders entitled
to notice of, or to vote at, any meeting of stockholders or at any adjournment
thereof in respect of which a new record date is not fixed, or to consent in
writing to corporate action without a meeting, 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 change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any such meeting, nor more than ten (10) days after the date on which
the date fixing the record date for the written consent of stockholders without
a meeting is adopted by the Board of Directors, nor more than sixty (60) days
prior to any other such action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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6.4 Registered Stockholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as of any record date fixed or determined
pursuant to Section 3 of this Article 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, regardless of whether it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
VII. GENERAL PROVISIONS
------------------
7.1 Dividends.
---------
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate 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 Corporation's
capital stock, subject to the provisions of the Certificate of Incorporation.
7.2 Liability of Directors as to Dividends or Stock Redemption.
----------------------------------------------------------
A member of the board of directors, or a member of any committee
designated by the board of directors, shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
stock might properly be purchased or redeemed.
7.3 Reserve for Dividends.
---------------------
Before declaring 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 Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
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7.4 Annual Statement.
----------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
7.5 Signing Checks, Notes, etc.
--------------------------
All checks or other orders for the payment of money and all notes or
other instruments evidencing indebtedness of the Corporation shall be signed on
its behalf by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate, or, if not so designated, by
the President or any Vice President of the Company.
7.6 Fiscal Year.
-----------
The fiscal year of the Corporation shall end on December 31, of each
year or as otherwise determined by resolution of the Board of Directors.
7.7 Seal.
----
The corporate seal shall have inscribed thereon the name of the
Corporation, and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
7.8 Voting of Securities of Other Corporations.
------------------------------------------
In the event that the Corporation shall, at any time or from time to
time, own and have power to vote any securities (including but not limited to
shares of stock or partnership interests) of any other issuer, they shall be
voted by such person or persons, to such extent and in such manner, as may be
determined by the Board of Directors or, if not so determined, by any duly
elected officer of the Corporation.
VIII. INDEMNIFICATION
---------------
8.1 Indemnification.
---------------
Except as otherwise provided below, each person who was or is made a
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding") and whether or not
by or in the right of the Corporation or otherwise, by reason of the fact that
he or she, or a person of whom he or she is the heir, executor or administrator,
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as director or officer or trustee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
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such proceeding is alleged action in an official capacity as a director or
officer or trustee, or in any other capacity while serving as a director or
officer or trustee, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by law, as the same exist or may hereinafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
are permitted the corporation to provide prior to such amendment), against all
reasonable expenses, including attorneys' fees, and any liability and loss,
including judgments, fines, ERISA excise taxes or penalties and amounts paid or
to be paid in settlement, incurred or paid by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director or officer or trustee; provided, however, that except as
provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of the final disposition thereof;
provided, however, that to the extent required by the Delaware General
Corporation Law, the payment of such expenses incurred by an officer or director
in advance of the final disposition of a proceeding shall be made only upon
receipt of an undertaking, by or on behalf of such person, to repay all amounts
so advanced if it shall ultimately be determined that he or she is not entitled
to be indemnified under this section or otherwise. The right to indemnification
and advancement of expenses provided herein shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such person.
8.2 Right of Claimant to Bring Suit.
-------------------------------
If a claim under Section 1 of this Article is not paid in full by the
Corporation within thirty (30) days after a written claim has been received by
the Corporation, the claimant may, at any time thereafter, bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim.
8.3 Non-Exclusivity of Rights.
-------------------------
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of a final disposition conferred in this
Article VIII shall not be exclusive of any other rights to which those seeking
indemnification or advancement of expenses hereunder may be entitled under any
bylaw, agreement, vote of stockholders or directors or otherwise, both as to
action in his official capacity and as to action in any other capacity while
holding that office.
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8.4 Funding.
-------
The Corporation may create a fund of any nature, which may, but need
not be, under the control of a trustee, or otherwise secure or insure in any
manner its indemnification obligations, whether arising under or pursuant to
this By-law or otherwise.
IX. AMENDMENTS
----------
These By-laws may be altered, amended or repealed, and new By-laws may
be adopted, by the stockholders, or by the Board of Directors when such power is
conferred upon the Board of Directors by the Certificate of Incorporation.
Dated: September 18, 1998
RESOLVED, that pursuant to the authority vested in this Board of Directors
pursuant to Article 7.6 of the Bylaws of the Corporation the fiscal year of the
Corporation shall end on June 30, of each year.
November 9, 1998
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EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 14th day of October, 1998, by and between
EPL Resources (Delaware) Corp., a Delaware corporation (hereinafter "Company"),
and VJEKOSLAV NIZIC, an individual (hereinafter "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, on the date hereof, the Company acquired SkyNet Holdings, Inc.
("SkyNet"), a Nevada corporation, pursuant to the terms of an Agreement and Plan
of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement Executive received certain
shares of the Company's Common Stock (the "Merger Consideration") and Executive
agreed to become employed with the Company upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants of
the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
-------------------
A. The Company hereby employs Executive and Executive hereby accepts
employment by the Company as its President and Chief Executive Officer.
Executive agrees to serve the Company in such capacity, subject to the terms and
conditions of this Agreement, for a term, commencing on the date hereof and
expiring three years from the date of this Agreement (the "Term").
2. Duties.
------
A. During the Term, Executive shall use his best efforts to perform
all duties required in furtherance of his position, including without limitation
all such duties as are customarily associated with such position or as are
assigned to him from time to time by the Board of Directors of the Company.
B. Executive shall diligently and faithfully devote his entire time,
energy, skill, and best efforts to the performance of his duties under this
Agreement. Executive shall conduct himself at all times so as to advance the
best interests of the Company, and shall not undertake or engage in any other
business activity or continue or assume any other business affiliations which
conflict or interfere with the performance of his services hereunder without the
prior written consent of the Board of Directors. Executive also agrees that he
shall not usurp or misappropriate, either to himself, or to any other person or
entity, any corporate or other opportunities that would otherwise be available
to the Company.
<PAGE>
3. Compensation.
------------
A. The Company shall pay Executive and Executive shall accept, as his
compensation for all services rendered to the Company pursuant hereto, a base
salary of $175,000 on an annualized basis to be paid in accordance with the
general payroll practices of the Company as from time to time in effect.
Executive shall also be entitled, subject to the terms and conditions of
particular plans and programs, to all fringe benefits afforded to other senior
executives of the Company, including the right to participate in any pension,
retirement, major medical, group health, accident and life insurance and other
employee benefit programs made generally available from time to time, by the
Company.
B. In addition to his base compensation, Executive may be awarded an
annual discretionary bonus on the basis of merit performance in the discretion
of the Company's Board of Directors or Compensation Committee thereof.
C. Executive may also be entitled to participate in any stock option
programs adopted by the Company to the extent determined on a discretionary
basis by the Board of Directors or Compensation Committee thereof.
D. Executive shall be reimbursed for all such reasonable expenses as
are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to the provisions of
the Internal Revenue Code of 1986, as amended, and all rules and regulations
promulgated hereunder.
4. Vacations, Holidays, Sick Days.
------------------------------
A. Executive shall receive four (4) weeks of paid vacation in each
calendar year, to be taken at times which do not unreasonably interfere with the
performance of Executive's duties hereunder and in no event shall Executive
schedule more than ten (10) consecutive days of vacation during any three month
period without the prior written consent of the Board of Directors. Vacation pay
shall be non-cumulative unless otherwise agreed to in writing by the Company's
Board of Directors.
B. Executive shall also be entitled to those holidays and compensated
sick leave days as are allowed for by the policy of the Company.
5. Termination.
-----------
A. Executive's employment and rights to compensation hereunder shall
terminate immediately if Executive voluntarily leaves the employment of the
Company, except that the Company shall have the obligation to pay Executive such
portion of his base salary provided for in Section 3 hereof as may be accrued
but unpaid on the date Executive voluntarily leaves the employment of the
Company. In the event that Executive voluntarily leaves the employment of the
Company, he shall provide at least sixty (60) days' written notice.
2
<PAGE>
B. Executive's employment and rights to compensation hereunder shall
terminate immediately upon the death of Executive or if the Executive is unable,
for reasons of illness, disability or other causes, to carry out or perform the
duties required of him hereunder continuously for three (3) months or
intermittently for an aggregate of one hundred twenty (120) days in a calendar
year during the term of this Agreement; provided, however, that the Company
-------- -------
shall have the obligation to pay Executive such portion of his base salary
provided for in Section 3 hereof as may be accrued but unpaid on the date
Executive dies or the thresholds respecting the Executive's inability to perform
his duties as a result of illness or disability are reached.
C. The Company may, upon written notice to Executive giving the
reasons therefor, terminate Executive's employment and his rights to
compensation hereunder for cause. As used herein, the term "cause" shall mean
the following: conviction of Executive for any felony, fraud, embezzlement or
crime of moral turpitude, except for such conduct relating to corporate activity
to the extent that Executive would be entitled to be indemnified by the Company
for charges arising from such conduct; controlled substance abuse or drug
addiction; alcoholism which interferes with or affects Executive's
responsibilities to the Company or which reflects negatively upon the integrity
or reputation of the Company; gross negligence which is materially injurious to
the Company; any violation of any express written directions or any reasonable
written rule or regulation established by the Company's Board of Directors from
time to time, and consistent with industry standards, regarding the conduct of
its business, which violation has not been cured to the Company's satisfaction
within thirty (30) calendar days of the dispatch of written notice to the
Executive of the violation; or any violation by the Executive of any material
term or condition of this Agreement. If Executive is terminated for cause as
provided above, Executive's employment and rights to compensation hereunder
shall terminate immediately upon receipt of written notice to the effect, except
that the Company shall have the obligation to pay Executive such portion of his
base salary as may be accrued but unpaid on the date his employment is
terminated.
D. Executive may be terminated at any time by a determination of the
Board of Directors (a "Board Termination") if the following procedure is
followed: (i) a formal meeting of the Board of Directors must be called upon at
least twenty (20) days' written notice to all directors; (ii) the notice of the
meeting must specify the purpose of the meeting is to consider a Board
Termination; (iii) at the meeting (at which the Executive must abstain from
attendance and participation) a unanimous vote of the Board of Directors
(exclusive of Executive) must conclude that in their discretion (x) the
Company's overall financial and strategic objectives have not been, or are not
being, achieved in accordance with corporate expectations; and (y) the Company's
best interest would be served by a replacement of the Executive. In the event of
a Board Termination, Executive will be provided with a severance package
consisting of a continuation of his full salary and benefits for a period of one
year.
E. Notwithstanding anything herein contained to the contrary, the
Company may terminate this Agreement upon thirty (30) days' written notice to
Executive upon the happening of any of the following events:
3
<PAGE>
(i) the sale by the Company of substantially all of its assets;
(ii) a bona fide decision by the Company to terminate its business and
liquidate its assets; or
(iii) the merger or consolidation of the Company in a transaction in which
the shareholders of the Company prior to the transaction receive less
than fifty percent (50%) of the outstanding voting shares of the new
or continuing corporation after the transaction.
If Executive's employment is terminated during the Term by virtue of this
Subsection 5.E., Executive's employment and rights to compensation hereunder
shall terminate immediately upon receipt of written notice to that effect,
except that the Company shall only have the obligation to pay Executive such
portion of his base salary as may be accrued but unpaid on the date his
employment is terminated.
F. If Executive's employment is terminated during the Term hereof
for reasons other than those provided in Subsections 5.A., 5.B., 5.C., 5.D., or
5.E. above, Executive shall be entitled to his regular compensation for the
balance of the Term, consisting of:
(1) payment of one hundred percent (100%) of Executive's monthly
base salary payable at regular intervals in accordance with the Company's normal
payroll practices; and
(2) continuation of health insurance and fringe benefits as set
forth herein through the remainder of the Term.
G. Notwithstanding the provisions of Setion 6 hereafter:
(i) If Executive's employment is terminated during the Term
hereof for reasons other than those provided by Subsections 5.A., 5.B., 5.C.,
5.D. or 5.E. above, the limitations set forth in Section 6 hereafter shall only
apply following the dates of such termination for all such periods during which
Executive continues to receive compensation pursuant to the terms of Subsection
5.F. above; or
(ii) If Executive's employment is terminated during the Term
hereof by virtue of Section 5.D., the limitations set forth in Section 6
hereafter shall only apply following the date of such termination for the period
in which severance payments are received by Executive.
6. Confidentiality and Related Matters.
-----------------------------------
A. Acknowledgment of Nature and Value of Confidential Information:
--------------------------------------------------------------
Executive recognizes and acknowledges: (a) that in the course of Executive's
employment by the Company it will be necessary for Executive to acquire, in a
fiduciary capacity of trust,
4
<PAGE>
information which could include, in whole or in part, but is not limited to:
information concerning the Company's rate schedules; rate quotations; the names,
addresses, credit terms and nature of services provided by the vendors utilized
by the Company; the names, addresses, credit terms and nature of services
provided to customers of the Company; the identity of the Company's suppliers,
sales representatives, shippers or other entities with whom Executive has come
into contact as a result of his employment with the Company, or which should
otherwise come into his knowledge during the term of this Agreement; the
salaries, skills, education or abilities of the Company's employees; the
Company's sales, sales volume, sales methods and sales proposals; the identities
of the Company's customers and/or prospective customers; the identities of key
purchasing personnel in the employ of customers and prospective customers; the
amounts and/or kinds of customers' purchases from the Company; the Company's
sources of information and supply; the Company's computer programs, system
documentation, special hardware or software, service or product hardware or
software, and related software or hardware development; the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither disclose the Confidential Information to others nor use the
Confidential Information to Executive's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of Company's Business.
-----------------------------------------------------------------
Executive further recognizes and acknowledges that it is essential for the
proper protection of the business of the Company, particularly in view of the
recent acquisition of SkyNet by the Company, that Executive be restrained: (a)
from soliciting or inducing any employee of the Company to leave the employ of
the Company; (b) from hiring or attempting to hire any employee of the Company;
(c) from soliciting the trade of, or trading with, the customers or suppliers of
the Company for any business purpose other than that of the Company; and (d)
from competing against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section
6.F., below.
C. Work Made For Hire. Executive further recognizes and understands that
------------------
Executive's duties at the Company may include the preparation of materials,
including without limitation written or graphic materials, and that any such
materials conceived or written by Executive shall be done as "work made for
hire" as defined and used in the Copyright Act of 1976, 17 U.S.C. (S)(S) 1 et
--
seq. In the event of publication of such materials, Executive understands that
- ---
since the work is a "work made for hire", the Company will solely retain and own
all rights in said materials, including right of copyright.
D. Non-Disclosure of Confidential Information. In recognition and
------------------------------------------
consideration of the recent acquisition of SkyNet by the Company and Executive's
employment,
5
<PAGE>
compensation and fringe benefits, the information which the Company will give
Executive regarding the Company's business, the Executive's introduction to the
Company's customers and prospective customers made in the course of Executive's
employment with the Company, and the carefully-guarded methods of doing business
which the Company utilizes and deems crucial to the successful operation of its
business, Executive agrees to hold and safeguard the Confidential Information in
trust and in a fiduciary capacity for the Company, its successors and assigns.
Executive expressly agrees that he shall not, without the prior written consent
of the Company, misappropriate or disclose or make available to anyone for use
outside the Company's organization at any time, either during Executive's
employment with the Company or subsequent to the termination or nonrenewal of
such employment with the Company, for any reason, including without limitation
termination by the Company for cause or without cause, any of the Confidential
Information, whether or not developed by Executive, except as required by the
Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of Patents. In
--------------------------------------------------------
consideration of the promises set forth herein, Executive agrees to disclose
promptly to the Company, or to such person whom the Company may expressly
designate for this specific purpose (its "Designee"), any and all works,
inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination or nonrenewal of Executive's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of Executive's
employment, and shall be binding upon Executive's successors, assigns,
executors, heirs, administrators or other legal representatives.
F. Negative Covenant. Subject to the provisions of Section 5.G., hereof,
-----------------
Executive covenants and agrees that, for and in consideration of the
compensation deemed hereunder and the Merger Consideration, the sufficiency and
receipt of which is hereby acknowledged, during the Term and for a period of two
(2) years following termination of employment, Executive will not, on his own
behalf or as partner, officer, director, employee, consultant, or stockholder
(holding more than ten percent (10%) of the issued and outstanding stock of any
firm or company) of any other business, either directly or indirectly, solicit
customers of the Company, or any affiliates or subsidiaries of the Company or
perform any work, services, or labor for or on behalf of any firm or company
engaged in any business competitive with or similar to the business of the
Company in any state or foreign country where the Company does business.
Accordingly, the Company is granted the right by Executive to apply to any court
of competent jurisdiction for one or more temporary or permanent injunctions
enjoining Executive, his agents and employees, from violating the provisions of
this Agreement and/or from continuing to breach such provisions.
6
<PAGE>
G. No Prior Agreements. Executive represents and warrants that Executive
-------------------
is not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
Executive's ability to perform his obligations hereunder, including without
limitation any contract, agreement or understanding containing terms and
provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either Executive or the Company, Executive expressly promises that he
will immediately bring such facts to the Company's attention.
H. Remedies. In the event of a breach by Executive of any of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement, and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges and agrees that money damages for any breach by him
of any of the provisions of this Agreement may be inadequate to compensate the
Company for the injuries it may suffer as the result of any such breach, and
accordingly that the Company shall be entitled to injunctive relief against
Executive, in addition to money damages, in the event of any such breach by
Executive.
I. Review by Counsel. Executive expressly acknowledges and represents that
-----------------
Executive has been given a full and fair opportunity to review this Agreement
with an attorney of Executive's choice, and that Executive has satisfied
himself, with or without consulting with counsel, that the terms and provisions
of this Agreement, specifically including, but not limited to, the restrictive
covenant and related provisions of Section 6 hereof, are reasonable and
enforceable.
J. Return of Materials. Upon the termination or nonrenewal of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, or at any time upon
demand, Executive shall promptly deliver to the Company all Company property and
materials, including without limitation all documents or other materials
constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
K. Company-Created Materials. All material that may be furnished to the
-------------------------
Executive, together with literature, rate schedules, customer lists, forms,
filing systems and any
7
<PAGE>
other property, documents or other materials furnished or made available by the
Company to the Executive, shall be and remain the property of the Company, and
shall be returned by the Executive to the Company upon any termination or
nonrenewal of employment or at any time upon demand.
L. Executive-Created Materials. All material created by the
---------------------------
Executive during the term of his employment with the Company which is incidental
to or related in any way to the Executive's employment, or to the Company's
business, shall be the property of the Company, and shall be delivered to the
Company upon any termination or nonrenewal of Executive's employment or at any
time upon demand. Notwithstanding the foregoing, the Company shall not acquire
any ownership right in and in those works and inventions, and any modifications
thereto made during the Term hereof, shown on Exhibit B hereto.
M. Definitions. For purposes of this Section 6, the term,
-----------
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
7. Conflict of Interest.
--------------------
Executive covenants that, during the Term, he will disclose to the
Company, in writing, any and all interests he may have, whether for profit or
compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than five percent (5%)
of, or $150,000 worth of equity in, another company which conducts business
similar to that undertaken by the Company.
8. Notices.
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, at the following addresses or to such other address as either
party may designate by like notice:
A. If to Executive, to:
SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
B. If to Company, to:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
8
<PAGE>
with a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
---------------------
Company shall indemnify and defend Executive and his heirs, executors
and administrators against any costs or expense (including reasonable attorneys'
fees and amounts paid in settlement, if such settlement is approved by the
Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either: (i) grossly negligent; (ii) reflective of
Executive misconduct; (iii) in violation of rules, regulations or laws
applicable to the Company; or (iv) in disregard of Company policies.
10. Additional Provisions.
---------------------
A. This Agreement, including without limitation its confidentiality,
restrictive covenant and related provisions, shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Executive, his
heirs, executors, administrators and legal representatives, subject to the
provisions of Section 10.F. hereof, which expressly prohibits the assignment or
delegation of any of Executive's personal rights or obligations hereunder.
B. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and cannot be modified orally. This
Agreement supersedes all prior and contemporaneously-made written or oral
agreements between the parties relating to the subject matter hereof. No
modification or waiver of any of the provisions hereof shall be effective unless
set forth in a writing that specifically states that it is intended to be a
modification of this Agreement and that is signed by the President of the
Company.
C. If any provision(s) of this Agreement shall be or shall become
illegal or unenforceable in whole or in part, for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding and subsisting,
and any invalid or unenforceable provision(s) shall be deemed modified to the
least extent possible so as to make them valid and enforceable and so as to give
the maximum effect allowable by law to the parties' original intent as expressed
by the terms hereof.
D. No failure on the part of the Company to exercise, and no delay by
the Company in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof,
9
<PAGE>
nor shall any single or partial exercise by the Company of any right, power or
remedy hereunder, preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy by the Company.
E. "Person" as used herein shall mean a natural person, joint venture,
corporation, partnership, trust, estate, sole proprietorship, governmental
agency or authority or other juridical entity.
F. This is a personal services contract and the rights and obligations
set forth herein may not be assigned or delegated by Executive, except as
otherwise specifically provided in this Agreement with respect to benefits
payable upon Executive's disability or death, without the express, written
consent of the Company.
G. The headings of the several sections of this Agreement have been
inserted for convenience of reference only and shall in no way be used to
restrict, modify, or explain any of the terms or provisions hereof.
H. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard to its, or any
other sovereignty's, conflicts of laws principles. The parties agree that any
claims brought pursuant to this Agreement shall be brought in a court of
competent jurisdiction located in Los Angeles, California.
I. Tolling Period. The non-competition, non-disclosure and non-
--------------
solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6, regardless of whether the Company
knew or should have known of such breach.
J. Company Violation Not a Defense. In an action by the Company to
-------------------------------
enforce any provision of this Agreement, any claims asserted by Executive
against the Company shall not constitute a defense to the Company's action.
K. Construction. This Agreement shall be construed according to the
------------
plain meaning of its terms, and not strictly for or against either party hereto.
L. Release. In consideration of Executive's employment hereafter with
-------
the Company, Executive acknowledges that, except as otherwise disclosed within
the Merger Agreement or any schedule thereto, he has no outstanding claims for
past salary, reimbursements, or benefits of any type whatsoever against SkyNet
or any of its affiliates or subsidiaries, or that if he has such claims, they
are deemed to be waived and released.
M. Counterparts. This Agreement may be executed in counterparts, and
------------
the counterparts, taken together, shall constitute the entire Agreement. The
Agreement may further be executed by facsimile transmission, and the facsimile
signatures may be deemed original
10
<PAGE>
signatures for all purposes, including for purposes of the Best Evidence Rule
and all other rules or doctrines of similar effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
----------------
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING IT,
EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT
WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING THE
AGREEMENT, PRIOR TO SIGNING IT.
EPL RESOURCES (DELAWARE) CORP.
Dated: October 14, 1998 By: /s/ Vincent Marold, President
EMPLOYEE
Dated: October 7, 1998 By: /s/ Vjekoslav Nizic
Signature
By:_________________________________
Print Name
11
<PAGE>
EXHIBIT 10.2
------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 14th day of October, 1998, by and between
EPL Resources (Delaware) Corp., a Delaware corporation (hereinafter "Company"),
and CHRISTIAN J. WEBER, an individual (hereinafter "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, on the date hereof, the Company acquired SkyNet Holdings, Inc.
("SkyNet"), a Nevada corporation, pursuant to the terms of an Agreement and Plan
of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement Executive received certain
shares of the Company's Common Stock (the "Merger Consideration") and Executive
agreed to become employed with the Company upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants of
the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
-------------------
A. The Company hereby employs Executive and Executive hereby accepts
employment by the Company as its Chairman. Executive agrees to serve the Company
in such capacity, subject to the terms and conditions of this Agreement, for a
term, commencing on the date hereof and expiring three years from the date of
this Agreement (the "Term").
2. Duties.
------
A. During the Term, Executive shall use his best efforts to perform all
duties required in furtherance of his position, including without limitation all
such duties as are customarily associated with such position or as are assigned
to him from time to time by the Board of Directors of the Company.
B. Executive shall diligently and faithfully devote his entire time,
energy, skill, and best efforts to the performance of his duties under this
Agreement. Executive shall conduct himself at all times so as to advance the
best interests of the Company, and shall not undertake or engage in any other
business activity or continue or assume any other business affiliations which
conflict or interfere with the performance of his services hereunder without the
prior written consent of the Board of Directors. Executive also agrees that he
shall not usurp or misappropriate, either to himself, or to any other person or
entity, any corporate or other opportunities that would otherwise be available
to the Company.
<PAGE>
3. Compensation.
------------
A. The Company shall pay Executive and Executive shall accept, as his
compensation for all services rendered to the Company pursuant hereto, a base
salary of $200,000 on an annualized basis to be paid in accordance with the
general payroll practices of the Company as from time to time in effect.
Executive shall also be entitled, subject to the terms and conditions of
particular plans and programs, to all fringe benefits afforded to other senior
executives of the Company, including the right to participate in any pension,
retirement, major medical, group health, accident and life insurance and other
employee benefit programs made generally available from time to time, by the
Company.
B. In addition to his base compensation, Executive may be awarded an
annual discretionary bonus on the basis of merit performance in the discretion
of the Company's Board of Directors or Compensation Committee thereof.
C. Executive may also be entitled to participate in any stock option
programs adopted by the Company to the extent determined on a discretionary
basis by the Board of Directors or Compensation Committee thereof.
D. Executive shall be reimbursed for all such reasonable expenses as
are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to the provisions of
the Internal Revenue Code of 1986, as amended, and all rules and regulations
promulgated hereunder.
4. Vacations, Holidays, Sick Days.
------------------------------
A. Executive shall receive four (4) weeks of paid vacation in each
calendar year, to be taken at times which do not unreasonably interfere with the
performance of Executive's duties hereunder and in no event shall Executive
schedule more than ten (10) consecutive days of vacation during any three month
period without the prior written consent of the Board of Directors. Vacation pay
shall be non-cumulative unless otherwise agreed to in writing by the Company's
Board of Directors.
B. Executive shall also be entitled to those holidays and compensated
sick leave days as are allowed for by the policy of the Company.
5. Termination.
-----------
A. Executive's employment and rights to compensation hereunder shall
terminate immediately if Executive voluntarily leaves the employment of the
Company, except that the Company shall have the obligation to pay Executive such
portion of his base salary provided for in Section 3 hereof as may be accrued
but unpaid on the date Executive voluntarily leaves the employment of the
Company. In the event that Executive voluntarily leaves the employment of the
Company, he shall provide at least sixty (60) days' written notice.
2
<PAGE>
B. Executive's employment and rights to compensation hereunder shall
terminate immediately upon the death of Executive or if the Executive is unable,
for reasons of illness, disability or other causes, to carry out or perform the
duties required of him hereunder continuously for three (3) months or
intermittently for an aggregate of one hundred twenty (120) days in a calendar
year during the term of this Agreement; provided, however, that the Company
-------- -------
shall have the obligation to pay Executive such portion of his base salary
provided for in Section 3 hereof as may be accrued but unpaid on the date
Executive dies or the thresholds respecting the Executive's inability to perform
his duties as a result of illness or disability are reached.
C. The Company may, upon written notice to Executive giving the reasons
therefor, terminate Executive's employment and his rights to compensation
hereunder for cause. As used herein, the term "cause" shall mean the following:
conviction of Executive for any felony, fraud, embezzlement or crime of moral
turpitude, except for such conduct relating to corporate activity to the extent
that Executive would be entitled to be indemnified by the Company for charges
arising from such conduct; controlled substance abuse or drug addiction;
alcoholism which interferes with or affects Executive's responsibilities to the
Company or which reflects negatively upon the integrity or reputation of the
Company; gross negligence which is materially injurious to the Company; any
violation of any express written directions or any reasonable written rule or
regulation established by the Company's Board of Directors from time to time,
and consistent with industry standards, regarding the conduct of its business,
which violation has not been cured to the Company's satisfaction within thirty
(30) calendar days of the dispatch of written notice to the Executive of the
violation; or any violation by the Executive of any material term or condition
of this Agreement. If Executive is terminated for cause as provided above,
Executive's employment and rights to compensation hereunder shall terminate
immediately upon receipt of written notice to the effect, except that the
Company shall have the obligation to pay Executive such portion of his base
salary as may be accrued but unpaid on the date his employment is terminated.
D. Executive may be terminated at any time by a determination of the
Board of Directors (a "Board Termination") if the following procedure is
followed: (i) a formal meeting of the Board of Directors must be called upon at
least twenty (20) days' written notice to all directors; (ii) the notice of the
meeting must specify the purpose of the meeting is to consider a Board
Termination; (iii) at the meeting (at which the Executive must abstain from
attendance and participation) a unanimous vote of the Board of Directors
(exclusive of Executive) must conclude that in their discretion (x) the
Company's overall financial and strategic objectives have not been, or are not
being, achieved in accordance with corporate expectations; and (y) the Company's
best interest would be served by a replacement of the Executive. In the event of
a Board Termination, Executive will be provided with a severance package
consisting of a continuation of his full salary and benefits for a period of one
year.
E. Notwithstanding anything herein contained to the contrary, the
Company may terminate this Agreement upon thirty (30) days' written notice to
Executive upon the happening of any of the following events:
(i) the sale by the Company of substantially all of its assets;
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<PAGE>
(ii) a bona fide decision by the Company to terminate its business and
liquidate its assets; or
(iii) the merger or consolidation of the Company in a transaction in which
the shareholders of the Company prior to the transaction receive
less than fifty percent (50%) of the outstanding voting shares of
the new or continuing corporation after the transaction.
If Executive's employment is terminated during the Term by virtue of this
Subsection 5.E., Executive's employment and rights to compensation hereunder
shall terminate immediately upon receipt of written notice to that effect,
except that the Company shall have the obligation to pay Executive such portion
of his base salary as may be accrued but unpaid on the date his employment is
terminated.
F. If Executive's employment is terminated during the Term hereof for
reasons other than those provided in Subsections 5.A., 5.B., 5.C., 5.D. or 5.E.
above, Executive shall be entitled to his regular compensation for the balance
of the Term, consisting of:
(1) payment of one hundred percent (100%) of Executive's monthly
base salary payable at regular intervals in accordance with the Company's normal
payroll practices; and
(2) continuation of health insurance and fringe benefits as set
forth herein through the remainder of the Term.
G. Notwithstanding the provisions of section 6 hereafter:
(i) If Executive's employment is terminated during the Term hereof
for reasons other than those provided by Subsections 5.A., 5.B., 5.C., 5.D. or
5.E. above, the limitations set forth in Section 6 hereafter shall only apply
following the dates of such termination for all such periods during which
Executive continues to receive compensation pursuant to the terms of Subsection
5.F. above; or
(ii) If Executive's employment is terminated during the Term hereof
by virtue of Section 5.D., the limitations set forth in Section 6 hereafter
shall only apply following the date of such termination for the period in which
severance payments are received by Executive.
6. Confidentiality and Related Matters.
-----------------------------------
A. Acknowledgment of Nature and Value of Confidential Information:
--------------------------------------------------------------
Executive recognizes and acknowledges: (a) that in the course of Executive's
employment by the Company it will be necessary for Executive to acquire, in a
fiduciary capacity of trust, information which could include, in whole or in
part, but is not limited to: information
4
<PAGE>
concerning the Company's rate schedules; rate quotations; the names, addresses,
credit terms and nature of services provided by the vendors utilized by the
Company; the names, addresses, credit terms and nature of services provided to
customers of the Company; the identity of the Company's suppliers, sales
representatives, shippers or other entities with whom Executive has come into
contact as a result of his employment with the Company, or which should
otherwise come into his knowledge during the term of this Agreement; the
salaries, skills, education or abilities of the Company's employees; the
Company's sales, sales volume, sales methods and sales proposals; the identities
of the Company's customers and/or prospective customers; the identities of key
purchasing personnel in the employ of customers and prospective customers; the
amounts and/or kinds of customers' purchases from the Company; the Company's
sources of information and supply; the Company's computer programs, system
documentation, special hardware or software, service or product hardware or
software, and related software or hardware development; the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither disclose the Confidential Information to others nor use the
Confidential Information to Executive's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of Company's Business.
-----------------------------------------------------------------
Executive further recognizes and acknowledges that it is essential for the
proper protection of the business of the Company, particularly in view of the
recent acquisition of SkyNet by the Company, that Executive be restrained: (a)
from soliciting or inducing any employee of the Company to leave the employ of
the Company; (b) from hiring or attempting to hire any employee of the Company;
(c) from soliciting the trade of, or trading with, the customers or suppliers of
the Company for any business purpose other than that of the Company; and (d)
from competing against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section
6.F., below.
C. Work Made For Hire. Executive further recognizes and understands
------------------
that Executive's duties at the Company may include the preparation of materials,
including without limitation written or graphic materials, and that any such
materials conceived or written by Executive shall be done as "work made for
hire" as defined and used in the Copyright Act of 1976, 17 U.S.C. (S)(S) 1 et
--
seq. In the event of publication of such materials, Executive understands that
- ---
since the work is a "work made for hire", the Company will solely retain and own
all rights in said materials, including right of copyright.
D. Non-Disclosure of Confidential Information. In recognition and
------------------------------------------
consideration of the recent acquisition of SkyNet by the Company and Executive's
employment, compensation and fringe benefits, the information which the Company
will give Executive
5
<PAGE>
regarding the Company's business, the Executive's introduction to the Company's
customers and prospective customers made in the course of Executive's employment
with the Company, and the carefully-guarded methods of doing business which the
Company utilizes and deems crucial to the successful operation of its business,
Executive agrees to hold and safeguard the Confidential Information in trust and
in a fiduciary capacity for the Company, its successors and assigns. Executive
expressly agrees that he shall not, without the prior written consent of the
Company, misappropriate or disclose or make available to anyone for use outside
the Company's organization at any time, either during Executive's employment
with the Company or subsequent to the termination or nonrenewal of such
employment with the Company, for any reason, including without limitation
termination by the Company for cause or without cause, any of the Confidential
Information, whether or not developed by Executive, except as required by the
Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of Patents. In
--------------------------------------------------------
consideration of the promises set forth herein, Executive agrees to disclose
promptly to the Company, or to such person whom the Company may expressly
designate for this specific purpose (its "Designee"), any and all works,
inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination or nonrenewal of Executive's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of Executive's
employment, and shall be binding upon Executive's successors, assigns,
executors, heirs, administrators or other legal representatives.
F. Negative Covenant. Subject to the provisions of Section 5.G. hereof,
-----------------
Executive covenants and agrees that, for and in consideration of the
compensation deemed hereunder and the Merger Consideration, the sufficiency and
receipt of which is hereby acknowledged, during the term and for a period of two
(2) years following termination of employment, Executive will not, on his own
behalf or as partner, officer, director, employee, consultant, or stockholder
(holding more than ten percent (10%) of the issued and outstanding stock of any
firm or company) of any other business, either directly or indirectly, solicit
customers of the Company, or any affiliates or subsidiaries of the Company or
perform any work, services, or labor for or on behalf of any firm or company
engaged in any business competitive with or similar to the business of the
Company in any state or foreign country where the Company does business.
Accordingly, the Company is granted the right by Executive to apply to any court
of competent jurisdiction for one or more temporary or permanent injunctions
enjoining Executive, his agents and employees, from violating the provisions of
this Agreement and/or from continuing to breach such provisions.
6
<PAGE>
G. No Prior Agreements. Executive represents and warrants that
-------------------
Executive is not a party to or otherwise subject to or bound by the terms of any
contract, agreement or understanding which in any manner would limit or
otherwise affect Executive's ability to perform his obligations hereunder,
including without limitation any contract, agreement or understanding containing
terms and provisions similar in any manner to those contained in this Section 6.
Executive further represents and warrants that his employment with the Company
will not under any circumstances require him to disclose or use any confidential
information belonging to prior employers or other persons or entities, or to
engage in any conduct which may potentially interfere with the contractual,
statutory or common-law rights of such other employers, persons or entities. In
the event that Executive knows or learns of any facts whatsoever which suggest
that such interference might arguably occur as the result of any proposed
actions by either Executive or the Company, Executive expressly promises that he
will immediately bring such facts to the Company's attention.
H. Remedies. In the event of a breach by Executive of any of the terms
--------
of this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement, and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges and agrees that money damages for any breach by him
of any of the provisions of this Agreement may be inadequate to compensate the
Company for the injuries it may suffer as the result of any such breach, and
accordingly that the Company shall be entitled to injunctive relief against
Executive, in addition to money damages, in the event of any such breach by
Executive .
I. Review by Counsel. Executive expressly acknowledges and represents
-----------------
that Executive has been given a full and fair opportunity to review this
Agreement with an attorney of Executive's choice, and that Executive has
satisfied himself, with or without consulting with counsel, that the terms and
provisions of this Agreement, specifically including, but not limited to, the
restrictive covenant and related provisions of Section 6 hereof, are reasonable
and enforceable.
J. Return of Materials. Upon the termination or nonrenewal of
-------------------
Executive's employment with the Company for any reason, including without
limitation termination by the Company for cause or without cause, or at any time
upon demand, Executive shall promptly deliver to the Company all Company
property and materials, including without limitation all documents or other
materials constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
K. Company-Created Materials. All material that may be furnished to the
-------------------------
Executive, together with literature, rate schedules, customer lists, forms,
filing systems and any
7
<PAGE>
other property, documents or other materials furnished or made available by the
Company to the Executive, shall be and remain the property of the Company, and
shall be returned by the Executive to the Company upon any termination or
nonrenewal of employment or at any time upon demand.
L. Executive-Created Materials. All material created by the Executive
---------------------------
during the term of his employment with the Company which is incidental to or
related in any way to the Executive's employment, or to the Company's business,
shall be the property of the Company, and shall be delivered to the Company upon
any termination or nonrenewal of Executive's employment or at any time upon
demand. Notwithstanding the foregoing, the Company shall not acquire any
ownership right in and in those works and inventions, and any modifications
thereto made during the Term hereof, shown on Exhibit B hereto.
M. Definitions. For purposes of this Section 6, the term, "material(s)"
-----------
shall include, but shall not be limited to, data stored in computers, voicemail
or any other electronic, magnetic, or mechanical storage device, any passwords,
codes or keys required to access all or any portion of such material, and the
"Confidential Information" referred to in Section 6.A. hereof.
7. Conflict of Interest.
--------------------
Executive covenants that, during the Term, he will disclose to the
Company, in writing, any and all interests he may have, whether for profit or
compensation or not, in any venture or activity which could potentially
interfere with his ability to perform under this Agreement or create a conflict
of interest for him with the Company. For purposes of this paragraph 7 only,
"conflict of interest" shall mean ownership of greater than five percent (5%)
of, or $150,000 worth of equity in, another company which conducts business
similar to that undertaken by the Company.
8. Notices.
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, at the following addresses or to such other address as either
party may designate by like notice:
A. If to Executive, to:
SkyNet Holdings, Inc.
Stockley Close
West Drayton, England UB7 9BL
B. If to Company, to:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
8
<PAGE>
with a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
9. Basic Indemnification.
---------------------
Company shall indemnify and defend Executive and his heirs, executors
and administrators against any costs or expense (including reasonable attorneys'
fees and amounts paid in settlement, if such settlement is approved by the
Company), fine, penalty, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer,
unless with respect to such matter Executive shall have been adjudicated in any
proceeding not to have acted in good faith or in the reasonable belief that the
action was in the best interests of the Company, or unless such indemnification
is precluded by law, public policy, or in the judgment of the Company's Board of
Directors, such indemnification is being sought as a result of actions of
Executive which were either: (i) grossly negligent; (ii) reflective of
Executive misconduct; (iii) in violation of rules, regulations or laws
applicable to the Company; or (iv) in disregard of Company policies.
10. Additional Provisions.
---------------------
A. This Agreement, including without limitation its confidentiality,
restrictive covenant and related provisions, shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Executive, his
heirs, executors, administrators and legal representatives, subject to the
provisions of Section 10.F. hereof, which expressly prohibits the assignment or
delegation of any of Executive's personal rights or obligations hereunder.
B. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and cannot be modified orally. This
Agreement supersedes all prior and contemporaneously-made written or oral
agreements between the parties relating to the subject matter hereof. No
modification or waiver of any of the provisions hereof shall be effective unless
set forth in a writing that specifically states that it is intended to be a
modification of this Agreement and that is signed by the President of the
Company.
C. If any provision(s) of this Agreement shall be or shall become
illegal or unenforceable in whole or in part, for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding and subsisting,
and any invalid or unenforceable provision(s) shall be deemed modified to the
least extent possible so as to make them valid and enforceable and so as to give
the maximum effect allowable by law to the parties' original intent as expressed
by the terms hereof.
D. No failure on the part of the Company to exercise, and no delay by
the Company in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof,
9
<PAGE>
nor shall any single or partial exercise by the Company of any right, power or
remedy hereunder, preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy by the Company.
E. "Person" as used herein shall mean a natural person, joint venture,
corporation, partnership, trust, estate, sole proprietorship, governmental
agency or authority or other juridical entity.
F. This is a personal services contract and the rights and obligations
set forth herein may not be assigned or delegated by Executive, except as
otherwise specifically provided in this Agreement with respect to benefits
payable upon Executive's disability or death, without the express, written
consent of the Company.
G. The headings of the several sections of this Agreement have been
inserted for convenience of reference only and shall in no way be used to
restrict, modify, or explain any of the terms or provisions hereof.
H. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard to its, or any
other sovereignty's, conflicts of laws principles. The parties agree that any
claims brought pursuant to this Agreement shall be brought in a court of
competent jurisdiction located in Los Angeles, California.
I. Tolling Period. The non-competition, non-disclosure and non-
--------------
solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6, regardless of whether the Company
knew or should have known of such breach.
J. Company Violation Not a Defense. In an action by the Company to
-------------------------------
enforce any provision of this Agreement, any claims asserted by Executive
against the Company shall not constitute a defense to the Company's action.
K. Construction. This Agreement shall be construed according to the
------------
plain meaning of its terms, and not strictly for or against either party hereto.
L. Release. In consideration of Executive's employment hereafter with
-------
the Company, Executive acknowledges that, except as otherwise disclosed within
the Merger Agreement or any schedule thereto, he has no outstanding claims for
past salary, reimbursements, or benefits of any type whatsoever against SkyNet
or any of its affiliates or subsidiaries, or that if he has such claims, they
are deemed to be waived and released.
M. Counterparts. This Agreement may be executed in counterparts, and
------------
the counterparts, taken together, shall constitute the entire Agreement. The
Agreement may further be executed by facsimile transmission, and the facsimile
signatures may be deemed original
10
<PAGE>
signatures for all purposes, including for purposes of the Best Evidence Rule
and all other rules or doctrines of similar effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
----------------
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING IT,
EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT
WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING THE
AGREEMENT, PRIOR TO SIGNING IT.
EPL RESOURCES (DELAWARE) CORP.
Dated: October 14, 1998 By: /s/ Vincent Marold, President
EMPLOYEE
Dated: October 7, 1998 By: /s/ Christian J. Weber
Signature
By: Christian J. Weber
Print Name
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<PAGE>
EXHIBIT 10.3
------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 14th day of October, 1998, by and between
EPL Resources (Delaware) Corp., a Delaware corporation (hereinafter "Company"),
and MARTIN PARAVATO, an individual (hereinafter "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, on the date hereof, the Company acquired SkyNet Holdings, Inc.
("SkyNet"), a Nevada corporation, pursuant to the terms of an Agreement and Plan
of Merger (the "Merger Agreement");
WHEREAS in connection with the Merger Agreement, Executive agreed to become
employed with the Company upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual premises and covenants of
the parties contained within the Merger Agreement and in this Agreement, the
parties hereto, do hereby agree as follows:
1. Employment and Term.
-------------------
A. The Company hereby employs Executive and Executive hereby accepts
employment by the Company as its Chief Financial Officer. Executive agrees to
serve the Company in such capacity, subject to the terms and conditions of this
Agreement, for a term, commencing on the date hereof and expiring one year from
the date of this Agreement (the "Term"). The Term will be subject to automatic
one year extensions if not terminated by the end of the then current year of
employment.
2. Duties.
------
A. During the Term, Executive shall use his best efforts to perform
all duties required in furtherance of his position, including without limitation
all such duties as are customarily associated with such position or as are
assigned to him from time to time by the Board of Directors of the Company.
B. Executive shall diligently and faithfully devote his entire time,
energy, skill, and best efforts to the performance of his duties under this
Agreement. Executive shall conduct himself at all times so as to advance the
best interests of the Company, and shall not undertake or engage in any other
business activity or continue or assume any other business affiliations which
conflict or interfere with the performance of his services hereunder without the
prior written consent of the Board of Directors. Executive also agrees that he
shall not usurp or misappropriate, either to himself, or to any other person or
entity, any corporate or other opportunities that would otherwise be available
to the Company.
<PAGE>
3. Compensation.
------------
A. The Company shall pay Executive and Executive shall accept, as his
base compensation for all services rendered to the Company pursuant hereto, a
salary of $125,000 on an annualized basis to be paid in accordance with the
general payroll practices of the Company as from time to time in effect.
Executive shall also be entitled, subject to the terms and conditions of
particular plans and programs, to all fringe benefits afforded to other senior
executives of the Company, including the right to participate in any pension,
retirement, major medical, group health, accident and life insurance and other
employee benefit programs made generally available from time to time, by the
Company.
B. In addition to his base compensation, Executive shall receive a
mandatory bonus (payable on January 1, 1999) of $25,000 if the audited SkyNet
financial statements are completed by November 15, 1998 and such audited
financial statements are not subject to adverse audit adjustments of more than
ten percent (10%) with respect to the revenues, net income (loss) or
shareholders' equity from the corresponding period of the unaudited financial
statements provided to the Company at Schedule 4.1(e) to the Merger Agreement
and such adverse adjustment exceeds $100,000.
C. In addition to his base compensation and the mandatory bonus
described in Paragraph 3B above, Executive may be awarded an annual
discretionary bonus on the basis of merit performance in the discretion of the
Company's Board of Directors or Compensation Committee thereof.
D. Executive may also be entitled to participate in any stock option
programs adopted by the Company to the extent determined on a discretionary
basis by the Board of Directors or Compensation Committee thereof.
E. Executive shall be reimbursed for all such reasonable expenses as
are directly incurred for the business of the Company upon presentation by
Executive of an itemized account of such expenditures, but only to the extent
that such expenses are deductible to the Company pursuant to the provisions of
the Internal Revenue Code of 1986, as amended, and all rules and regulations
promulgated thereunder.
4. Vacations, Holidays, Sick Days.
------------------------------
A. Executive shall receive three (3) weeks of paid vacation in each
calendar year, to be taken at times which do not unreasonably interfere with the
performance of the Executive's duties hereunder and in no event shall Executive
schedule more than ten (10) consecutive days of vacation during any three month
period without the prior written consent of the Chief Executive Officer of the
Company. Vacation pay shall be non-cumulative unless otherwise agreed to in
writing by the Company's Board of Directors.
B. Executive shall be also entitled to those holidays and compensated
sick leave days as are allowed for by the policy of the Company.
2
<PAGE>
5. Termination.
-----------
A. Executive's employment and rights to compensation hereunder shall
terminate immediately if Executive voluntarily leaves the employment of the
Company, except that the Company shall have the obligation to pay Executive such
portion of his base salary and other benefits provided for in Section 3 hereof
as may be accrued but unpaid on the date Executive voluntarily leaves the
employment of the Company. In the event that Executive voluntarily leaves the
employment of the Company, he shall provide at least sixty (60) days' written
notice.
B. Executive's employment and rights to compensation hereunder shall
terminate immediately upon the death of Executive. If the Executive is unable,
for reasons of illness, disability or other causes, to carry out or perform the
duties required of him hereunder continuously for three (3) months or
intermittently for an aggregate of one hundred twenty (120) days in a calendar
year during the term of this Agreement; Executive's employment and rights to
compensation shall terminate on the first day after the conclusion of such time
period. Notwithstanding the foregoing, the Company shall have the obligation to
pay Executive such portion of his base salary and other benefits provided for in
Section 3 hereof as may be accrued but unpaid on the date Executive dies or the
thresholds respecting the Executive's inability to perform his duties as a
result of illness or disability are reached.
C. The Company may, upon written notice to Executive giving the
reasons therefor, terminate Executive's employment and his rights to
compensation hereunder for cause. As used herein, the term "cause" shall mean
the following: conviction of Executive for any felony, fraud, embezzlement or
crime of moral turpitude, except for such conduct relating to corporate activity
to the extent that Executive would be entitled to be indemnified by the Company
for charges arising from such conduct; controlled substance abuse or drug
addiction; alcoholism which interferes with or affects Executive's
responsibilities to the Company or which reflects negatively upon the integrity
or reputation of the Company; gross negligence which is materially injurious to
the Company; any violation of any express written directions or any reasonable
written rule or regulation established by the Company's Board of Directors from
time to time, and consistent with industry standards, regarding the conduct of
its business, which violation has not been cured to the Company's satisfaction
within thirty (30) calendar days of the dispatch of written notice to the
Executive of the violation; or any violation by the Executive of any material
term or condition of this Agreement. If Executive is terminated for cause as
provided above, Executive's employment and rights to compensation hereunder
shall terminate immediately upon receipt of written notice, except that the
Company shall have the obligation to pay Executive such portion of his base
salary as may be accrued but unpaid on the date his employment is terminated.
D. Notwithstanding anything herein contained to the contrary, the
Company may terminate this Agreement upon sixty (60) days' written notice to
Executive upon the happening of any of the following events:
3
<PAGE>
a) the sale by the Company of substantially all of its assets;
b) a bona fide decision by the Company to terminate its business and
liquidate its assets; or
c) the merger or consolidation of the Company in a transaction in which
the shareholders of the Company's prior to such transaction receive
less than fifty percent (50%) of the outstanding voting shares of the
new or continuing corporation after the transaction.
If Executive's employment is terminated during the Term by virtue of this
Subsection 5.D., Executive shall be entitled to his regular compensation for the
sixty (60) day period following the date notice is given by the Company under
this Section 5.D and thereafter, Executive's employment and rights to
compensation hereunder shall terminate.
E. If Executive's employment is terminated during the Term hereof for
reasons other than those provided in Subsections 5.A., 5.B., 5.C. and 5.D.
above, Executive shall be entitled to his regular compensation for the balance
of the Term, consisting of:
(1) payment of one hundred percent (100%) of Executive's monthly
base salary payable at regular intervals in accordance with the Company's normal
payroll practices; and
(2) continuation of health insurance and fringe benefits as set
forth herein through the remainder of the Term.
F. Notwithstanding the limitations of Section 6 hereof, if Executive's
employment is terminated during the Term hereof for reasons other than those
provided by Subsections 5.A, 5.B, 5.C. or 5.D. above, the limitations set forth
in Section 6 hereafter shall only apply following the date of such termination
for all such periods during which Executive continues to receive compensation
pursuant to the terms of Subsection 5.E. or 5.G. herein.
G. If Executive's term of employment is not renewed beyond the first
year of employment (not as a result of either of Subsections 5.A., 5.B., 5.C. or
5.D.), Executive shall be entitled to receive as severance, salary continuation
of base compensation plus benefits, for a period of the longer of: (i) six (6)
months from the date Executive is notified of the non-renewal of his Employment
term; or (ii) the otherwise scheduled expiration of Executive's then current
term of employment.
6. Confidentiality and Related Matters.
-----------------------------------
A. Acknowledgment of Nature and Value of Confidential Information:
--------------------------------------------------------------
Executive recognizes and acknowledges: (a) that in the course of Executive's
employment by the Company it will be necessary for Executive to acquire, in a
fiduciary capacity of trust, information which could include, in whole or in
part, but is not limited to: information
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<PAGE>
concerning the Company's rate schedules; rate quotations; the names, addresses,
credit terms and nature of services provided by the vendors utilized by the
Company; the names, addresses, credit terms and nature of services provided to
customers of the Company; the identity of the Company's suppliers, sales
representatives, shippers or other entities with whom Executive has come into
contact as a result of his employment with the Company, or which should
otherwise come into his knowledge during the term of this Agreement; the
salaries, skills, education or abilities of the Company's employees; the
Company's sales, sales volume, sales methods and sales proposals; the identities
of the Company's customers and/or prospective customers; the identities of key
purchasing personnel in the employ of customers and prospective customers; the
amounts and/or kinds of customers' purchases from the Company; the Company's
sources of information and supply; the Company's computer programs, system
documentation, special hardware or software, service or product hardware or
software, and related software or hardware development; the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other information or materials relating to the Company's affairs
(collectively referred to herein as the "Confidential Information"); (b) that
the Confidential Information is the property of the Company and constitutes a
major asset of the Company; (c) that the use, misappropriation or disclosure of
the Confidential Information would constitute a breach of trust and could cause
irreparable injury to the Company; and (d) that it is essential to the
protection of the Company's goodwill and to the maintenance of the Company's
competitive position that the Confidential Information be kept secret and that
Executive neither disclose the Confidential Information to others nor use the
Confidential Information to Executive's own advantage or to the advantage of
others.
B. Acknowledgment of Necessity for Protections of Company's Business.
-----------------------------------------------------------------
Executive further recognizes and acknowledges that it is essential for the
proper protection of the business of the Company, particularly in view of the
recent acquisition of SkyNet by the Company, that Executive be restrained: (a)
from soliciting or inducing any employee of the Company to leave the employ of
the Company; (b) from hiring or attempting to hire any employee of the Company;
(c) from soliciting the trade of, or trading with, the customers or suppliers of
the Company for any business purpose other than that of the Company; and (d)
from competing against the Company for a reasonable period of time and within a
reasonable geographic area following the termination or nonrenewal of
Executive's employment with the Company, as more fully addressed in Section
6.F., below.
C. Work Made For Hire. Executive further recognizes and understands that
------------------
Executive's duties at the Company may include the preparation of materials,
including without limitation written or graphic materials, and that any such
materials conceived or written by Executive shall be done as "work made for
hire" as defined and used in the Copyright Act of 1976, 17 U.S.C. (S)(S) 1 et
--
seq. In the event of publication of such materials, Executive understands that
- ---
since the work is a "work made for hire", the Company will solely retain and own
all rights in said materials, including right of copyright.
D. Non-Disclosure of Confidential Information. In recognition and
------------------------------------------
consideration of the recent acquisition of SkyNet by the Company and Executive's
employment, compensation and fringe benefits, the information which the Company
will give Executive
5
<PAGE>
regarding the Company's business, the Executive's introduction to the Company's
customers and prospective customers made in the course of Executive's employment
with the Company, and the carefully-guarded methods of doing business which the
Company utilizes and deems crucial to the successful operation of its business,
Executive agrees to hold and safeguard the Confidential Information in trust and
in a fiduciary capacity for the Company, its successors and assigns. Executive
expressly agrees that he shall not, without the prior written consent of the
Company, misappropriate or disclose or make available to anyone for use outside
the Company's organization at any time, either during Executive's employment
with the Company or subsequent to the termination or nonrenewal of such
employment with the Company, for any reason, including without limitation
termination by the Company for cause or without cause, any of the Confidential
Information, whether or not developed by Executive, except as required by the
Company in the performance of Executive's duties to the Company.
E. Disclosure of Works and Inventions/Assignment of Patents. In
--------------------------------------------------------
consideration of the promises set forth herein, Executive agrees to disclose
promptly to the Company, or to such person whom the Company may expressly
designate for this specific purpose (its "Designee"), any and all works,
inventions, discoveries and improvements authored, conceived or made by
Executive during the period of employment and related to the business or
activities of the Company, and Executive hereby assigns and agrees to assign all
of Executive's interest in the foregoing to the Company or to its Designee.
Executive agrees that, whenever he is requested to do so by the Company,
Executive shall execute any and all applications, assignments or other
instruments which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination or nonrenewal of Executive's employment with
respect to any works, inventions, discoveries and/or improvements that are
authored, conceived of, or made by Executive during the period of Executive's
employment, and shall be binding upon Executive's successors, assigns,
executors, heirs, administrators or other legal representatives.
F. Negative Covenant. Executive covenants and agrees that, for and in
-----------------
consideration of the compensation deemed hereunder, the sufficiency and receipt
of which is hereby acknowledged, during the Term and for a period of one (1)
year following termination of employment, Executive will not, on his own behalf
or as partner, officer, director, employee, consultant, or stockholder (holding
more than ten percent (10%) of the issued and outstanding stock of any firm or
company) of any other business, either directly or indirectly, solicit customers
of the Company, or any affiliates or subsidiaries of the Company. Furthermore,
the Company is granted the right by Executive to apply to any court of competent
jurisdiction for one or more temporary or permanent injunctions enjoining
Executive, his agents and employees, from violating the provisions of this
Agreement and/or from continuing to breach such provisions.
G. No Prior Agreements. Executive represents and warrants that Executive
-------------------
is not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
Executive's ability to perform his obligations hereunder, including without
limitation any contract, agreement or understanding
6
<PAGE>
containing terms and provisions similar in any manner to those contained in this
Section 6. Executive further represents and warrants that his employment with
the Company will not under any circumstances require him to disclose or use any
confidential information belonging to prior employers or other persons or
entities, or to engage in any conduct which may potentially interfere with the
contractual, statutory or common-law rights of such other employers, persons or
entities. In the event that Executive knows or learns of any facts whatsoever
which suggest that such interference might arguably occur as the result of any
proposed actions by either Executive or the Company, Executive expressly
promises that he will immediately bring such facts to the Company's attention.
H. Remedies. In the event of a breach by Executive of any of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to (i)
mandatory arbitration or (ii) institute legal proceedings to obtain damages for
any such breach, or to enforce the specific performance of this Agreement by
Executive and to enjoin Executive from any further violation of this Agreement,
and to exercise such remedies cumulatively or in conjunction with all other
rights and remedies provided by law. Executive acknowledges and agrees that
money damages for any breach by him of any of the provisions of this Agreement
may be inadequate to compensate the Company for the injuries it may suffer as
the result of any such breach, and accordingly that the Company shall be
entitled to injunctive relief against Executive, in addition to money damages,
in the event of any such breach by Executive.
I. Review by Counsel. Executive expressly acknowledges and represents that
-----------------
Executive has been given a full and fair opportunity to review this Agreement
with an attorney of Executive's choice, and that Executive has satisfied
himself, with or without consulting with counsel, that the terms and provisions
of this Agreement, specifically including, but not limited to, the restrictive
covenant and related provisions of Section 6 hereof, are reasonable and
enforceable.
J. Return of Materials. Upon the termination or nonrenewal of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, or at any time upon
demand, Executive shall promptly deliver to the Company all Company property and
materials, including without limitation all documents or other materials
constituting, containing, referencing or relating to the "Confidential
Information" referred to in this Section 6, and any other Company property of
any nature whatsoever, including without limitation correspondence, computer
disks or other electronically-stored information, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers, or concerning services, products
or processes provided by or to, or used by, the Company.
K. Company-Created Materials. All material that may be furnished to the
-------------------------
Executive, together with literature, rate schedules, customer lists, forms,
filing systems and any other property, documents or other materials furnished or
made available by the Company to the Executive, shall be and remain the property
of the Company, and shall be returned by the Executive to the Company upon any
termination or nonrenewal of employment or at any time upon demand.
7
<PAGE>
L. Executive-Created Materials. All material created by the Executive
---------------------------
during the term of his employment with the Company which is incidental to or
related in any way to the Executive's employment, or to the Company's business,
shall be the property of the Company, and shall be delivered to the Company upon
any termination or nonrenewal of Executive's employment or at any time upon
demand.
M. Definitions. For purposes of this Section 6, the term,
-----------
"material(s)" shall include, but shall not be limited to, data stored in
computers, voicemail or any other electronic, magnetic, or mechanical storage
device, any passwords, codes or keys required to access all or any portion of
such material, and the "Confidential Information" referred to in Section 6.A.
hereof.
7. Conflict of Interest.
--------------------
Executive covenants that, during the Term, he will disclose to the
Company, in writing, any and all interests he may have, whether for profit or
compensation or not, in any venture or activity which he reasonably anticipates
could potentially interfere with his ability to perform under this Agreement or
create a conflict of interest for him with the Company. For purposes of this
paragraph 7 only, "conflict of interest" shall mean ownership of greater than
five percent (5%) of, or $150,000 worth of equity in, another company which
conducts business similar to that undertaken by the Company.
8. Notices.
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, at the following addresses or to such other address as either
party may designate by like notice:
A. If to Executive, to:
SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
B. If to Company, to:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
With a copy to:
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pa. 19103
Attn.: Stephen M. Cohen, Esquire
8
<PAGE>
9. Basic Indemnification.
---------------------
Company shall indemnify and defend Executive and his heirs, executors
and administrators against any costs or expense (including reasonable attorneys'
fees and amounts paid in settlement, if such settlement is approved by the
Company), fine, penalty, award, judgment and liability reasonably incurred by or
imposed upon Executive in connection with any action, suit or proceeding, civil
or criminal, to which Executive may be made a party or with which Executive
shall be threatened, by reason of Executive's being or having been an Officer or
employee to the fullest extent permitted by the Certificate of Incorporation of
the Company.
10. Additional Provisions.
---------------------
A. This Agreement, including without limitation its confidentiality,
restrictive covenant and related provisions, shall inure to the benefit of, and
be binding upon, the Company and its successors and assigns and Executive, his
heirs, executors, administrators and legal representatives, subject to the
provisions of Section 10.F. hereof, which expressly prohibits the assignment or
delegation of any of Executive's personal rights or obligations hereunder.
B. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and cannot be modified orally. This
Agreement supersedes all prior and contemporaneously-made written or oral
agreements between the parties relating to the subject matter hereof. No
modification or waiver of any of the provisions hereof shall be effective unless
set forth in a writing that specifically states that it is intended to be a
modification of this Agreement and that is signed by the President of the
Company.
C. If any provision(s) of this Agreement shall be or shall become
illegal or unenforceable in whole or in part, for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding and subsisting,
and any invalid or unenforceable provision(s) shall be deemed modified to the
least extent possible so as to make them valid and enforceable and so as to give
the maximum effect allowable by law to the parties' original intent as expressed
by the terms hereof.
D. No failure on the part of the Company to exercise, and no delay by
the Company in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise by the Company of any
right, power or remedy hereunder, preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy by the Company.
E. "Person" as used herein shall mean a natural person, joint venture,
corporation, partnership, trust, estate, sole proprietorship, governmental
agency or authority or other juridical entity.
F. This is a personal services contract and the rights and obligations
set forth herein may not be assigned or delegated by Executive, except as
otherwise specifically provided in this Agreement with respect to benefits
payable upon Executive's disability or death, without the express, written
consent of the Company.
9
<PAGE>
G. The headings of the several sections of this Agreement have been
inserted for convenience of reference only and shall in no way be used to
restrict, modify, or explain any of the terms or provisions hereof.
H. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard to its, or any
other sovereignty's, conflicts of laws principles. The parties agree that any
claims brought pursuant to this Agreement shall be brought in a court of
competent jurisdiction located in Los Angeles, California.
I. Tolling Period. The non-competition, non-disclosure and non-
--------------
solicitation obligations contained in Section 6 of this Agreement shall be
extended by the length of time during which Executive shall have been in breach
of any of the provisions of such Section 6, regardless of whether the Company
knew or should have known of such breach.
J. Company Violation Not a Defense. In an action by the Company to
-------------------------------
enforce any provision of this Agreement, any claims asserted by Executive
against the Company shall not constitute a defense to the Company's action.
K. Construction. This Agreement shall be construed according to the
------------
plain meaning of its terms, and not strictly for or against either party hereto.
L. Release. In consideration of Executive's employment hereafter with
-------
the Company, Executive acknowledges that he has no outstanding claims for past
salary, reimbursements, or benefits of any type whatsoever against SkyNet or any
of its affiliates or subsidiaries, or that if he has such claims, they are
deemed to be waived and released.
M. Counterparts. This Agreement may be executed in counterparts, and
------------
the counterparts, taken together, shall constitute the entire Agreement. The
Agreement may further be executed by facsimile transmission, and the facsimile
signatures may be deemed original signatures for all purposes, including for
purposes of the Best Evidence Rule and all other rules or doctrines of similar
effect.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
IMPORTANT NOTICE: THIS AGREEMENT RESTRICTS EXECUTIVE'S RIGHTS TO OBTAIN
----------------
OTHER EMPLOYMENT FOLLOWING HIS EMPLOYMENT WITH THE COMPANY. BY SIGNING IT,
EXECUTIVE ACKNOWLEDGES THIS FACT, AND FURTHER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO READ THE AGREEMENT CAREFULLY, AND/OR TO CONSULT
WITH COUNSEL OF HIS CHOICE CONCERNING THE LEGAL EFFECTS OF SIGNING THE
AGREEMENT, PRIOR TO SIGNING IT.
EPL RESOURCES (DELAWARE) CORP.
Dated: October 14, 1998 By: /s/ Vincent Marold, President
EMPLOYEE
Dated: October 14, 1998 By: /s/ Martin G. Paravato
Signature
By: Martin G. Paravato
Print Name
11
<PAGE>
EXHIBIT 10.4
------------
Certificate No. 1998-1
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
EPL RESOURCES (DELAWARE) CORP.
Void after October 13, 2003
This certifies that, for value received, Vjekoslav Nizic ("Holder"), is
entitled, subject to the terms set forth below, to purchase from EPL Resources
(Delaware) Corp. (the "Company"), a Delaware corporation, shares of the Common
Stock of the Company (the "Shares"), as constituted on the date hereof (the
"Option Issue Date"), with the Notice of Exercise attached hereto duly executed,
and simultaneous payment therefor in lawful money of the United States, at the
Exercise Price as set forth in Section 2 below. The number, character and
Exercise Price of the shares are subject to adjustment as provided below.
1. TERM OF OPTION. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on October 13, 2003, and shall be void thereafter.
2. EXERCISE PRICE, NUMBER OF SHARES AND VESTING PROVISIONS.
2.1 EXERCISE PRICE. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be fixed at $3.00 per share, subject,
however, to adjustment pursuant to Section 11 hereof.
2.2 NUMBER OF SHARES. The number of shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") which may be purchased
pursuant to this Option shall be 700,000 shares, subject, however, to adjustment
pursuant to Section 11 hereof.
2.3 VESTING. This Option shall vest and become exercisable in full
on October 14, 2000.
3. EXERCISE OF OPTION.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check; or by cashless exercise through: (i) the delivery by the Holder
to the Company of shares of the Company's Common Stock for which Holder is the
record and beneficial owner, which have
<PAGE>
been held for at least six (6) months, or (ii) by delivering to the Company a
notice of exercise together with an irrevocable direction to a broker-dealer
registered under the Securities Exchange Act of 1934, to sell a sufficient
portion of the Shares and deliver the sales proceeds directly to the Company to
pay the Exercise Price; or (iii) by any combination thereof. If shares of common
stock of the Company are tendered as payment of the Exercise Price, the value of
such shares shall be their "market value" as of the trading date immediately
preceding the date of exercise. The "market value" shall be:
(1) If the Company's common stock is traded in the
over-the-counter market and not on any national securities exchange nor in the
NASDAQ Reporting System, the market value shall be the average of the mean
between the last bid and ask prices per share, as reported by the National
Quotation Bureau, Inc., or an equivalent generally accepted reporting service,
or if not so reported, the average of the closing bid and asked prices for a
share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose.
(2) If the Company's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market value shall be
either (X) the simple average of the high and low prices at which a share of the
Company's common stock traded, as quoted on the NASDAQ Reporting System or its
other principal exchange, or (Y) the price of the last sale of a share of common
stock as similarly quoted, whichever is higher, and rounding out such figure to
the next higher multiple of 12.5 cents (unless the figure is already a multiple
of 12.5 cents).
If such tender would result in an issuance of a whole number of shares and a
fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
(b) The purchase rights represented by this Option are exercisable by
the Holder in whole or in part, at any time, or from time to time, by the
surrender of this Option and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
2
<PAGE>
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. REPLACEMENT OF OPTION. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Option, the Company at its
expense shall execute and deliver, in lieu of this Option, a new Option of like
tenor and amount.
6. RIGHTS OF STOCKHOLDER. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. TRANSFER OF OPTION.
7.1. NON-TRANSFERABILITY. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. EXCHANGE OF OPTION UPON A TRANSFER. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. COMPLIANCE WITH SECURITIES LAWS; RESTRICTIONS ON TRANSFERS.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such
3
<PAGE>
shares are subject to resale pursuant to an effective prospectus), and that the
Holder will not offer, sell or otherwise dispose of this Option or any Shares to
be issued upon exercise hereof except under circumstances that will not result
in a violation of applicable federal and state securities laws. Upon exercise of
this Option, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment (unless such shares are subject to
resale pursuant to an effective prospectus), and not with a view toward
distribution or resale.
(b) Neither this Option nor any share of Common Stock issued upon
exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the Common
Stock involves a high degree of risk, and Holder is in a financial position to
hold the Option and the Common Stock indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Option and
the Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and has had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from the management of
the Company (and any person acting on its behalf) concerning the Option and the
Common Stock and the agreements and transactions contemplated hereby, and to
obtain any additional information as Holder may have requested in making its
investment decision.
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(e) Holder acknowledges and represents: (i) that he has been afforded
the opportunity to review and is familiar with the business prospects and
finances of the Company and has based his decision to invest solely on the
information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the over-
the-counter market, and that the Company has made no representations,
warranties, or assurances as to the future trading value of the Common Stock,
whether a public market will develop for the resale of the Common Stock, or if
developed whether it will continue.
8. RESERVATION AND ISSUANCE OF STOCK; PAYMENT OF TAXES.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
(c) Upon exercise of the Option, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for shares of Company Common Stock purchased pursuant to the
Option, if in the opinion of counsel to the Company such withholding is required
under applicable tax laws.
(d) An Optionee who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding requirements may pay
such amount (i) in cash; (ii)
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<PAGE>
in the discretion of the Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the tax obligation provided that the previously owned shares delivered
in satisfaction of the withholding obligations must have been held by the
Optionee for at least six (6) months; (iii) in the discretion of the
Administrator, through the withholding of shares of Common Stock otherwise
issuable to the Optionee in connection with the Option exercise; or (iv) in the
discretion of the Administrator, through a combination of the procedures set
forth in subsections (i), (ii) and (iii) of this Paragraph 8(d).
9. NOTICES.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first-
class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. AMENDMENTS.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
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(b) No waivers of, or exceptions to, any term, condition or provision
of this Option, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time while
this Option, or any portion thereof, is outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. RECLASSIFICATION. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
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<PAGE>
11.3. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holder of this Option against impairment.
12. SEVERABILITY. Whenever possible, each provision of this Option shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. GOVERNING LAW. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity, interpretation and enforceability of this Option and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
14. JURISDICTION. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts of California.
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<PAGE>
Service of process on the Company or the Holder in any action arising out of or
relating to this Option shall be effective if mailed to such party at the
address listed in Section 9 hereof.
15. ARBITRATION. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel
and shall be impartial. The arbitration shall take place in Los Angeles
California. The decision of a majority of the Arbitrators shall be conclusively
binding upon the parties and final, and such decision shall be enforceable as a
judgment in any court of competent jurisdiction. Each party shall pay the fees
and expenses of the arbitrator appointed by it, its counsel and its witnesses.
The parties shall share equally the fees and expenses of the impartial
arbitrator.
16. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
17. SUCCESSORS AND ASSIGNS. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
18. COUNTERPARTS. This Option may be executed in two or more counterparts
and delivered via facsimile, each of which shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Dated: October 14, 1998
EPL RESOURCES (DELAWARE) CORP.
BY: /s/ Vincent Marold
-------------------
Vincent Marold, President
Accepted and Acknowledged
/s/ Vjekoslav Nizic
- -------------------
Vjekoslav Nizic
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<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of EPL RESOURCES (DELAWARE) CORP. pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full in the following manner (please check one of the following choices):
[ ] In Cash
[ ] Cashless exercise through a broker; or
[ ] Delivery of previously owned Shares.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
_________________________ ___________________________________
(Date) (Signature)
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EXHIBIT 10.5
------------
Certificate No. 1998-2
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
EPL RESOURCES (DELAWARE) CORP.
Void after October 13, 2003
This certifies that, for value received, Christian J. Weber ("Holder"), is
entitled, subject to the terms set forth below, to purchase from EPL Resources
(Delaware) Corp. (the "Company"), a Delaware corporation, shares of the Common
Stock of the Company (the "Shares"), as constituted on the date hereof (the
"Option Issue Date"), with the Notice of Exercise attached hereto duly executed,
and simultaneous payment therefor in lawful money of the United States, at the
Exercise Price as set forth in Section 2 below. The number, character and
Exercise Price of the shares are subject to adjustment as provided below.
1. TERM OF OPTION. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on October __, 2003, and shall be void thereafter.
2. EXERCISE PRICE, NUMBER OF SHARES AND VESTING PROVISIONS.
2.1 EXERCISE PRICE. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be fixed at $3.00 per share, subject,
however, to adjustment pursuant to Section 11 hereof.
2.2 NUMBER OF SHARES. The number of shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") which may be purchased
pursuant to this Option shall be 700,000 shares, subject, however, to adjustment
pursuant to Section 11 hereof.
2.3 VESTING. This Option shall vest and become exercisable in full
on October 14, 2000.
3. EXERCISE OF OPTION.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check; or by cashless exercise through: (i) the delivery by the Holder
to the Company of shares of the Company's Common Stock for which Holder is the
record and beneficial owner, which have
<PAGE>
been held for at least six (6) months, or (ii) by delivering to the Company a
notice of exercise together with an irrevocable direction to a broker-dealer
registered under the Securities Exchange Act of 1934, to sell a sufficient
portion of the Shares and deliver the sales proceeds directly to the Company to
pay the Exercise Price; or (iii) by any combination thereof. If shares of common
stock of the Company are tendered as payment of the Exercise Price, the value of
such shares shall be their "market value" as of the trading date immediately
preceding the date of exercise. The "market value" shall be:
(1) If the Company's common stock is traded in the
over-the-counter market and not on any national securities exchange nor in the
NASDAQ Reporting System, the market value shall be the average of the mean
between the last bid and ask prices per share, as reported by the National
Quotation Bureau, Inc., or an equivalent generally accepted reporting service,
or if not so reported, the average of the closing bid and asked prices for a
share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose.
(2) If the Company's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market value shall be
either (X) the simple average of the high and low prices at which a share of the
Company's common stock traded, as quoted on the NASDAQ Reporting System or its
other principal exchange, or (Y) the price of the last sale of a share of common
stock as similarly quoted, whichever is higher, and rounding out such figure to
the next higher multiple of 12.5 cents (unless the figure is already a multiple
of 12.5 cents).
If such tender would result in an issuance of a whole number of shares and a
fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
(b) The purchase rights represented by this Option are exercisable by
the Holder in whole or in part, at any time, or from time to time, by the
surrender of this Option and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
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<PAGE>
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. REPLACEMENT OF OPTION. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Option, the Company at its
expense shall execute and deliver, in lieu of this Option, a new Option of like
tenor and amount.
6. RIGHTS OF STOCKHOLDER. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. TRANSFER OF OPTION.
7.1. NON-TRANSFERABILITY. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. EXCHANGE OF OPTION UPON A TRANSFER. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. COMPLIANCE WITH SECURITIES LAWS; RESTRICTIONS ON TRANSFERS.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such
3
<PAGE>
shares are subject to resale pursuant to an effective prospectus), and that the
Holder will not offer, sell or otherwise dispose of this Option or any Shares to
be issued upon exercise hereof except under circumstances that will not result
in a violation of applicable federal and state securities laws. Upon exercise of
this Option, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment (unless such shares are subject to
resale pursuant to an effective prospectus), and not with a view toward
distribution or resale.
(b) Neither this Option nor any share of Common Stock issued upon
exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the Common
Stock involves a high degree of risk, and Holder is in a financial position to
hold the Option and the Common Stock indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Option and
the Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and has had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from the management of
the Company (and any person acting on its behalf) concerning the Option and the
Common Stock and the agreements and transactions contemplated hereby, and to
obtain any additional information as Holder may have requested in making its
investment decision.
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<PAGE>
(e) Holder acknowledges and represents: (i) that he has been afforded
the opportunity to review and is familiar with the business prospects and
finances of the Company and has based his decision to invest solely on the
information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the over-
the-counter market, and that the Company has made no representations,
warranties, or assurances as to the future trading value of the Common Stock,
whether a public market will develop for the resale of the Common Stock, or if
developed whether it will continue.
8. RESERVATION AND ISSUANCE OF STOCK; PAYMENT OF TAXES.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
(c) Upon exercise of the Option, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for shares of Company Common Stock purchased pursuant to the
Option, if in the opinion of counsel to the Company such withholding is required
under applicable tax laws.
(d) An Optionee who is obligated to pay the Company an amount required
to be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii)
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<PAGE>
in the discretion of the Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the tax obligation provided that the previously owned shares delivered
in satisfaction of the withholding obligations must have been held by the
Optionee for at least six (6) months; (iii) in the discretion of the
Administrator, through the withholding of shares of Common Stock otherwise
issuable to the Optionee in connection with the Option exercise; or (iv) in the
discretion of the Administrator, through a combination of the procedures set
forth in subsections (i), (ii) and (iii) of this Paragraph 8(d).
9. NOTICES.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first-
class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. AMENDMENTS.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
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(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time while
this Option, or any portion thereof, is outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. RECLASSIFICATION. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
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11.3. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holder of this Option against impairment.
12. SEVERABILITY. Whenever possible, each provision of this Option shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. GOVERNING LAW. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity, interpretation and enforceability of this Option and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
14. JURISDICTION. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts of California.
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Service of process on the Company or the Holder in any action arising out of or
relating to this Option shall be effective if mailed to such party at the
address listed in Section 9 hereof.
15. ARBITRATION. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel
and shall be impartial. The arbitration shall take place in Los Angeles
California. The decision of a majority of the Arbitrators shall be conclusively
binding upon the parties and final, and such decision shall be enforceable as a
judgment in any court of competent jurisdiction. Each party shall pay the fees
and expenses of the arbitrator appointed by it, its counsel and its witnesses.
The parties shall share equally the fees and expenses of the impartial
arbitrator.
16. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
17. SUCCESSORS AND ASSIGNS. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
18. COUNTERPARTS. This Option may be executed in two or more counterparts
and delivered via facsimile, each of which shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Dated: October 14, 1998
EPL RESOURCES (DELAWARE) CORP.
BY: /s/ Vincent Marold
Vincent Marold, President
Accepted and Acknowledged
/s/ Christian J. Weber
Christian J. Weber
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<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of EPL RESOURCES (DELAWARE) CORP. pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full in the following manner (please check one of the following choices):
[ ] In Cash
[ ] Cashless exercise through a broker; or
[ ] Delivery of previously owned Shares.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
____________________________ ___________________________________
(Date) (Signature)
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EXHIBIT 10.6
------------
Certificate No. 1998-3
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
EPL RESOURCES (DELAWARE) CORP.
Void after October 13, 2003
This certifies that, for value received, Synergy Group International, Inc.
("Holder"), is entitled, subject to the terms set forth below, to purchase from
EPL Resources (Delaware) Corp. (the "Company"), a Delaware corporation, shares
of the Common Stock of the Company (the "Shares"), as constituted on the date
hereof (the "Option Issue Date"), with the Notice of Exercise attached hereto
duly executed, and simultaneous payment therefor in lawful money of the United
States, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of the shares are subject to adjustment as provided
below.
1. TERM OF OPTION. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on October 13, 2003, and shall be void thereafter.
2. EXERCISE PRICE, NUMBER OF SHARES AND VESTING PROVISIONS.
2.1 EXERCISE PRICE. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be fixed at $3.00 per share, subject,
however, to adjustment pursuant to Section 11 hereof.
2.2 NUMBER OF SHARES. The number of shares of the Company's Common
Stock, $.001 par value per share ("Common Stock") which may be purchased
pursuant to this Option shall be 400,000 shares, subject, however, to adjustment
pursuant to Section 11 hereof.
2.3 VESTING. This Option shall vest in accordance with the following
schedule:
By October 1, 1989................ 25%
October 1, 2000................ 50%
October 1, 2001................ 75%
October 1, 2002................ 100%
<PAGE>
3. EXERCISE OF OPTION.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check; or by cashless exercise through: (i) the delivery by the Holder
to the Company of shares of the Company's Common Stock for which Holder is the
record and beneficial owner, which have been held for at least six (6) months,
or (ii) by delivering to the Company a notice of exercise together with an
irrevocable direction to a broker-dealer registered under the Securities
Exchange Act of 1934, to sell a sufficient portion of the Shares and deliver the
sales proceeds directly to the Company to pay the Exercise Price; or (iii) by
any combination thereof. If shares of common stock of the Company are tendered
as payment of the Exercise Price, the value of such shares shall be their
"market value" as of the trading date immediately preceding the date of
exercise. The "market value" shall be:
(1) If the Company's common stock is traded in the over-the-
counter market and not on any national securities exchange nor in the NASDAQ
Reporting System, the market value shall be the average of the mean between the
last bid and ask prices per share, as reported by the National Quotation Bureau,
Inc., or an equivalent generally accepted reporting service, or if not so
reported, the average of the closing bid and asked prices for a share as
furnished to the Company by any member of the National Association of Securities
Dealers, Inc., selected by the Company for that purpose.
(2) If the Company's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market value shall be
either (X) the simple average of the high and low prices at which a share of the
Company's common stock traded, as quoted on the NASDAQ Reporting System or its
other principal exchange, or (Y) the price of the last sale of a share of common
stock as similarly quoted, whichever is higher, and rounding out such figure to
the next higher multiple of 12.5 cents (unless the figure is already a multiple
of 12.5 cents).
If such tender would result in an issuance of a whole number of shares and a
fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
(b) The purchase rights represented by this Option are exercisable by
the Holder in whole or in part, at any time, or from time to time, by the
surrender of this Option and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the
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<PAGE>
same a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Option is exercised in part, the Company at its
expense will execute and deliver a new Option of like tenor exercisable for the
number of shares for which this Option may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. REPLACEMENT OF OPTION. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Option and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Option, the Company at its
expense shall execute and deliver, in lieu of this Option, a new Option of like
tenor and amount.
6. RIGHTS OF STOCKHOLDER. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. TRANSFER OF OPTION.
7.1. NON-TRANSFERABILITY. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. EXCHANGE OF OPTION UPON A TRANSFER. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
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<PAGE>
7.3. COMPLIANCE WITH SECURITIES LAWS; RESTRICTIONS ON TRANSFERS.
(a) The Holder of this Option, by acceptance hereof, acknowledges
that this Option and the Shares to be issued upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment (unless such shares are subject to resale pursuant to
an effective prospectus), and that the Holder will not offer, sell or otherwise
dispose of this Option or any Shares to be issued upon exercise hereof except
under circumstances that will not result in a violation of applicable federal
and state securities laws. Upon exercise of this Option, the Holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment (unless such shares are subject to resale pursuant to an effective
prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued upon
exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the Common
Stock involves a high degree of risk, and Holder is in a financial position to
hold the Option and the Common Stock indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Option and
the Common Stock. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information
4
<PAGE>
or verifying information and has had the opportunity to inspect the Company's
operation. Holder has had the opportunity to ask questions of, and receive
answers from the management of the Company (and any person acting on its behalf)
concerning the Option and the Common Stock and the agreements and transactions
contemplated hereby, and to obtain any additional information as Holder may have
requested in making its investment decision.
(e) Holder acknowledges and represents: (i) that he has been
afforded the opportunity to review and is familiar with the business prospects
and finances of the Company and has based his decision to invest solely on the
information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the over-
the-counter market, and that the Company has made no representations,
warranties, or assurances as to the future trading value of the Common Stock,
whether a public market will develop for the resale of the Common Stock, or if
developed whether it will continue.
8. RESERVATION AND ISSUANCE OF STOCK; PAYMENT OF TAXES.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
(c) Upon exercise of the Option, the Company shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy
federal, state and local tax
5
<PAGE>
withholding requirements prior to the delivery of any certificate for shares of
Company Common Stock purchased pursuant to the Option, if in the opinion of
counsel to the Company such withholding is required under applicable tax laws.
(d) An Optionee who is obligated to pay the Company an amount required
to be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Administrator, through the delivery
to the Company of previously-owned shares of Common Stock having an aggregate
Fair Market Value equal to the tax obligation provided that the previously owned
shares delivered in satisfaction of the withholding obligations must have been
held by the Optionee for at least six (6) months; (iii) in the discretion of the
Administrator, through the withholding of shares of Common Stock otherwise
issuable to the Optionee in connection with the Option exercise; or (iv) in the
discretion of the Administrator, through a combination of the procedures set
forth in subsections (i), (ii) and (iii) of this Paragraph 8(d).
9. NOTICES.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first-
class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall be
deemed to have been given, (i) in the case of personal delivery, on the date of
such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
EPL Resources (Delaware) Corp.
343 South Glasgow Avenue
Inglewood, CA 90301
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
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<PAGE>
10. AMENDMENTS.
(a) Any term of this Option may be amended with the written consent of
the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Option, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time while
this Option, or any portion thereof, is outstanding and unexpired there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. RECLASSIFICATION. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as
7
<PAGE>
the result of such change with respect to the securities that were subject to
the purchase rights under this Option immediately prior to such reclassification
or other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 11.
11.3. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holder of this Option against impairment.
12. SEVERABILITY. Whenever possible, each provision of this Option shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. GOVERNING LAW. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity, interpretation and enforceability of this Option and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of
8
<PAGE>
law rules or provisions (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
14. JURISDICTION. The Holder and the Company agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts of California. Service of process on the Company or the Holder in any
action arising out of or relating to this Option shall be effective if mailed to
such party at the address listed in Section 9 hereof.
15. ARBITRATION. If a dispute arises as to interpretation of this Option,
it shall be decided finally by three arbitrators in an arbitration proceeding
conforming to the Rules of the American Arbitration Association applicable to
commercial arbitration. The arbitrators shall be appointed as follows: one by
the Company, one by the Holder and the third by the said two arbitrators, or, if
they cannot agree, then the third arbitrator shall be appointed by the American
Arbitration Association. The third arbitrator shall be chairman of the panel
and shall be impartial. The arbitration shall take place in Los Angeles
California. The decision of a majority of the Arbitrators shall be conclusively
binding upon the parties and final, and such decision shall be enforceable as a
judgment in any court of competent jurisdiction. Each party shall pay the fees
and expenses of the arbitrator appointed by it, its counsel and its witnesses.
The parties shall share equally the fees and expenses of the impartial
arbitrator.
16. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
17. SUCCESSORS AND ASSIGNS. This Option shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
18. COUNTERPARTS. This Option may be executed in two or more counterparts
and delivered via facsimile, each of which shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its officers thereunto duly authorized.
Dated: October 14, 1998
EPL RESOURCES (DELAWARE) CORP.
BY: /s/ Vincent Marold
Vincent Marold, President
Accepted and Acknowledged
SYNERGY GROUP INTERNATIONAL, INC.
BY: /s/ Vincent Marold
President
10
<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of EPL RESOURCES (DELAWARE) CORP. pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full in the following manner (please check one of the following choices):
[_] In Cash
[_] Cashless exercise through a broker; or
[_] Delivery of previously owned Shares.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Name)
_____________________________ ___________________________________
(Date) (Signature)
11
<PAGE>
EXHIBIT 10.7
------------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") dated as of October 14, 1998 by and
among EPL RESOURCES (DELAWARE) CORP., a Delaware corporation ("Buyer"), SYNERGY
GROUP INTERNATIONAL, INC., an Arizona corporation (`Synergy"), and those
stockholders identified on the signature page hereto (the "Signatories") and EPL
RESOURCES (DELAWARE) CORP. in its capacity as escrow agent ("Escrow Agent").
Synergy and the Signatories are hereinafter collectively referred to as the
"Shareholders".
WHEREAS, Buyer, SkyNet Holdings, Inc., a Nevada corporation ("SkyNet"), and
the principal shareholders of SkyNet are parties to an Agreement and Plan of
Merger dated as of September 28,1998, and as amended thereafter (the "Merger
Agreement") providing for Buyer's acquisition of all of the issued and
outstanding capital stock of SkyNet; and
WHEREAS, the Merger Agreement provides in Section 1.4(a) for the
establishment of an escrow fund (the "Escrow Fund") to be delivered by certain
stockholders of Buyer prior to the Merger Agreement consisting of 2,000,000
Buyer Shares (the "Escrow Shares").
NOW, THEREFORE, in consideration of Buyer and SkyNet executing the Merger
Agreement and of the mutual premises and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions, Other Agreements.
(a) All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in the Merger
Agreement.
(b) It is expressly understood and agreed by the parties hereto that all
references in this Agreement to the Merger Agreement and to any exhibits to such
Merger Agreement are for the convenience of the parties hereto other than the
Escrow Agent, and the Escrow Agent shall have no obligations or duties with
respect thereto other than the obligation to refer to the Merger Agreement for
the purpose of determining the definitions of certain capitalized terms used
herein and not otherwise defined herein or to interpret any provisions of such
other agreements referred to in this Agreement for purposes of implementation
thereof.
2. Appointment of Escrow Agent.
EPL Resources (Delaware) Corp. hereby accepts its appointment as Escrow
Agent to serve in accordance with the terms, conditions and provisions of this
Agreement. The acceptance by the Escrow Agent of its duties under this
Agreement is subject to the terms and conditions set forth at Section 7
hereafter, which the parties to this Agreement hereby agree shall govern and
control with respect to the rights, duties, liabilities and immunities of the
Escrow Agent.
<PAGE>
3. Establishment of Escrow Fund; Power of Attorney.
(a) Pursuant to Section 1.4(a) of the Merger Agreement, at the Closing,
Shareholders shall deposit with the Escrow Agent, the Escrow Shares constituting
the Escrow Fund; and the Escrow Agent shall hold such shares in Trust on behalf
of the Shareholders who own such Escrow Shares comprising the Escrow Fund as set
forth on the signature page hereof. If dividends are paid, or a distribution is
made, by Buyer with respect to the Escrow Shares, in cash or in property, such
dividends or distributions shall also be held as a part of the Escrow Fund. In
the event of any stock splits, recapitalizations or other adjustments to the
capital stock of Buyer, the resulting number of shares, or other securities into
which the Escrow Shares convert, shall be included in the Escrow Fund.
(b) By virtue of the Shareholders' execution of this Escrow Agreement, each
of the Shareholders has, without any further act, consented to: (i) the
establishment of this escrow pursuant to the Merger Agreement in the manner set
forth herein, and (ii) all of the other terms, conditions and limitations in
this Agreement.
(c) By virtue of the Shareholders' execution of this Escrow Agreement, each
of the Shareholders hereby irrevocably constitutes and appoints the Escrow Agent
the true and lawful agent and attorney-in-fact of the Shareholders with respect
to all matters arising in connection with this Escrow Agreement, including the
administration of the Escrow Fund pursuant to Section 4 below and the subsequent
surrender and cancellation of the Escrow Shares pursuant to Section 4 herein.
4. Operation and Administration of the Escrow Fund; Release of Escrow
Shares.
(a) To the extent provided herein and in the Merger Agreement, the Escrow
Fund shall be established and thereafter applied as set forth in this Section 4
to secure the performance of Buyer with respect to the timely completion of the
Minimum Offering pursuant to Section 5.12 of the Merger Agreement.
(b) If a closing with respect to the Minimum Offering is not completed
within fifteen (15) days after the period established within the Merger
Agreement for the completion of the Minimum Offering (the "Release Date"), Buyer
may on such Release Date make application to the Escrow Agent, with a copy to
Synergy on behalf of the Shareholders (the "Application"), seeking the Escrow
Agent to release from escrow 250,000 of the Escrow Shares for surrender and
cancellation by Buyer. Thereafter, until the Minimum Offering is completed,
Buyer may make additional Application for the release from escrow of 250,000 of
the Escrow Shares for each fifteen (15) day period in which the Minimum Offering
is not completed. These Applications may continue until either all of the
Escrow Shares have been surrender to Buyer for cancellation or the Minimum
Offering has been completed.
(c) Upon completion of the Minimum Offering, Synergy, on behalf of the
Shareholders, shall make Application to Escrow Agent instructing the Escrow
Agent to release and deliver all Escrow Shares remaining in the Escrow Fund to
the Shareholders.
2
<PAGE>
(d) Unless the Escrow Agent is otherwise informed in writing by Synergy (in
the case of an Application by Buyer) or by Buyer (with respect to an Application
by Synergy on behalf of the Shareholders) within thirty (30) days from the date
of its receipt of any such Application disputing the direction contained within
any such Application then the Escrow Agent shall apply the Escrow Shares in the
manner set forth in such Application.
(d) If the Escrow Agent is notified that Synergy (with respect to an
Application of Buyer) or Buyer (with respect to an Applicant of Synergy on
behalf of the Shareholders) in good faith contest the direction contained within
the Application, then, and in that event, the Escrow Agent shall be permitted to
submit the issues in dispute to arbitration in accordance with the provisions of
Section 9.8 of the Merger Agreement.
(e) Any cash received in respect of the Escrow Shares (e.g., dividends)
shall be placed in a simple interest bearing client trust fund account of Escrow
Agent and shall become a part of the Escrow Shares.
5. Termination.
(a) The Escrow Shares shall remain in escrow until Buyer's completion of
the Minimum Offering. Notwithstanding the above, in the event that there is a
dispute with respect to any Application, the Escrow Shares which are subject to
such dispute shall remain subject to escrow until resolution of the matters
identified herein.
(b) Once all of the Escrow Shares have been either released to Buyer for
cancellation or returned to the Shareholders, the provisions of this Escrow
Agreement shall no longer be of any force and effect and this Escrow Agreement
shall be deemed to have terminated.
6. Fees and Expenses of Escrow Agent.
The Escrow Agent shall be not entitled to receive a fee for serving as
Escrow Agent hereunder.
7. Duties and Liabilities of the Escrow Agent.
(a) The Escrow Agent shall act hereunder as depository only, and it shall
not be responsible or liable in any manner whatever for any determinations
regarding the cancellation and forfeiture of the Escrow Shares to be made
pursuant to Section 4 hereof. It is agreed that the duties and obligations of
the Escrow Agent are those herein specifically provided and no other. Except as
otherwise specifically provided in this Agreement, the Escrow Agent shall not
have any liability under, nor duty to inquire into, the terms and provisions of
any agreement or instrument, other than this Agreement. The duties of the
Escrow Agent are ministerial in nature, and the Escrow Agent shall not incur any
liability whatsoever other than for its own willful misconduct or gross
negligence.
(b) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto. The Escrow Agent shall not have any responsibility
for the genuineness or validity of any
3
<PAGE>
document or other material presented to or deposited with it nor shall it have
any liability for any action taken, suffered or omitted in accordance with any
written instructions or certificates given to it hereunder and believed by it in
good faith to be what it purports to be and to be signed by the proper party or
parties, nor for retaining the Escrow Fund in the absence of instructions to the
contrary.
(c) The Escrow Agent shall not be liable for any error of judgment, or for
any act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, or for anything which it may do or refrain from doing in connection
with this Agreement, except its own gross negligence or willful misconduct.
(d) The Escrow Agent may consult with, and obtain the advice of, legal
counsel selected by it in the event of any question as to any of the provisions
hereof or its duties hereunder, and the Escrow Agent shall incur no liability
and shall be fully protected for any action taken, suffered or omitted by it in
good faith in accordance with the advice of such counsel, provided that the
Escrow Agent shall have used reasonable care in the selection of such counsel.
(e) In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall have received instructions, claims or demands from
any party hereto which, in its reasonable opinion, conflict with any of the
provisions of this Agreement or with instructions, claims or demands of any
other party hereto, the Escrow Agent shall refrain from taking any action and
its sole obligation shall be to keep safely all property held in escrow
hereunder until it shall be directed otherwise in writing by all of the parties
hereto or by a final order or judgment of an arbitration panel or court of
competent jurisdiction, or an award of an arbitrator pursuant to an arbitration
conducted pursuant to Section 9.8 of the Merger Agreement.
(f) The Escrow Agent shall not be required to institute legal proceedings
of any kind and shall not be required to initiate or defend any legal
proceedings which may be instituted against it in respect of the subject matter
of this Agreement, provided that the Escrow Agent shall at all times take such
action as is reasonably necessary to keep safely all property held in escrow
hereunder. If the Escrow Agent does elect to so act or is required to so act in
order to keep safely all property held in escrow hereunder, the Escrow Agent
will do so only to the extent that it is indemnified to its reasonable
satisfaction against the cost and expense of such defense or initiation.
8. Amendment.
This Agreement may be amended, modified or rescinded by and upon written
notice to the Escrow Agent given by Buyer, on the one hand, and Synergy on
behalf of the Principal Shareholders, on the other hand; provided that the
rights, duties, liabilities, indemnities and immunities of the Escrow Agent
hereunder may not be adversely affected at any time without the written consent
of the Escrow Agent; and provided further that the interest of the Shareholders
may not be adversely affected without the written consent of Synergy on behalf
of the Shareholders. Any written notice of Buyer with respect to the amendment,
modification, or rescission of this Agreement shall be approved by the Acquiror
Designee to the Board of
4
<PAGE>
Directors of Buyer under Section 5.18 of the Agreement. The failure of the
Shareholders to object to a modification of this Agreement, shall not act as a
waiver of the right of the Shareholders to object to that modification at a
later date.
9. Voting of Escrow Shares; Rights During Escrow Period; Restriction
on Transfer.
All rights to vote the Escrow Shares while they are part of the Escrow Fund
shall be retained by the Shareholders. The Shareholders shall not have any
right to transfer or assign their interest in the Escrow Shares in the Escrow
Fund during such period of time as such Escrow Shares remain a part of the
Escrow Fund unless Buyer shall first have consented thereto in writing and
provided that any such transferee shall deliver to the Escrow Agent a duly
signed stock power covering such Escrow Shares and the Escrow Agent shall hold
such transferee's shares and stock powers in escrow subject to this Agreement.
10. Notices.
Any notices or other communications required or permitted hereunder shall
be sufficiently given if sent by certified mail, postage prepaid and return
receipt requested, or by hand delivery or by telecopy (promptly confirmed by
delivery of an original copy of such notice or communication):
(i) If to the Buyer, to:
SkyNet Holdings, Inc.
343 South Glasgow Avenue
Inglewood, CA 90301
Attention: Vjekoslav Nizic
(ii) If to the Principal Shareholders, to
Synergy Group International, Inc.
4725 East Sunrise Drive
Tucson, AZ 85718
11. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of the
successors and permitted assigns of each of the parties hereto.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
5
<PAGE>
13. Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts
executed and to be performed entirely within said State.
14. Severability.
In case any provision in this Agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby, unless
the provisions held invalid shall substantially impair the benefits of the
remaining portions of this Agreement.
15. Consent to Limited Jurisdiction.
The Escrow Agent hereby agrees that any legal action or proceeding with
respect to disputes arising out of this Agreement not otherwise subject to
arbitration under Section 9.8 of the Merger Agreement may be brought in the
state or federal courts of the State of California, Los Angeles County, and, by
execution and delivery of this Agreement, the Escrow Agent irrevocably accepts
for itself and in respect of the property held by it as Escrow Agent hereunder
the jurisdiction of the aforesaid courts, it being understood and agreed that
such consent to jurisdiction is for the sole and limited purpose of resolving
disputes under this Agreement and shall in no way be deemed to be a general and
unconditional consent to the jurisdiction of the aforesaid courts.
16. Resignation and Removal of Escrow Agent.
(a) The Escrow Agent may at any time resign as Escrow Agent hereunder by
giving written notice of its resignation to each of the parties hereto, at their
respective addresses set forth in Section 10 of this Agreement, at least thirty
(30) days prior to the date specified for such resignation to take effect. The
Escrow Agent may be removed at any time by written request of Synergy.
(b) If at any time the Escrow Agent shall resign or shall be removed in
accordance with the provisions of clause (a) above, Buyer and Synergy shall use
their respective best efforts to jointly appoint a successor escrow agent under
this Agreement. In the event of the resignation or removal of the Escrow Agent,
if no appointment of a successor escrow agent shall have been made pursuant to
the preceding sentence within the thirty (30) day period referred to in the
first sentence of paragraph (a) above, then the retiring Escrow Agent may apply
to any court of competent jurisdiction to appoint a successor escrow agent.
Such court may thereupon, after such notice, if any, as such court may deem
proper and prescribe, appoint a successor escrow agent hereunder.
17. Indemnification.
Buyer and the Shareholders, jointly and severally agree to indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, liability and expense that may
6
<PAGE>
be incurred by the Escrow Agent arising out of or in connection with its duties,
obligations or performance as Escrow Agent hereunder, except as caused by its
negligence or willful misconduct, including without limitation the reasonable
legal costs and expenses of defending itself against any claim or liability in
connection with its performance hereunder. The terms of this Section 17 shall
survive the termination of this Agreement and, with respect to claims arising in
connection with the Escrow Agent's duties while acting as such, the resignation
or removal of the Escrow Agent. The Escrow Agent agrees to notify Buyer and the
Shareholders in writing of the written assertion of a claim against the Escrow
Agent or of any suit or proceeding commenced against the Escrow Agent promptly
after the Escrow Agent has received any such written assertion of a claim or has
been served with the summons or other legal process, in each case giving
information as to the nature and basis of the claim, but in no event will the
failure to give such notice affect the obligation of Buyer to indemnify the
Escrow Agent pursuant to this Section 17 unless the rights of Buyer and
Shareholders shall have been materially impaired by such failure. Each of Buyer
and the Shareholders will be entitled to participate at its own expense in the
defense of any suit or proceeding brought to enforce any such claim and, if it
so elects in writing, may assume the entire defense and control of any such suit
or proceeding. Neither Buyer nor the Shareholders shall be liable for any
counsel fees or other expenses incurred by the Escrow Agent after the date that
Buyer or the Shareholders shall have so elected to assume the defense and
control of any such suit or proceeding. In addition, neither Buyer nor the
Shareholders shall be liable for any settlement of any such suit, proceeding or
claim without the prior written consent of Buyer and the Shareholders.
18. Counterparts. This Agreement may be executed in two or more
counterparts and delivered via facsimile, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument.
(THIS SPACE LEFT BLANK INTENTIONALLY)
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first written above.
EPL RESOURCES (DELAWARE) CORP.,
a Delaware corporation
By: /s/ Vincent J. Marold
Name: Vincent J. Marold
Title: President
SYNERGY GROUP INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ Vincent J. Marold
Name: Vincent J. Marold
Title: President
EPL RESOURCES (DELAWARE) CORP.
a Delaware corporation in its capacity
as Escrow Agent
By: /s/ Vincent J. Marold
Name: Vincent J. Marold
Title: President
SHAREHOLDERS CONTRIBUTING SHARES TO BE HELD IN ESCROW
Synergy Group Vincent J. Marold
- ------------- -----------------
Name Name
/s/ Vincent J. Marold, President /s/ Vincent J. Marold
- -------------------------------- ---------------------
Signature Signature
250,000 750,000
- ------- -------
No. of Escrow Shares No. of Escrow Shares
Diane Winston MCZ Investment Co., Inc.
- ------------- ------------------------
Name Name
/s/ Diane Winston /s/ illegible
- ----------------- -------------
Signature Signature
5,000 400,000
- ------- -------
No. of Escrow Shares No. of Escrow Shares
8
<PAGE>
Fincord Holding Co., Inc.
- ------------------------- -------------------------------
Name Name
/s/ Bill Winston
- ---------------- -------------------------------
Signature Signature
590,000
- ------- -------------------------------
No. of Escrow Shares No. of Escrow Shares
- ------------------------------- -------------------------------
Name Name
- ------------------------------- -------------------------------
Signature Signature
- ------------------------------- -------------------------------
No. of Escrow Shares No. of Escrow Shares
- ------------------------------- -------------------------------
Name Name
- ------------------------------- -------------------------------
Signature Signature
- ------------------------------- -------------------------------
No. of Escrow Shares No. of Escrow Shares
9
<PAGE>
EXHIBIT 10.8
------------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") dated as of October 14, 1998 by and
among EPL RESOURCES (DELAWARE) CORP., a Delaware corporation ("Buyer"), SYNERGY
GROUP INTERNATIONAL, INC. ("Synergy"), VJEKOSLAV NIZIC ("Nizic"), JOHN E.
CATHCART ("Cathcart"), CHRISTIAN J. WEBER ("Weber"), DEANSLEY LIMITED, an Isle
of Man corporation ("Deansley"), FIR CONSTRUCTION PTY LIMITED, an Australian
corporation ("FIR"), the principal shareholders of SKYNET HOLDINGS, INC., a
Nevada corporation ("SkyNet"), and EPL RESOURCES (DELAWARE) CORP. in its
capacity as escrow agent ("Escrow Agent"). Nizic, Weber, Cathcart, Deansley and
FIR are hereinafter collectively referred to as the "Principal Shareholders".
WHEREAS, Buyer, SkyNet and the Principal Shareholders are parties to an
Agreement and Plan of Merger dated as of September 28,1998, and as subsequently
amended (the "Merger Agreement") providing for Buyer's acquisition of all of the
issued and outstanding capital stock of SkyNet; and
WHEREAS, the Merger Agreement provides in Section 1.4(b) for the
establishment of an escrow fund (the "Escrow Fund") delivered from the Merger
Consideration consisting of 3,000,000 Buyer Shares (the "Escrow Shares").
NOW, THEREFORE, in consideration of Buyer and the Principal Shareholders
executing the Merger Agreement and of the mutual premises and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions, Other Agreements.
(a) All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in the Merger
Agreement.
(b) It is expressly understood and agreed by the parties hereto that all
references in this Agreement to the Merger Agreement and to any exhibits to such
Merger Agreement are for the convenience of the parties hereto other than the
Escrow Agent, and the Escrow Agent shall have no obligations or duties with
respect thereto other than the obligation to refer to the Merger Agreement for
the purpose of determining the definitions of certain capitalized terms used
herein and not otherwise defined herein or to interpret any provisions of such
other agreements referred to in this Agreement for purposes of implementation
thereof.
2. Appointment of Escrow Agent.
EPL Resources (Delaware) Corp. hereby accepts appointment as Escrow Agent
to serve in accordance with the terms, conditions and provisions of this
Agreement. The acceptance by the Escrow Agent of its duties under this
Agreement is subject to the terms and conditions set
<PAGE>
forth at Section 7 hereafter, which the parties to this Agreement hereby agree
shall govern and control with respect to the rights, duties, liabilities and
immunities of the Escrow Agent.
3. Establishment of Escrow Fund; Power of Attorney.
(a) Pursuant to Section 1.4(b) of the Merger Agreement, at the Closing,
Buyer shall deposit with the Escrow Agent, the Escrow Shares constituting the
Escrow Fund. The Escrow Agent shall hold such shares on behalf of the Principal
Shareholders who own such Escrow Shares comprising the Escrow Fund as set forth
on Exhibit "1" hereto. If dividends are paid, or a distribution is made, by
Buyer with respect to the Escrow Shares, in cash or in property, such dividends
or distributions shall also be held as a part of the Escrow Fund. In the event
of any stock splits, recapitalizations or other adjustments to the capital stock
of Buyer, the resulting number of shares, or other securities into which the
Escrow Shares convert, shall be included in the Escrow Fund.
(b) By virtue of the Principal Shareholders' execution of this Escrow
Agreement, each of the Principal Shareholders has, without any further act,
consented to: (i) the establishment of this escrow pursuant to the Merger
Agreement in the manner set forth herein, and (ii) all of the other terms,
conditions and limitations in this Agreement.
(c) By virtue of the Principal Shareholders' execution of this Escrow
Agreement, each of the Principal Shareholders hereby irrevocably constitutes and
appoints the Escrow Agent the true and lawful agent and attorney-in-fact of the
Principal Shareholders with respect to all matters arising in connection with
this Escrow Agreement, including the administration of the Escrow Fund pursuant
to Section 4 below and the subsequent surrender and cancellation of the Escrow
Shares pursuant to Section 4 herein.
4. Operation and Administration of the Escrow Fund.
(a) To the extent provided herein and in the Merger Agreement, the Escrow
Fund shall be established and thereafter applied to the payment of
indemnification claims ("Claims") asserted by Buyer during the twelve (12) month
period following Closing for the benefit of Buyer as provided in Article 7 of
the Merger Agreement.
(b) Buyer shall make application to the Escrow Agent, with a copy to the
Principal Shareholders (the "Application"), if it has incurred or suffered
damages or losses pursuant to Section 7.1(a) of the Merger Agreement. The
Application shall identify the amount of the damages or losses (the "Claim
Amount") and shall include proof that such damage or loss has been paid or
incurred by Buyer and shall instruct the Escrow Agent to apply, subject to
subparagraph (e) below, the Claim Amount in the manner set forth in this
Section.
(c) Unless the Escrow Agent is otherwise informed in writing by two or more
of the Principal Shareholders within thirty (30) days from the date of their
receipt of the Application, disputing the Claim Amount or the application
thereof against the Escrow Fund, then the Escrow Agent shall apply the Escrow
Fund in the manner set forth in the Application.
2
<PAGE>
(d) If the Escrow Agent is notified that two or more of the Principal
Shareholders in good faith contest the Claim Amount or the application of the
Claim Amount against the Escrow Fund, then, and in that event, the Escrow Agent
shall be permitted to submit the issues in dispute to arbitration in accordance
with the provisions of Section 9.8 of the Merger Agreement.
(e) If the arbitration results in a finding (or settlement between the
parties) in support of the Application (which for this purpose shall include any
finding, conclusion or settlement which awards Buyer at least 80% of the Claim
Amount (hereafter, the "Adjusted Claim Amount")); then, and in that event, there
shall be added to the Adjusted Claim Amount: (i) interest on the Adjusted Claim
Amount in the amount of ten (10%) percent per annum, applied from the date of
the Application.
(f) Any cash received in respect of the Escrow Shares (e.g., dividends)
shall be placed in a simple interest bearing client trust fund account of Escrow
Agent and shall become a part of the Escrow Shares.
(g) The Claim Amount shall be applied against the Escrow Shares and the
Escrow Shares subject to the Claim Amount shall be surrendered to the Buyer for
cancellation. The number of Escrow Shares subject to the Claim Amount shall be
determined by surrendering to the Buyer the "fair market value" of the Escrow
Shares equal to the Claim Amount. For this purpose, the "fair market value" of
the Escrow Shares shall be sixty percent (60%) of the average closing price of
the Buyer's common stock (on the exchange, NASDAQ or OTC Bulletin Board on which
the shares principally trade) for the ten (10) trading days prior to the final
determination of the Claim Amount.
5. Release of Escrow Shares; Termination.
All of the Escrow Shares shall remain in escrow subject to Claims under the
indemnification section of the Merger Agreement. Certain of the Escrow Shares,
however, may be released from Escrow in accordance with the following schedule:
(a) 1,250,000 of the Escrow Shares (the "Audit Escrow Shares") shall remain
in escrow subject to application pursuant to Section 4 hereof for a period of
twenty (20) days after the Audited Financial Statements are delivered to Buyer
and Synergy. In the event that no Claim Notice is delivered by Synergy to the
Buyer with respect to the Audited Financial Statements at the expiration of such
twenty (20) day period, the Audit Escrow Shares shall be delivered and released
to the Principal Shareholders.
(b) An additional 1,000,000 of the Escrow Shares (the "Additional Escrow
Shares") shall remain in escrow subject to application pursuant to Section 4
hereof for a period of six (6) months following the Closing and upon the six (6)
month anniversary date, the Additional Escrow Shares shall be delivered and
released to the Principal Shareholders provided prior 20 day notice is provided
by Buyer to Synergy and no objection is asserted to Buyer within such 20 day
period by Synergy.
3
<PAGE>
(c) The remainder of the Escrow Shares shall remain in escrow subject to
application pursuant to Section 4 hereof for a period of one (1) year following
the Closing, and upon the one (1) year anniversary date, any of the Escrow
Shares remaining in the Escrow Fund shall be delivered and released to the
Principal Shareholders provided prior 20 day notice is provided by Buyer to
Synergy and no objection is asserted within such 20 day period.
(d) Notwithstanding the above, on the one (1) year anniversary of the
Closing, the six (6) month anniversary of the Closing or the expiration of the
twenty (20) day period set forth in Section 5(a) hereof, as applicable, the
Escrow Agent may continue to retain in escrow, subject to the terms of this
Agreement, any Escrow Shares, Additional Escrow Shares or Audit Escrow Shares,
as applicable, that may, upon Buyer's reasonable estimate, be necessary to
satisfy any pending, outstanding or contested Buyer's Claims timely submitted
prior to such anniversary or expiration date pursuant to Article 7 of the Merger
Agreement. The Escrow Shares retained pursuant to this subparagraph shall
remain subject to escrow until resolution of the matters identified herein.
(e) Once all of the Escrow Shares have been either released to Buyer for
cancellation or returned to the Principal Shareholders, the provisions of this
Escrow Agreement shall no longer be of any force and effect and this Escrow
Agreement shall be deemed to have terminated.
6. Fees and Expenses of Escrow Agent.
The Escrow Agent shall not be entitled to any fees as Escrow Agent.
7. Duties and Liabilities of the Escrow Agent.
(a) The Escrow Agent shall act hereunder as depository only, and it shall
not be responsible or liable in any manner whatever for any determinations
regarding the cancellation and forfeiture of the Escrow Shares to be made
pursuant to Section 4 hereof. It is agreed that the duties and obligations of
the Escrow Agent are those herein specifically provided and no other. Except as
otherwise specifically provided in this Agreement, the Escrow Agent shall not
have any liability under, nor duty to inquire into, the terms and provisions of
any agreement or instrument, other than this Agreement. The duties of the
Escrow Agent are ministerial in nature, and the Escrow Agent shall not incur any
liability whatsoever other than for its own willful misconduct or gross
negligence.
(b) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto. The Escrow Agent shall not have any responsibility
for the genuineness or validity of any document or other material presented to
or deposited with it nor shall it have any liability for any action taken,
suffered or omitted in accordance with any written instructions or certificates
given to it hereunder and believed by it in good faith to be what it purports to
be and to be signed by the proper party or parties, nor for retaining the Escrow
Fund in the absence of instructions to the contrary.
4
<PAGE>
(c) The Escrow Agent shall not be liable for any error of judgment, or for
any act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, or for anything which it may do or refrain from doing in connection
with this Agreement, except its own gross negligence or willful misconduct.
(d) The Escrow Agent may consult with, and obtain the advice of, legal
counsel selected by it in the event of any question as to any of the provisions
hereof or its duties hereunder, and the Escrow Agent shall incur no liability
and shall be fully protected for any action taken, suffered or omitted by it in
good faith in accordance with the advice of such counsel, provided that the
Escrow Agent shall have used reasonable care in the selection of such counsel.
(e) In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall have received instructions, claims or demands from
any party hereto which, in its reasonable opinion, conflict with any of the
provisions of this Agreement or with instructions, claims or demands of any
other party hereto, the Escrow Agent shall refrain from taking any action and
its sole obligation shall be to keep safely all property held in escrow
hereunder until it shall be directed otherwise in writing by all of the parties
hereto or by a final order or judgment of an arbitration panel or court of
competent jurisdiction, or an award of an arbitrator pursuant to an arbitration
conducted pursuant to Section 9.8 of the Stock Purchase Agreement.
(f) The Escrow Agent shall not be required to institute legal proceedings
of any kind and shall not be required to initiate or defend any legal
proceedings which may be instituted against it in respect of the subject matter
of this Agreement, provided that the Escrow Agent shall at all times take such
action as is reasonably necessary to keep safely all property held in escrow
hereunder. If the Escrow Agent does elect to so act or is required to so act in
order to keep safely all property held in escrow hereunder, the Escrow Agent
will do so only to the extent that it is indemnified to its reasonable
satisfaction against the cost and expense of such defense or initiation.
8. Amendment.
This Agreement may be amended, modified or rescinded by and upon written
consent of Escrow Agent, Buyer, the Principal Shareholders and Synergy.
9. Voting of Escrow Shares; Rights During Escrow Period; Restriction on
Transfer.
All rights to vote the Escrow Shares while they are part of the Escrow Fund
shall be retained by the Principal Shareholders The Principal Shareholders
shall not have any right to transfer or assign their interest in the Escrow
Shares in the Escrow Fund during such period of time as such Escrow Shares
remain a part of the Escrow Fund unless Buyer shall first have consented thereto
in writing and provided that any such transferee shall deliver to the Escrow
Agent a duly signed stock power covering such Escrow Shares and the Escrow Agent
shall hold such transferee's shares and stock powers in escrow subject to this
Agreement.
5
<PAGE>
10. Notices.
Any notices or other communications required or permitted hereunder shall
be sufficiently given if sent by certified mail, postage prepaid and return
receipt requested, or by hand delivery or by telecopy (promptly confirmed by
delivery of an original copy of such notice or communication):
(i) If to the Buyer, to:
Synergy Group International, Inc.
4825 East Sunrise Drive
Tucson, AZ 85718
Attention: Vincent Marold
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll, P.C.
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
(ii) If to the Principal Shareholders, to
Mr. Vjekoslav Nizic
343 South Glasgow Avenue
Inglewood, CA 90301
Mr. Christian J. Weber
Foxholes
Winter Hill Road
Cookham Dean SL6 6PJ
England
Mr. John E. Cathcart
774 Mays Blvd.
10-450
Incline Village, NV 89451
Deansley Limited
71 Circular Road
Douglas, Isle of Man 1M1 1AZ
FIR Construction Pty. Limited
c/o Vjekoslave Nizic
6
<PAGE>
343 South Glasgow Avenue
Inglewood, CA 85016
11. Parties in Interest.
This Agreement shall be binding upon and shall inure to the benefit of the
successors and permitted assigns of each of the parties hereto.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
13. Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts
executed and to be performed entirely within said State.
14. Severability.
In case any provision in this Agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby, unless
the provisions held invalid shall substantially impair the benefits of the
remaining portions of this Agreement.
15. Consent to Limited Jurisdiction.
The Escrow Agent hereby agrees that any legal action or proceeding with
respect to disputes arising out of this Agreement not otherwise subject to
arbitration under Section 9.8 of the Merger Agreement may be brought in the
state or federal courts of the State of California, Los Angeles County, and, by
execution and delivery of this Agreement, the Escrow Agent irrevocably accepts
for itself and in respect of the property held by it as Escrow Agent hereunder
the jurisdiction of the aforesaid courts, it being understood and agreed that
such consent to jurisdiction is for the sole and limited purpose of resolving
disputes under this Agreement and shall in no way be deemed to be a general and
unconditional consent to the jurisdiction of the aforesaid courts.
7
<PAGE>
16. Resignation and Removal of Escrow Agent.
(a) The Escrow Agent may at any time resign as Escrow Agent hereunder by
giving written notice of its resignation to each of the parties hereto, at their
respective addresses set forth in Section 11 of this Agreement, at least thirty
(30) days prior to the date specified for such resignation to take effect. The
Escrow Agent may be removed at any time by an instrument in writing delivered to
the Escrow Agent by Synergy.
(b) If at any time the Escrow Agent shall resign or shall be removed in
accordance with the provisions of clause (a) above, Buyer and the Principal
Shareholders shall use their respective best efforts to jointly appoint a
successor escrow agent under this Agreement. In the event of the resignation or
removal of the Escrow Agent, if no appointment of a successor escrow agent shall
have been made pursuant to the preceding sentence within the thirty (30) day
period referred to in the first sentence of paragraph (a) above, then the
retiring Escrow Agent may apply to any court of competent jurisdiction to
appoint a successor escrow agent. Such court may thereupon, after such notice,
if any, as such court may deem proper and prescribe, appoint a successor escrow
agent hereunder.
17. Indemnification.
Except for the expenses in Section 6 of this Agreement, Buyer and the
Principal Shareholders, jointly and severally agree to indemnify, defend and
hold the Escrow Agent harmless from and against any and all loss, damage,
liability and expense that may be incurred by the Escrow Agent arising out of or
in connection with its duties, obligations or performance as Escrow Agent
hereunder, except as caused by its negligence or willful misconduct, including
without limitation the reasonable legal costs and expenses of defending itself
against any claim or liability in connection with its performance hereunder.
The terms of this Section 17 shall survive the termination of this Agreement
and, with respect to claims arising in connection with the Escrow Agent's duties
while acting as such, the resignation or removal of the Escrow Agent. The
Escrow Agent agrees to notify Buyer and the Principal Shareholders in writing of
the written assertion of a claim against the Escrow Agent or of any suit or
proceeding commenced against the Escrow Agent promptly after the Escrow Agent
has received any such written assertion of a claim or has been served with the
summons or other legal process, in each case giving information as to the nature
and basis of the claim, but in no event will the failure to give such notice
affect the obligation of Buyer to indemnify the Escrow Agent pursuant to this
Section 17 unless the rights of Buyer and Principal Shareholders shall have been
materially impaired by such failure. Each of Buyer and the Principal
Shareholders will be entitled to participate at its own expense in the defense
of any suit or proceeding brought to enforce any such claim and, if it so elects
in writing, may assume the entire defense and control of any such suit or
proceeding. Neither Buyer nor the Principal Shareholders shall be liable for
any counsel fees or other expenses incurred by the Escrow Agent after the date
that Buyer or the Principal Shareholders shall have so elected to assume the
defense and control of any such suit or proceeding. In addition, neither Buyer
nor the Principal Shareholders shall be liable for any settlement of any such
suit, proceeding or claim without the prior written consent of Buyer and the
Principal Shareholders.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first written above.
EPL RESOURCES (DELAWARE) CORP.,
a Delaware corporation
By: /s/ Vincent J. Marold
---------------------
Name: Vincent J. Marold
Title: President
By: /s/ Vjekoslaw Nizic
-------------------
VJEKOSLAV NIZIC
By: /s/ Christian J. Weber
----------------------
CHRISTIAN J. WEBER
By: /s/ John E. Cathcart
--------------------
JOHN E. CATHCART
DEANSLEY LIMITED
an Isle of Man corporation
By: /s/ E. N. Bowers
----------------
Name: E. N. Bowers
Title: Director
FIR CONSTRUCTION PTY LIMITED
an Australian corporation
By: /s/ Vjekoslaw Nizic
--------------------
Name: Vjekoslav Nizic
Title: Managing Director
SYNERGY GROUP INTERNATIONAL, INC.
a Delaware corporation
By: Vincent J. Marold
Name: /s/ Vincent J. Marold
---------------------
Title: President
9
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
PRINCIPAL SHAREHOLDER NUMBER OF ESCROW SHARES
- --------------------- -----------------------
<S> <C>
VJEKOSLAV NIZIC 67,339
CHRISTIAN J. WEBER 168,169
JOHN E. CATHCART 693,280
DEANSLEY LIMITED 1,040,859
FIR CONSTRUCTION PTY LIMITED 1,030,353
---------
TOTAL: 3,000,000
</TABLE>
10
<PAGE>
EXHIBIT 10.9
------------
TRADESERV 94, INC.
CONSULTANTCY AGREEMENT
This Consultantcy Agreement ("Agreement") is entered into this 24th day of
August, 1998, by and between Tradeserv 94, Inc. ("TRADESERV"), Andrew Lovell
("Consultant") and SkyNet Holdings Inc. ("SKYNET") with offices at 343 Glasgow
Avenue, Inglewood, CA 90301 ("SkyNet Holdings").
WITNESSETH
- ----------
WHEREAS, TRADESERV, is a Georgia corporation located at 109 Father Hugo Drive,
Greer, SC 29650, providing consulting services.
WHEREAS TRADESERV employs Consultant on a full-time basis
WHEREAS, Consultant has substantial skills and experience in the courier package
industry; and
WHEREAS, SKYNET desires to hire Consultant and Consultant desires to provide
services to SKYNET.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree to the terms and conditions
set forth herein.
ARTICLE 1. STATEMENT OF WORK
-----------------
Consultant shall provide management services of approximately 40 hours per week,
in accordance with specifications agreed upon in writing by the parties.
ARTICLE 2. COMPENSATION
------------
For the complete, satisfactory, and timely performance, of services hereunder,
Consultant will be paid a professional fee and will be reimbursed for reasonable
out-of-pocket expenses incurred in performance hereof. Consultant's
professional fee will be $14,000 per month.
ARTICLE 3. EQUIPMENT
---------
SKYNET will provide to Consultant, laptop computer including general business
software and proprietary software, and any other items or equipment as deemed
necessary for the performance of assignment.
Page 1 of 5
<PAGE>
ARTICLE 4. INVOICES
--------
Consultant shall submit invoices to SKYNET on a monthly basis for services
rendered to the date thereof. Such invoices shall be supported by appropriate
documentation, the hours worked and receipts for the expenses for which
reimbursement is sought. Upon receipt of a satisfactory invoice and
documentation, SKYNET, within a reasonable period of time, shall pay such
invoice. Payment will be made upon receipt of payment for Consultant's work
from SKYNET's client.
ARTICLE 5. TERM AND TERMINATION
--------------------
The term of this Agreement will commence on August 24th, 1998, and terminate on
approximately August 31st, 1999, or, alternatively, when agreed upon by both
parties. Notwithstanding the foregoing, either party may terminate this
Agreement for any reason, and at any time, with not less than ninety (90) days
prior written notice. The Agreement may also be terminated by immediate written
notice by the non-breaching party for breach of the Agreement by the other
party. The provisions of Articles 6, 7, 9 and 10 shall survive the termination
or expiration of the Agreement.
ARTICLE 6. PLACE OF PERFORMANCE
--------------------
Place of performance to be determined by Consultant and SKYNET in conjunction
with SKYNET'S requirements.
ARTICLE 7. CONFIDENTIAL INFORMATION
------------------------
Consultant acknowledges and agrees that in the course of the performance of the
services pursuant to this Agreement, Consultant may be given access to, or come
into possession of, confidential information of SKYNET and its clients, which
information contains trade secrets, proprietary data or other confidential
information. Consultant acknowledges and agrees that he will not use,
duplicate, or divulge to others any confidential information, including without
limitation, trade secrets belonging to or disclosed to Consultant by SKYNET or a
SKYNET client, without first obtaining written permission from SKYNET.
Confidential information as used herein, includes information, materials,
products and deliverables developed during, and discoveries and contributions
made by Consultant in the performance of this Agreement. All tangible
embodiments of such information shall be delivered to SKYNET by Consultant upon
termination hereof, or upon request by SKYNET, whichever first occurs.
Page 2 of 5
<PAGE>
ARTICLE 8. INTELLECTUAL PROPERTY
---------------------
Consultant hereby assigns any and all rights, title and interest, including, but
not limited to, copyrights, trade secrets and proprietary rights to the
information, materials, products and deliverables developed during the
performance of the Agreement, to SKYNET. All work performed under this
Agreement and all information, materials, products and deliverables developed
pursuant to this Agreement shall be the exclusive property of SKYNET and all
title and interest therein shall vest in SKYNET. All such information,
materials, products and deliverables shall be deemed to be "works made for hire"
under the Federal Copyright Laws. Pursuant to its exclusive proprietary rights,
SKYNET shall have the sole and exclusive rights, inter alia, to use, modify or
adapt the information, materials, products or deliverables that Consultant has
developed during the performance of this Agreement. Consultant agrees to give
SKYNET all necessary assistance required to perfect such assignment of rights
defined in this Article 7.
ARTICLE 9. INDEPENDENT CONTRACTOR STATUS
-----------------------------
It is understood and agreed, that Consultant will provide the service under this
Agreement, on a professional basis, and as an independent contractor, and that
during the performance of the services under this Agreement, Consultant will not
be considered an employee of SKYNET within the meaning or the applications of
any federal, state or local laws or regulations including, but not limited to,
laws or regulations covering unemployment insurance, old age benefits, worker's
compensation, industrial accident, labor or taxes of any kind. Consultant shall
be fully responsible for any such withholding or paying of taxes and social
security, if SKYNET declines the aforementioned option.
ARTICLE 10. WARRANTIES AND RESPONSIBILITIES
-------------------------------
A. Consultant warrants and represents that neither the execution, delivery nor
performance of this Agreement constitutes a breach or violation of any
contract or agreement to which he is a party or by which he is in any
manner bound. Consultant further warrants and represents that he has no
interests or obligations, nor during the term of this Agreement will he
acquire any interests or obligations, which conflict with or hamper his
ability to perform as required hereby.
B. Consultant warrants and represents that he will perform any and all
services hereunder in a professional and workmanlike manner and that all
such work, within reason, shall be free of errors and defects. Consultant
shall immediately correct any error or defect at no additional cost to
SKYNET. This remedy is in addition to any and all other remedies which
SKYNET may have pursuant to this Agreement or otherwise. This warranty is
in addition to any warranty, which may be implied or imposed by operation
of law.
Page 3 of 5
<PAGE>
C. Consultant also warrants and represents that all services provided
hereunder are original and will not infringe any third party's proprietary
property rights or interests.
ARTICLE 11. RESTRICTIVE COVENANTS
---------------------
A. Consultant agrees that during the term of this Agreement, and for a period
of one (1) year thereafter, Consultant will not provide consulting services
of any kind to clients of SKYNET for whom Consultant provided services to,
under, or as a result of this Agreement.
B. Consultant agrees that without SKYNET's prior written approval, Consultant
shall not publish or use any advertising, sales promotion or publicity
matter relating to services, materials, information, products and reports
furnished by Consultant wherein the name "SKYNET " and/or any of SKYNET's
client's names are mentioned or their identity implied. Consultant
acknowledges and agrees that it acquires no rights to use or refer to, or
interest in, such name or names.
ARTICLE 12. HOLD HARMLESS
-------------
Consultant agrees to indemnify, defend and hold SKYNET harmless from and against
any suits, claims, damages, expenses, costs and liabilities arising out of
Consultant's negligent acts, omissions or wrongful conduct in the course of
performance of this Agreement, including, without limitation, the breach or
failure of any warranties and representations set forth herein. Should any
program, service and/or other materials developed by the Consultant under this
Agreement become, or in the Consultant's opinion be likely to become, the
subject of a claim of infringement of a copyright or patent, Consultant shall,
at his option, use his best efforts to either procure for SKYNET the right to
continue using the program, service and/or other materials developed by the
Consultant under this Agreement, or shall replace or modify the program, service
and/or other materials developed by the Consultant under this Agreement to make
it non-infringing.
ARTICLE 13. APPLICABLE LAW
--------------
This Agreement will be governed by, and construed in accordance with, the laws
of the State of California, excluding its conflict of law provisions.
Page 4 of 5
<PAGE>
ARTICLE 14. ENTIRE AGREEMENT
----------------
This agreement represents the entire agreement between the parties with respect
to the subject matter hereof, and supersedes all prior negotiations or
representations or independent contract agreements, whether written or oral.
This Agreement may be amended only by written instrument signed by the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
TRADESERV 94 INC. SKYNET HOLDINGS INC.
/s/ Andrew Lovell /s/ Vjekoslav Nizic
- --------------------------- ------------------------------
(Signature) (Signature)
President President
- --------------------------- ------------------------------
(Title) (Title)
August 24, 1998 August 24, 1998
- --------------------------- ------------------------------
(Date) (Date)
Page 5 of 5
<PAGE>
EXHIBIT 10.10
SkyNet Holdings, Inc.
1998 STOCK INCENTIVE PLAN
Section 1. General Purpose of the Plan; Definitions. The name of the plan
is the SkyNet Holdings, Inc. 1998 Stock Incentive Plan (the "Plan"). The purpose
of the Plan is to encourage and enable the officers, employees, directors and
consultants of SkyNet Holdings, Inc. (the "Company") and its Subsidiaries upon
whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Stock Awards, Performance Share Awards and
Stock Appreciation Rights.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Effective Date" means the date on which the Plan is approved by the
stockholders as set forth in Section 19.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported,
or (ii) if the Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; (iii) notwithstanding the
foregoing, the Fair Market Value of the Stock on the effective date of the
Initial Public Offering shall be the offering price to the public of the Stock
on such date; and (iv) if the Fair Market Value cannot be determined on the
basis previously set forth in this definition on the date that Fair Market Value
is to be determined, The Board shall in good faith determine the Fair Market
Value of the Stock on such date.
<PAGE>
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not an employee
or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any Option to purchase shares of Stock
granted pursuant to Section 6.
"Performance Share Award" means any Award granted pursuant to Section 12.
"Restricted Stock Award" means any Award granted pursuant to Section 10.
"Stock" means the Common Stock, par value $.0001 per share, of the Company,
subject to adjustments pursuant to Section 14.
"Stock Appreciation Right" or "SAR" means any Award granted pursuant to
Section 7.
"Stock Award" means any award granted pursuant to Section 11.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
Section 2. Administration. The Plan shall be administered by the full
Board of Directors of the Company or a committee of such Board of Directors
comprised of two or more "Non-Employee Directors" within the meaning of Rule
16b-3(a)(3) promulgated under the Act (the "Plan Administrator"). Subject to the
provisions of the Plan, the Plan Administrator is authorized to:
(a) construe the Plan and any Award under the Plan;
(b) select the directors, officers, employees and consultants of the
Company and its Subsidiaries to whom Awards may be granted;
(c) determine the number of shares of Stock to be covered by any
Award;
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<PAGE>
(d) determine and modify from time to time the terms and conditions,
including restrictions, of any Award and to approve the form of
written instrument evidencing Awards;
(e) accelerate at any time the exercisability or vesting of all or
any portion of any Award and/or to include provisions in awards
providing for such acceleration;
(f) impose limitations on Awards, including limitations on transfer
and repurchase provisions;
(g) extend the exercise period within which Stock Options may be
exercised; and
(h) determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an
Award shall be deferred either automatically or at the election
of the participant and whether and to what extent the Company
shall pay or credit amounts constituting interest (at rates
determined by the Plan Administrator) or dividends or deemed
dividends on such deferrals.
The determination of the Plan Administrator on any such matters shall be
conclusive.
Section 3. Delegation of Authority to Grant Awards. The Plan
Administrator, in its discretion, may delegate to the President and Chief
Executive Officer of the Company all or part of the Plan Administrator's
authority and duties with respect to granting Awards to individuals who are not
subject to the reporting provisions of Section 16 of the Act or "covered
employees" within the meaning of Section 162(m) of the Code. The Plan
Administrator may revoke or amend the terms of such a delegation at any time,
but such revocation shall not invalidate prior actions of the President and
Chief Executive Officer that were consistent with the terms of the Plan.
Section 4. Eligibility. Directors, officers, employees and consultants of
the Company or its Subsidiaries who, in the opinion of the Plan Administrator,
are mainly responsible for the continued growth and development and future
financial success of the business shall be eligible to participate in the Plan.
In addition, Independent Directors are eligible to receive an automatic grant of
Stock Options pursuant to Section 9 hereof.
Section 5. Shares Subject to the Plan. The number of shares of Stock which
may be issued pursuant to the Plan shall be the greater of 1,609,900 or 10% of
the total of the number of shares outstanding on each December 31, beginning on
December 31, 1998; provided, however, that the foregoing formula shall never
--------
result in a decrease in the maximum number of shares available under this Plan.
For purposes of the foregoing limitation, the shares of Stock underlying any
Awards which are forfeited, canceled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the number of shares of Stock available for issuance
under the Plan. Notwithstanding
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<PAGE>
the foregoing, on and after the date that the Plan is subject to Section 162(m)
of the Code, Stock Options with respect to no more than 100,000 shares of Stock
may be granted to any one individual participant during any one calendar year
period. To the extent that an SAR is granted in conjunction with an Option, the
shares covered by such SAR and Option shall be counted only once. Common Stock
to be issued under the Plan may be either authorized and unissued shares or
shares held in treasury by the Company.
Section 6. Stock Options. Options granted pursuant to the Plan may be
either Options which are Incentive Stock Options or Non-Qualified Stock Options.
Incentive Stock Options and Non-Qualified Stock Options shall be granted
separately hereunder. The Plan Administrator, shall determine whether and to
what extent Options shall be granted under the Plan and whether such Options
granted shall be Incentive Stock Options or Non-Qualified Stock Options;
provide, however, that: (a) Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock
Option may be granted following the tenth anniversary of the effective date of
the Plan. The provisions of the Plan and any stock Option agreement pursuant to
which Incentive Stock Options shall be issued shall be construed in a manner
consistent with Section 422 of the Code (or any successor provision) and rules
and regulations promulgated thereunder.
Section 7. Stock Appreciation Rights. The Plan Administrator may, from
time to time, subject to the provisions of the Plan, grant SARs to eligible
participants. Such SARs may be granted (i) alone, (ii) simultaneously with the
grant of an Option (either an Incentive Stock Option or Non-Qualified Stock
Option) and in conjunction therewith or in the alternative thereto or (iii)
subsequent to the grant of a Non-Qualified Stock Option and in conjunction
therewith or in the alternative thereto.
(a) An SAR shall entitle the holder upon exercise thereof to receive
from the Company, upon a written request filed with the Secretary
of the Company at its principal offices (the "Request"), (i) a
number of shares of Stock (with or without restrictions as to
substantial risk of forfeiture and transferability, as determined
by the Plan Administrator in its sole discretion), (ii) an amount
of cash, or (iii) any combination of shares of Stock and cash, as
specified in the Request (but subject to the approval of the Plan
Administrator in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash
payment), having an aggregate Fair Market Value equal to the
product of (i) the excess of the Fair Market Value, on the day of
such Request, of one share of Stock over the exercise price per
share specified in such SAR or its related Option, multiplied by
(ii) the number of shares of Stock for which such SAR shall be
exercised.
(b) The exercise price of an SAR granted alone shall be determined by
the Plan Administrator, but may not be less than the Fair Market
Value of the underlying Stock on the date of grant. An SAR
granted simultaneously with or subsequent to the grant of an
Option and in conjunction therewith
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<PAGE>
or in the alternative thereto shall have the same exercise price
as the related Option, shall be transferable only upon the same
terms and conditions as the related Option, and shall be
exercisable only to the same extent as the related Option;
provided, however, that an SAR, by its terms, shall be
-------- -------
exercisable only when the Fair Market Value of the Stock subject
to the SAR and related Option exceeds the exercise price thereof.
(c) Upon exercise of an SAR granted simultaneously with or subsequent
to an Option and in the alternative thereto, the number of shares
of Stock for which the related Option shall be exercisable shall
be reduced by the number of shares of Stock for which the SAR
shall have been exercised. The number of shares of Stock for
which an SAR shall be exercisable shall be reduced upon any
exercise of a related Option by the number of shares of Stock for
which such Option shall have been exercised.
(d) Any SAR shall be exercisable upon such additional terms and
conditions as may be prescribed by the Plan Administrator.
Section 8. Terms of Options and SARs. Each Option or SAR granted under the
Plan shall be evidenced by an agreement between the Company and the person to
whom such Option or SAR is granted and shall be subject to the following terms
and conditions:
(a) Subject to adjustment as provided in Section 14 of this Plan, the
price at which each share covered by an Option may be purchased
shall be determined in each case by the Plan Administrator;
provided, however, that such price shall not, in the case of an
Incentive Stock Option, be less than the Fair Market Value of the
underlying Stock at the time the Option is granted. If an
optionee owns (or is deemed to own under applicable provisions of
the Code and rules and regulations promulgated thereunder) more
than ten percent (10%) of the combined voting power of all
classes of the stock of the Company and an Option granted to such
optionee is intended to qualify as an Incentive Stock Option, the
Option price shall be no less than 110% of the Fair Market Value
of the Common Stock covered by the Option on the date the Option
is granted.
(b) The aggregate Fair Market Value of shares of Stock with respect
to which Incentive Stock Options are first exercisable by the
optionee in any calendar year (under all plans of the Company)
shall not exceed the limitations, if any, imposed by Section
422(d) of the Code (or any successor provision). If any Option
designated as an Incentive Stock Option, either alone or in
conjunction with any other Option or Options, exceeds the
foregoing limitation, the portion of such Option in excess of
such limitation shall automatically be reclassified (in whole
share increments and without fractional share portions) as a Non-
Qualified Stock Option, with later granted Options being so
reclassified first.
-5-
<PAGE>
(c) Neither an Option nor an SAR shall be transferable by the
participant without the permission of the Company otherwise than
by will or by the laws of descent and distribution or pursuant to
a domestic relations order. After the death of the participant,
the Option or SAR may be transferred to the Company upon such
terms and conditions, if any, as the Plan Administrator and the
personal representative or other person entitled to exercise the
Option or SAR may agree within the period specified in subsection
8(d)(iii) hereof.
(d) An Option or SAR may be exercised in whole at any time, or in
part from time to time, within such period or periods (not to
exceed ten years from the granting of the Option in the case of
an Incentive Stock Option) as may be determined by the Plan
Administrator and set forth in the agreement (such period or
periods being hereinafter referred to as the "Option Period"),
provided that, unless the agreement provides otherwise:
(i) If a participant who is an employee of the Company shall
cease to be employed by the Company, all Options and SARs to
which the employee is then entitled to exercise may be
exercised only within three months after the termination of
employment and within the Option Period or, if such
termination was due to disability or retirement (as
hereinafter defined), within one year after termination of
employment and within the Option Period. Notwithstanding the
foregoing: (a) in the event that any termination of
employment shall be for Cause (as defined herein) or the
participant becomes an officer or director of, a consultant
to or employed by a Competing Business (as defined herein),
during the Option Period, then any and all Options and SARs
held by such participant shall forthwith terminate; and(b)
the Plan Administrator may, in its sole discretion, extend
the Option Period of any Option or SAR for up to three years
from the date of termination of employment regardless of the
original Option Period. For purposes of the Plan, retirement
shall mean the termination of employment with the Company,
other than for Cause, at any time after the age 65.
For purposes of this Plan, the term "Cause" shall mean (a)
with respect to an individual who is party to a written
agreement with the Company which contains a definition of
"cause" or "for cause" or words of similar import for
purposes of termination of employment thereunder by the
Company, "cause" or "for cause" as defined in such
agreement; (b) in all other cases (I) the willful commission
by an employee of a criminal or other act that causes
substantial economic damage to the Company or substantial
injury to the business reputation of the Company; (II) the
commission of an act of fraud in the performance of such
person's duties to or on
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<PAGE>
behalf of the Company; or (III) the continuing willful
failure of a person to perform the duties of such person to
the Company (other than a failure to perform duties
resulting from such person's incapacity due to illness)
after written notice thereof (specifying the particulars
thereof in reasonable detail) and a reasonable opportunity
to cure such failure are given to the person by the Board of
Directors of the Company or the Plan Administrator. For
purposes of the Plan, no act, or failure to act, on the part
of any person shall be considered "willful" unless done or
omitted to be done by the person other than in good faith
and without reasonable belief that the person's action or
omission was in the best interest of the Company.
For purposes of this Plan, the term "Competing Business"
shall mean: any person, corporation or other entity engaged
in the business of (a) providing international or domestic
courier services or (b) selling or attempting to sell any
product or service which is the same as or similar to
products or services sold by the Company within the last
year prior to termination of such person's employment,
consultant relationship or directorship, as the case may be,
hereunder.
(ii) If a participant who is a director of the Company shall
cease to serve as a director of the Company, any Options or
SARs then exercisable by such director may be exercised only
within three months after the cessation of service and
within the Option Period unless such cessation was due to
disability, in which case such Optionee may exercise such
Option or SAR within one year after cessation of service and
within the Option Period.
Notwithstanding the foregoing: (a) if any cessation of
service as a director was the result of removal for Cause or
the participant becomes an officer or director of, a
consultant to or employed by a Competing Business during the
Option Period, any Options and SARs held by such participant
shall forthwith terminate; and (b) the Plan Administrator
may in its sole discretion extend the Option Period of any
Option or SAR for up to three years from the date of
cessation of service regardless of the original Option
Period;
(iii) If the participant shall die during the Option Period, any
Options or SARs then exercisable may be exercised only
within one year after the participant's death and within the
Option Period and only by the participant's personal
representative or persons entitled thereto under the
participant's will or the laws of descent and distribution;
-7-
<PAGE>
(iv) The Option or SAR may not be exercised for more shares
(subject to adjustment as provided in Section 14) after the
termination of the participant's employment, cessation of
service as a director or the participant's death, as the
case may be, than the participant was entitled to purchase
thereunder at the time of the termination of the
participant's employment or the participant's death; and
(v) If a participant owns (or is deemed to own under applicable
provisions of the Code and regulations promulgated
thereunder) more than 10% of the combined voting power of
all classes of stock of the Company (or any parent or
subsidiary corporation of the Company) and an Option granted
to such participant is intended to qualify as an Incentive
Stock Option, the Option by its terms may not be exercisable
after the expiration of five years from the date such Option
is granted.
(e) The Option exercise price of each share purchased pursuant to an
Option shall be paid in full at the time of each exercise (the
"Payment Date") of the Option (i) in cash; (ii) by delivering to
the Company a notice of exercise with an irrevocable direction to
a broker-dealer registered under the Act to sell a sufficient
portion of the shares and deliver the sale proceeds directly to
the Company to pay the exercise price; (iii) in the discretion of
the Plan Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair
Market Value equal to the Option exercise price of the shares
being purchased pursuant to the exercise of the Option; provided,
however, that shares of Common Stock delivered in payment of the
Option price must have been held by the participant for at least
six (6) months in order to be utilized to pay the Option price;
(iv) in the discretion of the Plan Administrator, through an
election to have shares of Common Stock otherwise issuable to the
optionee withheld to pay the exercise price of such Option; or
(v) in the discretion of the Plan Administrator, through any
combination of the payment procedures set forth in subsections
(i)-(iv) of this Section 8(e).
(f) The Plan Administrator, in its discretion, may authorize "stock
retention Options" which provide, upon the exercise of an Option
previously granted under this Plan (a "prior Option"), using
previously owned shares, for the automatic issuance of a new
Option under this Plan with an exercise price equal to the
current Fair Market Value and for up to the number of shares
equal to the number of previously-owned shares delivered in
payment of the exercise price of the prior Option. Such stock
retention Option shall have the same Option Period as the prior
Option.
(g) Nothing contained in the Plan nor in any Award agreement shall
confer upon any participant any right with respect to the
continuance of
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<PAGE>
employment by the Company nor interfere in any way with the right
of the Company to terminate his employment or change his
compensation at any time.
(h) The Plan Administrator may include such other terms and
conditions not inconsistent with the foregoing as the Plan
Administrator shall approve. Without limiting the generality of
the foregoing sentence, the Plan Administrator shall be
authorized to determine that Options or SARs shall be exercisable
in one or more installments during the term of the Option,
subject to the attainment of performance goals and objectives and
the right to exercise may be cumulative as determined by the Plan
Administrator.
Section 9. Independent Director Options. Anything to the contrary
notwithstanding, each Independent Director who is first elected or appointed to
serve as a director commencing after the effective time of this Plan shall
automatically be granted Non-Qualified Stock Options to purchase _______ shares
of Stock. The Option exercise price for Options granted to Independent Directors
under the Plan will be equal the Fair Market Value of the Stock on the date of
grant. Options granted to Independent Directors under the foregoing provisions
will be granted on the date that such Independent Director is first elected or
appointed to serve as a director and will vest in equal annual installments over
three years commencing on the anniversary of the date of grant and will expire
ten years after grant, subject to earlier termination if the optionee ceases to
serve as a director.
Section 10. Restricted Stock Awards.
(a) The Plan Administrator may grant Restricted Stock Awards to any
officer, employee or consultant of the Company and its
Subsidiaries. A Restricted Stock Award entitles the recipient to
acquire shares of Stock subject to such restrictions and
conditions as the Plan Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing
employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.
(b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price,
a participant shall have the rights of a shareholder with respect
to the Stock subject to the Restricted Stock Award, including,
but not limited to the right to vote and receive dividends with
respect thereto; provided, however, that shares of Stock subject
to Restricted Stock Awards that have not vested shall be subject
to the restrictions on transferability described in Section 10(d)
below. Unless the Plan Administrator shall otherwise determine,
certificates evidencing the Restricted Stock shall remain in the
possession of the Company until such Restricted Stock is vested
as provided in Section 10(c) below.
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<PAGE>
(c) The Plan Administrator at the time of grant shall specify the
date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which
Restricted Stock shall become vested, subject to such further
rights of the Company or its assigns as may be specified in the
instrument evidencing the Restricted Stock Award. If the grantee
or the Company, as the case may be, fails to achieve the
designated goals or the grantee's relationship with the Company
is terminated prior to the expiration of the vesting period, the
grantee shall forfeit all shares of Stock subject to the
Restricted Stock Award which have not then vested.
(d) Unvested Restricted Stock may not be sold, assigned transferred,
pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument
evidencing the Restricted Stock Award.
Section 11. Stock Awards. The Plan Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Plan
Administrator) a Stock Award to any officer, employee or consultant of the
Company or its Subsidiaries, pursuant to which such individual may receive
shares of Stock free of any vesting restrictions (a "Stock Award") under the
Plan. Stock Awards may be granted or sold as described in the preceding sentence
in respect of past services or other valid consideration, or in lieu of any cash
compensation due to such individual.
Section 12. Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Plan Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. Performance Share Awards may be granted under the Plan to any
officer, employee or consultant of the Company or its Subsidiaries, including
those who qualify for awards under other performance plans of the Company. The
Plan Administrator in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Plan Administrator may rely on the performance goals
and other standards applicable to other performance plans of the Company in
setting the standards for Performance Share Awards under the Plan.
Section 13. Tax Withholding.
(a) Whenever shares are to be issued or cash is to be paid under the
Plan, the Company shall have the right to require the participant
to remit to the Company an amount sufficient to satisfy federal,
state and local tax withholding requirements prior to the
delivery of any certificate for shares or any proceeds; provided,
however, that in the case of a participant who receives an Award
of shares under the Plan which is not fully vested, the
participant shall remit such amount on the first business day
following the Tax Date. The "Tax Date" for purposes of this
Section 13 shall be the date on which the amount of tax to be
withheld is determined. If a
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<PAGE>
participant makes a disposition of shares acquired upon the
exercise of an Incentive Stock Option within either two years
after the Option was granted or one year after its exercise by
the participant, the participant shall promptly notify the
Company and the Company shall have the right to require the
participant to pay to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements.
(b) A participant who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding
requirements may pay such amount (i) in cash; (ii) in the
discretion of the Plan Administrator, through the delivery to the
Company of previously-owned shares of Common Stock having an
aggregate Fair Market Value on the Tax Date equal to the tax
obligation provided that the previously owned shares delivered in
satisfaction of the withholding obligations must have been held
by the participant for at least six (6) months; or (iii) in the
discretion of the Plan Administrator, through a combination of
the procedures set forth in subsections (i) and (ii) of this
Section 13(b).
(c) A participant who is obligated to pay to the Company an amount
required to be withheld under applicable tax withholding
requirements in connection with either the exercise of a Non-
Qualified Stock Option, or the receipt of a Restricted Stock
Award, Stock Award or Performance Share Award under the Plan may,
in the discretion of the Plan Administrator, elect to satisfy
this withholding obligation, in whole or in part, by requesting
that the Company withhold shares of stock otherwise issuable to
the participant having a Fair Market Value on the Tax Date equal
to the amount of the tax required to be withheld; provided,
however, that shares may be withheld by the Company only if such
withheld shares have vested. Any fractional amount shall be paid
to the Company by the participant in cash or shall be withheld
from the participant's next regular paycheck.
(d) An election by a participant to have shares of stock withheld to
satisfy federal, state and local tax withholding requirements
pursuant to Section 13(c) must be in writing and delivered to the
Company prior to the Tax Date.
Section 14. Adjustment of Number and Price of Shares.
Any other provision of the Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar
transaction, the outstanding shares of Stock are increased or
decreased or are exchanged for a different number or kind of
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<PAGE>
shares or other securities of the Company, or additional shares
or new or different shares or other securities of the Company or
other non-cash assets are distributed with respect to such shares
of Stock or other securities, the Plan Administrator shall make
an appropriate or proportionate adjustment in (i) the number of
Stock Options that can be granted to any one individual
participant, (ii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan,
and (iii) the price for each share subject to any then
outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by
the number of shares) as to which such Stock Options remain
exercisable. The adjustment by the Plan Administrator shall be
final, binding and conclusive.
(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors shall
authorize the issuance or assumption of a stock Option or stock
Options in a transaction to which Section 424(a) of the Code
applies, then, notwithstanding any other provision of the Plan,
the Plan Administrator may grant an Option or Options upon such
terms and conditions as it may deem appropriate for the purpose
of assumption of the old Option, or substitution of a new Option
for the old Option, in conformity with the provisions of Code
Section 424(a) and the rules and regulations thereunder, as they
may be amended from time to time.
(c) No adjustment or substitution provided for in this Section 14
shall require the Company to issue or to sell a fractional share
under any stock Option agreement or share award agreement and the
total adjustment or substitution with respect to each stock
Option and share award agreement shall be limited accordingly.
(d) In the case of (i) the dissolution or liquidation of the Company,
(ii) a merger, reorganization or consolidation in which the
Company is acquired by another person or entity (other than a
holding company formed by the Company), (iii) the sale of all or
substantially all of the assets of the Company to an unrelated
person or entity, or (iv) the sale of all of the stock of the
Company to a unrelated person or entity (in each case, a
"Fundamental Transaction"), the Plan and all Awards granted
hereunder shall terminate, unless provision is made in connection
with the Fundamental Transaction for the assumption of the Awards
heretofore granted, or the substitution of such Awards with new
awards of the successor entity, with appropriate adjustment as to
the number and kind of shares and, if appropriate, the per share
exercise price as provided in Subsections (a) and (b) of this
Section 14. In the event of such termination each participant
shall be notified of such proposed termination and permitted to
exercise for a period of at least 15 days prior
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<PAGE>
to the date of such termination all Options and SARs held by such
participant which are then exercisable.
Section 15. Amendment and Discontinuance. The Board of Directors may alter,
amend, suspend or discontinue the Plan, provided that no such action shall
deprive any person without such person's consent of any rights theretofore
granted pursuant hereto.
Section 16. Compliance with Governmental Regulations. Notwithstanding any
provision of the Plan or the terms of any agreement entered into pursuant to the
Plan, the Company shall not be required to issue any shares hereunder prior to
registration of the shares subject to the Plan under the Securities Act of 1933
or the Act, if such registration shall be necessary, or before compliance by the
Company or any participant with any other provisions of either of those acts or
of regulations or rulings of the Securities and Exchange Commission thereunder,
or before compliance with other federal and state laws and regulations and
rulings thereunder, including the rules any applicable exchange or of the Nasdaq
Stock Market. The Company shall use its best efforts to effect such
registrations and to comply with such laws, regulations and rulings forthwith
upon advice by its counsel that any such registration or compliance is
necessary.
Section 17. Compliance with Section 16. With respect to persons subject to
Section 16 of the Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 (or its successor rule and shall be
construed to the fullest extent possible in a manner consistent with this
intent). To the extent that any Award fails to so comply, it shall be deemed to
be modified to the extent permitted by law and to the extent deemed advisable by
the Plan Administrator in order to comply with Rule 16b-3.
Section 18. Participation by Foreign Nationals. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the Plan,
modify grants to foreign nationals or United States citizens employed abroad in
order to recognize differences in local law, tax policy or custom.
Section 19. Effective Date of Plan. The Plan became effective on November
20, 1998, the date of approval and adoption of the Plan by requisite vote of the
holders of the outstanding shares of Stock.
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<PAGE>
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
by and among
SKYNET HOLDINGS, INC.
and
FLEET ACQUISITION CORP.
as the Buyers
NEVADA FLEET MANAGEMENT, INC.
as Seller
Dated March 11, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
1. DEFINITIONS........................................................................................ 1
1.1 Definitions.................................................................................. 1
-----------
1.2 Interpretation Provisions.................................................................... 8
-------------------------
2. SALE AND PURCHASE OF ASSETS AND VEHICLES........................................................... 9
2.1 Agreement to Sell and Purchase Assets and Vehicles........................................... 9
--------------------------------------------------
2.2 Responsibility for Liabilities............................................................... 9
------------------------------
2.3 Taking of Necessary Action; Further Action...................................................11
------------------------------------------
3. PAYMENT OF THE PURCHASE CONSIDERATION..............................................................11
3.1 Purchase Consideration.......................................................................11
----------------------
3.2 Escrow Provisions............................................................................11
-----------------
3.3 Post-Closing Review of Closing Balance Sheet; Adjustment to Purchase
--------------------------------------------------------------------
Consideration............................................................................12
-------------
4. REPRESENTATIONS OF SELLER..........................................................................13
4.1 Organization and Standing of Seller..........................................................14
-----------------------------------
4.2 Due Authorization............................................................................14
-----------------
4.3 No Conflict or Violation; Consents...........................................................14
----------------------------------
4.4 Real Property................................................................................14
-------------
4.5 Personal Property............................................................................15
-----------------
4.6 Litigation...................................................................................16
----------
4.7 Environmental Matters........................................................................16
---------------------
4.8 Third Party Consents.........................................................................16
--------------------
4.9 Labor Matters................................................................................17
-------------
4.10 Intellectual Property.......................................................................17
---------------------
4.11 Financial Statements; Books and Records.....................................................18
---------------------------------------
4.12 Insurance...................................................................................18
---------
4.13 Accounts Receivable.........................................................................18
-------------------
4.14 Tax Matters.................................................................................18
-----------
4.15 Bulk Sales Compliance and Transfer Taxes....................................................19
----------------------------------------
4.16 Contracts...................................................................................19
---------
4.17 Customers...................................................................................20
---------
4.18 Employee Benefit Matters....................................................................20
------------------------
4.19 No Significant Agreements Excluded..........................................................20
----------------------------------
4.20 Compliance with Law.........................................................................20
-------------------
4.21 SkyNet Shares...............................................................................21
-------------
4.22 Absence of Certain Changes or Events........................................................22
------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.23 Brokers' Fees...............................................................................22
-------------
4.24 Full Disclosure.............................................................................22
---------------
5. REPRESENTATIONS OF SKYNET AND SUB..................................................................23
5.1 Organization and Standing of SkyNet..........................................................23
-----------------------------------
5.2 Organization and Standing of Sub.............................................................23
--------------------------------
5.3 Authorization and Enforceability.............................................................23
--------------------------------
5.4 No Conflict or Violation; Consents...........................................................24
----------------------------------
5.5 SkyNet Shares................................................................................24
-------------
5.6 Approval.....................................................................................24
--------
5.7 Brokers' Fees................................................................................24
-------------
5.8 Absence of Certain Changes or Events.........................................................24
------------------------------------
5.9 Litigation...................................................................................25
----------
5.10 Third Party Consents........................................................................26
--------------------
5.11 Financial Statements; Books and Records.....................................................26
---------------------------------------
5.12 Insurance...................................................................................26
---------
5.13 Tax Matters.................................................................................27
-----------
5.14 Full Disclosure.............................................................................27
---------------
6. CLOSING............................................................................................27
6.1 Closing......................................................................................27
-------
6.2 Obligations of Seller........................................................................28
---------------------
6.3 Obligations of SkyNet and Sub................................................................29
-----------------------------
6.4 Further Documents or Necessary Action........................................................29
-------------------------------------
7. COVENANTS AND AGREEMENTS...........................................................................29
7.1 Conduct of Business Pending the Closing......................................................29
---------------------------------------
7.2 Access By the Buyers; Confidentiality........................................................30
-------------------------------------
7.3 Access By Seller; Confidentiality............................................................30
---------------------------------
7.4 Notice of Breach or Failure of Condition.....................................................31
----------------------------------------
7.5 Contract Consents...........................................................................31
------------------
7.6 Production of Schedules and Exhibits.........................................................31
------------------------------------
7.7 Best Efforts.................................................................................32
------------
7.8 Exclusive Dealing............................................................................32
-----------------
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS......................................................32
8.1 Representations True at Closing..............................................................32
-------------------------------
8.2 Performance..................................................................................32
-----------
8.3 No Adverse Changes...........................................................................32
------------------
8.4 Litigation...................................................................................33
----------
8.5 Due Diligence................................................................................33
-------------
8.6 Transportation Agreement.....................................................................33
------------------------
8.7 Registration Rights Agreement................................................................33
-----------------------------
8.8 Transitional Sublease........................................................................33
---------------------
8.9 Replacement Las Vegas Facility...............................................................33
------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.10 Assignment of Leases........................................................................33
--------------------
8.11 Escrow Agreement............................................................................33
----------------
8.12 Certificate.................................................................................34
-----------
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER......................................................34
9.1 Representations True at Closing..............................................................34
-------------------------------
9.2 Performance..................................................................................34
-----------
9.3 No Adverse Changes...........................................................................34
------------------
9.4 Litigation...................................................................................34
----------
9.5 Governmental Consents........................................................................34
---------------------
9.6 Transportation Agreement.....................................................................35
------------------------
9.7 Registration Rights Agreement................................................................35
-----------------------------
9.8 Due Diligence................................................................................35
-------------
9.9 Escrow Agreement.............................................................................35
----------------
9.10 Replacement Las Vegas Facility..............................................................35
------------------------------
9.11 Interstate and Intrastate Operational Authority.............................................35
-----------------------------------------------
9.12 Third Party Consents........................................................................35
--------------------
9.13 Assignment of Lease.........................................................................35
-------------------
9.14 Certificate.................................................................................36
-----------
10. POST CLOSING COVENANTS............................................................................36
10.1 Access to Books and Records.................................................................36
---------------------------
10.2 Restrictions on Transfer of SkyNet Stock....................................................36
----------------------------------------
10.3 Employee Matters............................................................................36
----------------
10.4 Real Property Lease Matters.................................................................37
---------------------------
10.5 Transfer of Right to Use the Name "Fleet Delivery Service"..................................37
----------------------------------------------------------
11. NON-COMPETITION...................................................................................38
11.1 Covenant Not to Compete.....................................................................38
-----------------------
11.2 Covenant Not to Disclose....................................................................38
------------------------
11.3 Remedies....................................................................................38
--------
11.4 Invalidity..................................................................................39
----------
12. INDEMNIFICATION AND RELATED MATTERS...............................................................39
12.1 Survival of Representations.................................................................39
---------------------------
12.2 Indemnification by Seller...................................................................39
-------------------------
12.3 Indemnification by the Buyers...............................................................40
-----------------------------
12.4 Third Party Claims..........................................................................40
------------------
13. TERMINATION.......................................................................................41
13.1 Termination by Mutual Consent...............................................................41
-----------------------------
13.2 Termination Upon Breach or Default..........................................................41
----------------------------------
13.3 Termination Based Upon Failure of Conditions................................................41
--------------------------------------------
13.4 Termination on Termination Date.............................................................42
-------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
14. GENERAL...........................................................................................42
14.1 Entire Agreement............................................................................42
----------------
14.2 Binding Effect; Benefits; Assignment........................................................42
------------------------------------
14.3 Headings....................................................................................42
--------
14.4 Amendment and Waiver........................................................................42
--------------------
14.5 Governing Law...............................................................................43
-------------
14.6 Arbitration.................................................................................43
-----------
14.7 Public Disclosure...........................................................................43
-----------------
14.8 Notices.....................................................................................43
-------
14.9 Counterparts................................................................................44
------------
14.10 Expenses...................................................................................45
--------
14.11 Invalidity.................................................................................45
----------
</TABLE>
<TABLE>
<CAPTION>
Schedules
<C> <S>
1.1.1 Assets
1.1.2 Vehicles
2.2.1.2.2 Letter of Western Technologies, Inc.
2.2.2.3 Liabilities for Employee Benefits
3.3.3 Allocation of Purchase Price
4.1 Organization and Standing of Seller
4.3 No Conflict or Violation; Consent
4.4.3 Leased Real Property
4.5.2 Owned Personal Property
4.6 Litigation
4.9.1 List of Employees
4.9.2 Labor Matters
4.9.4 Severance Agreement
4.10.1 Intellectual Property Assets
4.11.1 Seller's Financial Statements
</TABLE>
iv
<PAGE>
4.12 Sellers Insurance Policies or Binders
4.14.1 Seller's Tax Returns
4.14.2 Seller's Payment of Taxes
4.14.3 Seller Audits, Investigations or Claims
4.16.1 Contracts
4.16.2 Material Compliance of Contracts
4.17 List of Customers dated February 28, 1999
4.22 No Adverse Business Changes
5.1 Organization and Standing of SkyNet
5.2 Organization and Standing of Sub
5.4 No Conflicts or Violations; Consents
5.8 No Material Adverse Changes to Buyers
5.9 Litigation
5.12 Buyers' Insurance Policies
5.11.1 SkyNet Financial Statements
5.13.1 Buyers - Filing of Tax Returns
5.13.2 Buyers - Payment of Taxes
5.13.3 Buyers - Audits, Investigations, Claims
6.2.7 Vehicles Sales Agreement
7.5 Contract Consents
Exhibits
A IRS Form 8594
v
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of March
11, 1999, by and among SKYNET HOLDINGS, INC., a publicly-owned Delaware
corporation ("SkyNet") and FLEET ACQUISITION CORP. ("Sub"), a Nevada corporation
which is a wholly-owned subsidiary of SkyNet (SkyNet and Sub are collectively
referred to as the "Buyers"), and NEVADA FLEET MANAGEMENT, INC., a Nevada
corporation (the "Seller").
WITNESSETH:
WHEREAS, Seller operates a routed courier delivery business (the
"Business") from various locations in Nevada, California, Oregon, Washington,
Arizona [and Utah]; and
WHEREAS, SkyNet currently operates a worldwide courier business; and
WHEREAS, Seller desires to sell certain assets it currently owns and
uses in the Business as conducted as of the date hereof, which assets are
specifically described on a schedule hereto or elsewhere in this Agreement,
including contract rights, intellectual property rights and the goodwill and
going concern value of such Business; and
WHEREAS, (i) Seller wishes to cease operating the Business; (ii) the
Buyers wish to purchase certain of the assets used by Seller in the Business and
acquire from the Seller certain vehicles, owned by Seller and used by Seller in
the Business.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and representations herein contained, and for other good
and legal consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller and the Buyers, intending to be legally bound hereby, agree
as follows:
1. DEFINITIONS
1.1 Definitions.
-----------
When used in this Agreement, the following terms, in their singular
and plural forms, shall have the meanings assigned to them below:
"Accounts Payable" means the accounts payable reflected on the Closing
----------------
Balance Sheet.
"Accounts Receivable" means the accounts receivable reflected on the
-------------------
Closing Balance Sheet.
"Act" means the Securities Act of 1933, as amended.
---
"Affiliate Vehicles" is defined in Section 6.2.7.
------------------
1
<PAGE>
"Agreement" is defined in the initial paragraph hereof.
---------
"Ancillary Agreements" means the Escrow Agreement, the Registration
--------------------
Rights Agreement, the Transitional Sublease and the Transportation Agreement.
"Assets" means (i) those assets specifically identified on Schedule
------
1.1.1 hereto used by the Seller in the Business in its two Las Vegas facilities,
and (ii) all of Seller's tangible assets used in the operation of the Business
located in its Satellite Locations, including without limitation office
furniture and office equipment, machinery and trade equipment, vehicle
maintenance equipment, spare automotive parts, computers, computer peripherals
and, fixtures, and (iii) certain intangible assets owned by Seller and used in
the Business, limited to:
(a) all of Seller's interest in and to the Contracts;
(b) non-privileged operating data and records of Seller since January
1, 1997, limited to, all client and customer lists and records, referral
sources, research and development reports and records, production reports and
records, configuration files, operating guides and manuals, sales literature,
copies of the Records, telephone numbers (including voice, fax and pager
numbers) used at any of Seller's locations, correspondence and other similar
documents relating to the Business;
(c) all of the intellectual property owned by Seller and used in
connection with the Business, including all trade secrets, know-how, processes,
methods, plans, research data, marketing plans and strategies, forecasts,
trademarks, service marks, trade names, patents and patent rights, logos and
copyrights and, subject to the provisions of Section 10.5 hereof, all rights to
use the name "Fleet Delivery Service";
(d) the goodwill and going concern value of the Business;
(e) all cash and bank accounts of the Seller as of the Closing Date;
and
(f) all Accounts Receivable and obligations for Accounts Payable
incurred in the Ordinary Course of Business.
"Business" means Seller's routed courier service, as conducted by
--------
Seller as of the date of Closing and during all relevant periods covered by the
Financial Statements.
"Buyers" is defined in the initial paragraph hereof.
------
"Buyers' Closing Balance Sheet" is defined in Section 3.3.2.
-----------------------------
"Claim" means (i) a claim or demand for any and all Liabilities,
-----
damages, losses, obligations, deficiencies, encumbrances, penalties, costs and
expenses, including reasonable attorneys' fees, resulting from, related to or
arising out of (A) any inaccuracy in any representation, any misrepresentation
or non-fulfillment of any covenant set forth in this Agreement or in any
Ancillary Agreement; (B) Seller' ownership of the Assets; (C) any and all
2
<PAGE>
Proceedings, demands, assessments, audits, judgments and claims arising out of
any of the foregoing; (ii) any adjustment to the Purchase Consideration required
pursuant to Section 3.3.3 hereof.
"Closing" is defined in Section 6.1.
-------
"Closing Balance Sheet" means the unaudited balance sheet of Seller,
---------------------
dated as of February 28, 1999, to be prepared and delivered by Seller to the
Buyers on the Closing Date (who shall acknowledge to the Seller receipt thereof
when delivered), which balance sheet shall be prepared in accordance with GAAP.
"Closing Date" is defined in Section 6.1.
------------
"Contract" means all agreements, contracts, leases (whether for real
--------
or personal property), purchase orders, undertakings, covenants not to compete,
employment agreements, confidentiality agreements, licenses, instruments,
obligations and commitments to which Seller is a party or by which Seller or any
of the Assets are bound or affected, whether written or oral.
"Court Order" means any judgment, decision, consent decree,
-----------
injunction, ruling or order of any foreign, federal, state or local court or
governmental agency, department or authority that is binding on any Person or
its property under applicable law.
"Employees" means all Persons employed by Seller on a full or part-
---------
time basis, together with any Person retained as an independent contractor or
subcontractor, as of the relevant date.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
-----------
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Environmental Claims" means all notices of violation, liens, claims,
--------------------
demands, suits, or causes of action for any damage, including, without
limitation, personal injury, property damage (including, without limitation, any
depreciation or diminution of property values), lost use of property or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws. By way of example only (and not by way of
limitation), Environmental Claims include (i) violations of or obligations under
any contract related to Environmental Laws or Environmental Conditions between
any Seller and any other person, (ii) actual or threatened damages to natural
resources, (iii) claims for nuisance or its statutory equivalent, (iv) claims
for the recovery of response costs, or administrative or judicial orders
directing the performance of investigations, responses or remedial actions under
any Environmental Laws, (v) requirements to implement "corrective action"
pursuant to any order or permit issued pursuant to the Resource Conservation and
Recovery Act, as amended ("RCRA"),
3
<PAGE>
or similar provisions of applicable state law, (vi) claims related to
Environmental Laws or Environmental Conditions for restitution, contribution, or
indemnity, (vii) fines, penalties or liens of any kind against property related
to Environmental Laws or Environmental Conditions, (viii) claims related to
Environmental Laws or Environmental Conditions for injunctive relief or other
orders or notices of violation from federal, state or local agencies or courts,
and (ix) with regard to any present or former employees, claims relating to
exposure to or injury from Environmental Conditions.
"Environmental Conditions" means the state of the environment,
------------------------
including natural resources (e.g., flora and fauna), soil, surface water, ground
water, any drinking water supply, subsurface strata or ambient air, relating to
or arising out of the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, pouring, emptying,
discharging, injecting, escaping, leaching, disposal, dumping or threatened
release of Hazardous Substances by Seller or any of their predecessors or
successors in interest, or by their respective agents, representatives,
employees or independent contractors when acting in such capacity on behalf of
any Seller. With respect to Environmental Claims by third parties,
Environmental Conditions also include the exposure of persons to Hazardous
Substances at the work place or the exposure of persons or property to Hazardous
Substances migrating from or otherwise emanating from or located on property
owned or occupied by any Seller.
"Environmental Laws" means all applicable federal, state, district and
------------------
local laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation, (i) laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, industrial materials, wastes or
other substances into the environment and (ii) laws relating to the
identification, generation, manufacture, processing, distribution, use,
treatment, storage, disposal, recovery, transport or other handling of
pollutants, contaminants, chemicals, industrial materials, wastes or other
substances. Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, RCRA, the Clean Water Act, as amended,
the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the
Occupational Safety and Health Act, as amended, and all analogous laws
promulgated or issued by any state or other Governmental Authority.
"Environmental Reports" means any and all written analyses, summaries
---------------------
or explanations, in the possession or control of any Seller, of (a) any
Environmental Conditions in, on or about the properties of any Seller, or (b)
any Seller's compliance with Environmental Laws.
"Escrow Agent" means Jack E. Owens.
------------
"Escrow Agreement" is defined in Section 3.2.1.
----------------
"Escrow Shares" is defined in Section 3.2.1.
-------------
4
<PAGE>
"Excluded Assets" means all other interests held by and assets owned
---------------
by the Seller not specifically identified in Schedule 1.1.2 or located at the
Satellite Locations, including but not limited to:
(a) the minutes corporate book and corporate records and corporate
seal of Seller;
(b) the shares of capital stock of Seller; and
(c) all claims of Seller, its agents or affiliates against third
parties, whether known or unknown, contingent or otherwise, including any and
all claims relating to former employee Clarence Thomas;
(d) all privileged files and records, including but not limited to any
and all: insurance material, files and policies; employee personnel files;
employee medical, drug, and workers compensation files; claims files; legal
files (including but not limited to any and all material relating to former
employee Clarence Thomas); and material relating to claims against third
parties;
(e) other property interests (including leasehold improvements not
constituting fixtures under applicable law); and
(f) operating licenses from all governmental agencies in all states.
"Facilities" means all real property and related facilities leased by
----------
Seller, all as identified or listed on Schedule 4.4.3.
"Financial Statements" means (a) the balance sheets of Seller as of
--------------------
December 31, 1998 and December 31, 1997 and the related statements of income,
changes in stockholders' equity and cash flows of Seller, and all notes thereto,
for the years then ended, together with the audit report of McGladrey & Pullen,
LLP thereon.
"GAAP" means generally accepted accounting principles in the United
----
States, consistently applied.
"Governmental Authority" means any foreign, federal, state, regional
------------ ---------
or local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
--------------------
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs, pesticides,
herbicides, asbestos, sludge, slag, acids, metals, solvents and waste waters.
5
<PAGE>
"Indemnified Party" is defined in Section 12.4.
-----------------
"Knowledge" or "to the knowledge" of a party (or similar phrases)
-------- ----------------
means to the extent of matters (i) which are actually known by such party or
(ii) which, based on facts of which such party is aware, would be known to a
reasonable Person in similar circumstances exercising reasonable judgment, and
when used in the context of Seller shall be deemed to include the knowledge of
the officers, directors and shareholders of Seller.
"Law" means any common law and any federal, state, regional, local or
---
foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts of
-----------
Seller of any type or nature, whether matured, unmatured, contingent or unknown,
including, without limitation, tort, contract or other claims asserted against
Seller which are based on acts or omissions occurring on, before or after the
Closing Date.
"Lien" means any lien, charge, covenant, condition, easement, adverse
----
claim, demand, encumbrance, security interest, option, pledge, or any other
title defect, easement or restriction of any kind.
"Material Adverse Effect" or "Material Adverse Change" or a similar
----------------------- -----------------------
phrase means, with respect to any Person, (a) any material adverse effect on or
material adverse change with respect to (i) the business, operations and assets
(taken as a whole), liabilities (taken as a whole), condition (financial or
otherwise) or results of operations, of such Person and its subsidiaries, taken
as a whole, or (ii) the right or ability of such Person or any of its
subsidiaries to consummate any of the transactions contemplated hereby or (b)
any event or condition which, with the giving or receipt of notice or the
occurrence or nonoccurrence of any other circumstance, action or event, would
reasonably be expected to constitute a "Material Adverse Effect" on or "Material
Adverse Change" with respect to such Person. Notwithstanding the foregoing, a
Material Adverse Effect or Material Adverse Change shall not include any
decrease in the number of customers or clients serviced by Seller, nor would it
include any loss of any particular clients or customers of Seller, nor the
consequences of any of such events, on or after the date of this Agreement.
"Major Customer" is defined in Section 7.5.
--------------
"1993 Act" means the Securities Act of 1933.
--------
"1934 Act" means the Securities Exchange Act of 1934.
--------
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Permits" means all licenses, permits, franchises, approvals,
-------
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state
6
<PAGE>
or local, necessary or desirable for the current conduct or operation of the
Business or ownership of the Assets of such Person.
"Person" means any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Proceeding" means any, arbitration, hearing, litigation, or suit
----------
(whether civil, criminal or, administrative) commenced, brought, conducted, or
heard by or before, or otherwise involving, any administrative law, civil or
criminal judge or any mediator, Governmental Authority or arbitrator.
"Purchase Consideration" is defined in Section 3.1.1.
----------------------
"Records" means all financial, accounting and personnel records of
-------
Seller relating to the Business.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement by and between Seller and SkyNet in form and substance to be agreed by
the parties and delivered at the Closing.
"Regulations" means any laws, statutes, ordinances, regulations,
-----------
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation energy, motor
vehicle safety, public utility, zoning, building and health codes, Environmental
Laws, occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Related Documents" means this Agreement and each document or
-----------------
instrument executed in connection with the consummation of the transactions
contemplated herein.
"Satellite Locations" means Seller's facilities in (i) Reno (Sparks),
-------------------
Nevada; (ii) Seattle, Tacoma (Fife) and Everett, Washington; (iii) Sacramento,
California; and (iv) Phoenix, Arizona.
"Securities Reports" is defined in Section 4.21.2.
------------------
"Sellers" is defined in the initial paragraph of this Agreement.
-------
"SkyNet Indemnified Party" is defined in Section 12.2.1.
------------------------
"Tax Return" means any report, return, document, declaration or other
----------
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including information
returns, any documents with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
7
<PAGE>
"Taxes" mean any and all taxes, charges, fees, levies or other
-----
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, service, license, net worth, payroll, franchise and transfer
and recording, imposed by the Internal Revenue Service or any taxing authority
(whether domestic or foreign, including any federal, state, county, local or
foreign government or any subdivision or taxing agency thereof (including a U.S.
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments.
"Termination Date" means March 30, 1999.
----------------
"Transitional Sublease" means the sublease of certain real property
---------------------
located in Las Vegas, Nevada by and between Seller, as sublessor, and Sub, as
sublessee, in form and substance agreeable to the parties and to be delivered at
Closing.
"Vehicles" means those vehicles to be sold by Seller to Sub hereunder,
--------
as identified on Schedule 1.1.2 hereto.
--------------
"Working Capital" means the excess of Seller's current assets over
---------------
Seller's current liabilities, subject to adjustments mutually agreeable to the
parties relating to the elimination's of intercompany items, each as reflected
on the Closing Balance Sheet.
1.2 Interpretation Provisions.
-------------------------
1.2.1 The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The term "or" is disjunctive but
not necessarily exclusive. The terms "include" and "including" are not limiting
and mean "including without limitation."
1.2.2 References to agreements and other documents shall be deemed to
include all subsequent amendments and other modifications thereto.
1.2.3 References to statutes shall include all regulations promulgated
thereunder and references to statutes or regulations shall be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation.
1.2.4 The captions and headings of this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement. 1.2.5
The schedules and exhibits to this Agreement are a material part hereof and
shall be treated as if fully incorporated into the body of the Agreement.
8
<PAGE>
2. SALE AND PURCHASE OF ASSETS AND VEHICLES
2.1 Agreement to Sell and Purchase Assets and Vehicles.
--------------------------------------------------
2.1.1 Subject to the terms and conditions hereof and on the basis of
and in reliance upon the covenants, agreements and representations set forth
herein, on the Closing Date Seller shall sell and deliver the Assets and
Vehicles to Sub, and Sub shall purchase the Assets and Vehicles from Seller. The
Assets and Vehicles shall be sold, transferred and conveyed by Seller to Sub on
an "as is, where is" basis, with no express or implied warranties of any kind
other than that the Assets and Vehicles shall be free and clear of any and all
Liens, and Buyers agree such construction with respect to warranties is
reasonable.
2.1.2 In addition to the foregoing, the parties will, upon request and
without additional consideration, at and subsequent to the Closing Date, execute
and deliver all such further instruments of conveyance and transfer and
confirmation thereof as may be reasonably requested by Sub in order to make
further effective the provisions of this Agreement and to assure the transfers
and vesting of title provided for by this Agreement. All such transfers and
assignments of title shall vest and be effective on the Closing Date.
2.2 Responsibility for Liabilities.
------------------------------
2.2.1 Except as otherwise provided in this Agreement, the Buyers shall
not assume any Liabilities of Seller by virtue of this Agreement or otherwise,
including, without limitation, the following:
2.2.1.1 any obligation or liability related to warranty claims
which relate to goods or services sold by Seller prior to Closing;
2.2.1.2 liabilities relating to environmental matters arising
prior to the Closing except as follows:
2.2.1.2.1 Buyers had Phase I Environmental Assessments
completed on February 26 and 27, 1999 for the following Seller's leased
facilities:
301 Vista Boulevard, Suite 100, Sparks, NV
3860 West Tompkins Avenue, Las Vegas, NV
7563 NE 33rd Drive, Portland, OR
7595 Perimeter Road South, Seattle, WA
2.2.1.2.2 Buyers and Sellers thoroughly reviewed the
above Phase I Environmental Assessments. Buyers and Sellers acknowledge the
receipt of the March 10, 1999 letter from Christopher White, director of
Environmental Services at Western Technologies (hereinafter "WT"),
regarding WT's opinion of the "environmental issues of significance" for
Seller's facilities in Portland, Seattle, Sparks, and Las Vegas. WT's
letter is attached as Schedule 2.2.1.2.2. Buyers and Seller agree
------------------
9
<PAGE>
that Seller is responsible for all costs or claims of any kind relating to
items that, in WT's opinion, are "environmental issues of significance",
and nothing else.
2.2.1.3 any liability or obligation under Contracts (except for
agreements described in Section 2.2.1.6), agreements, arrangements and
understandings of Seller arising prior to the Closing Date other than Seller's
obligations arising on or after the Closing Date as set forth in the Contracts
or any other written or oral agreements and modifications thereto;
2.2.1.4 any liability for Seller's obligation under its lease of
real property located in the State of Utah;
2.2.1.5 Seller's obligation for corporate Taxes arising as a
result of the transactions contemplated by this Agreement;
2.2.1.6 any intercompany debt or other liability between Seller,
and any shareholder or affiliate of Seller, and any obligations of Seller under
any agreements between it and any affiliate of or party otherwise related, by
common ownership or otherwise, to Seller in effect as or the date of this
Agreement, and
2.2.1.7 any other liability or obligation of Seller, whether
known or unknown, absolute or contingent.
2.2.2 Except as otherwise provided in this Section 2.2, the Buyers
shall assume, and the Seller shall not retain, the following Liabilities:
2.2.2.1 Seller's obligations under Accounts Payable incurred in
the Ordinary Course of Business prior to the Closing Date;
2.2.2.2 any obligation or liability related to Taxes or warranty
claims which relate to goods or services sold by the Buyers after Closing;
2.2.2.3 claims or obligations related to the Seller's Employees
arising before the Closing Date, limited to accrued vacation and sick days and
all other accrued benefits, as of the Closing Date (as provided for on the
Closing Balance Sheet and specifically identified on Schedule 2.2.2.3 hereof);
----------------
2.2.2.4 claims or obligations related to the Buyers' employees
arising after the Closing Date, including, without limitation, severance claims,
vacation and sick days and all other accrued benefits;
2.2.2.5 liabilities relating to environmental matters arising
after Closing; 2.2.2.6 any liability or obligation under contracts, agreements,
arrangements and understandings of the Buyers arising on or after the Closing
Date;
2.2.2.7 any obligation for Taxes (other than Seller's corporate
Taxes) arising as a result of the transactions contemplated by this Agreement,
including without
10
<PAGE>
limitation transfer taxes and vehicle registration expenses incident to the sale
of the Assets and the Vehicles;
2.2.2.8 any intercompany debt or other liability between Buyers
or any shareholder or affiliate of Buyers or Sub; and
2.2.2.9 any other liability or obligation of the Buyers, whether
known or unknown, absolute or contingent.
2.3 Taking of Necessary Action; Further Action.
------------------------------------------
Seller and each Buyer shall take such reasonable lawful action as may
be reasonably necessary or appropriate in order to effect the consummation of
the transactions contemplated by this Agreement as promptly as practicable. If,
at any time after the Closing Date, any such further action is reasonably
necessary or desirable to carry out the purposes of this Agreement, to vest Sub
with full right, title and possession to all the property, rights, privileges,
power and franchises of Seller, the officers and directors of each of the Buyers
and Seller are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
3. PAYMENT OF THE PURCHASE CONSIDERATION
3.1 Purchase Consideration.
----------------------
3.1.1 Purchase Consideration
----------------------
The purchase consideration ("Purchase Consideration") for the Assets
and the Vehicles shall consist of 1,358,790 newly-issued shares of common stock
of SkyNet (the "SkyNet Stock").
3.1.2 Allocation of Closing Purchase Consideration.
---------------------------------------------
The Closing Purchase Price shall be allocated in accordance with
Schedule 3.3 hereto. Each of the parties shall timely file Internal Revenue
- ------------
Service Form 8594 in substantially the form attached hereto as Exhibit B.
3.2 Escrow Provisions.
-----------------
11
<PAGE>
3.2.1 Notwithstanding the other provisions of this Article 3, at the
Closing the Buyers and Seller shall deliver to the Escrow Agent, registered in
the name of each Seller, that number of shares of SkyNet Stock equal to fifty
percent of the total number of shares of SkyNet Stock to be delivered by SkyNet
pursuant to Section 3.1.1 (the "Escrow Shares"). The Escrow Shares shall be held
by the Escrow Agent pursuant to the terms of an Escrow Agreement acceptable in
form and substance to the parties and to be delivered at the Closing (the
"Escrow Agreement").
3.2.2 In the event a Claim arises under this Agreement as to which the
parties agree a SkyNet Indemnified Party is entitled to indemnification or as to
which the arbitration proceeding provided for under Section 14.6 has been
completed, the SkyNet Indemnified Party shall be entitled to receive in
settlement of such Claim a distribution out of the Escrow Shares of such number
of Escrow Shares as are equal in "value" to the amount of the Claim. For the
purposes hereof, the "value" of the Escrow Shares shall be measured in the
following manner. To the extent of Claims made under Section 3.3 hereof, such
Claims shall be resolved by ascribing a "value" to the Escrow Shares to be
distributed to the SkyNet Indemnified Party of $1.86 per share. All Claims made,
if any, on account of Seller's indemnification obligations under Section 12.2
hereof shall be resolved by ascribing a "value" to the Escrow Shares being
distributed to the SkyNet Indemnified Party of $4.00 per share.
3.2.3 Except for Escrow Shares with a value (determined in accordance
with Section 3.2.2) equal to the amount of any Claims by SkyNet Indemnified
Parties that may be pending at such time, on (i) the six month anniversary of
the Closing Date, Escrow Agent shall retain one-half of the original number of
Escrow Shares and shall distribute the remainder to Seller in accordance with
the Escrow Agreement, and (ii) on the one year anniversary of the Closing Date,
Seller shall be entitled to delivery from the Escrow Agent any Escrow Shares
that have not been delivered to, or required to have been delivered to, SkyNet
Indemnified Parties pursuant to Section 3.2.2, Article 12 hereof or the Escrow
Agreement on or prior to such date. At all times that all or any part of the
Escrow Shares are held by the Escrow Agent, (i) all dividends or distributions
made with respect to the Escrow Shares shall be deposited with the Escrow Agent
and held in accordance with the Escrow Agreement and (ii) Seller shall have the
sole right and power to exercise all voting rights pertaining to all or any part
of the Escrow Shares.
3.3 Post-Closing Review of Closing Balance Sheet; Adjustment to Purchase
--------------------------------------------------------------------
Consideration
-------------
3.3.1 The parties acknowledge that the amount of Working Capital is
based on Seller's estimate of the current assets and current liabilities as of
the date of the Closing Date as reflected on the Closing Balance Sheet. In order
to assist the parties in calculating accurately the Working Capital, Seller's
Closing Balance Sheet shall be dated as of February 28, 1999, prepared in
accordance with GAAP and provided to the Buyers on the Closing Date.
3.3.2 Following their receipt of the Closing Balance Sheet, the Buyers
shall review and, if necessary, prepare a revised balance sheet for Seller as of
the Closing Date (the
12
<PAGE>
"Buyers' Closing Balance Sheet"), which balance sheet shall be prepared i n
accordance with GAAP, and a calculation of Working Capital based thereon. The
Buyers shall submit the Buyers' Closing Balance Sheet to Seller not later than
thirty days following their receipt of the Closing Balance Sheet and shall use
their best efforts to deliver the Buyers' Closing Balance Sheet to the Seller as
soon as possible following the Closing Date. The Sellers agree to cooperate with
the Buyers in connection with the preparation of the Buyers' Closing Balance
Sheet.
3.3.3 The Seller shall, within 15 days following receipt the Buyers'
Closing Balance Sheet, advise the Buyers in writing of whether Seller disputes
any of the items presented therein. If Seller fails to so notify the Buyers, the
Buyers' Closing Balance Sheet shall be deemed final and binding on the parties
as of the fifteenth day following Seller' receipt of the Buyers' Closing Balance
Sheet. If Seller notifies the Buyers of a dispute with respect to any items
presented in the Buyers' Closing Balance Sheet within such 15-day period, the
parties shall seek to resolve such dispute in good faith. In the event the
parties are unable to resolve such dispute within 30 days following delivery of
the dispute notice, such dispute shall be referred to a nationally recognized
accounting firm mutually selected by the parties (or if the parties shall fail
to agree on such selection, such accounting firm shall be selected by lot from
one firm selected by the Buyers' independent public accountants and one firm
selected by Seller's independent public accountants), which firm shall be
requested to seek to resolve such dispute within 30 days after such dispute is
referred to such firm. The determination of such dispute by such accounting firm
shall be binding on the parties hereto. The fees and expenses of such accounting
firm in resolving such dispute shall be borne 50% by the Buyers and 50% by
Seller.
3.3.4 If, after (i) Seller has accepted the Buyers' Closing Balance
Sheet, or (ii) resolving any dispute as to the Buyers' Closing Balance Sheet, or
the manner in which the amount of Working Capital was calculated therein, in
accordance with Section 3.3.3 hereof, (A) the Working Capital is less than as
reflected on the Closing Balance Sheet, the Purchase Consideration shall be
reduced dollar-for-dollar by the amount of such deficiency and (B) if the
Working Capital exceeds the amount reflected on the Closing Balance Sheet, the
Purchase Consideration shall be increased dollar-for-dollar by the amount of
such excess; In order to effect a decrease in the Purchase Consideration, a
number of Escrow Shares equal to the amount of the deficiency divided by the
value of such shares as determined in accordance with Section 3.2.2 hereof shall
be released from escrow and delivered to SkyNet for cancellation. In order to
effect an increase in the Purchase Consideration, SkyNet shall issue and deliver
to Seller a number of additional shares of SkyNet Stock equal to (1) the amount
of the excess divided by (2) $1.86. Such cancellation or issuance shall be
effected within ten business days following final agreement of the parties or
determination in accordance with Section 3.3.3 that such decrease or increase is
applicable.
4. REPRESENTATIONS OF SELLER
As an inducement of the Buyers to enter into this Agreement, Seller
hereby makes, as of the date hereof and as of the Closing Date, the following
representations to the Buyers, except as otherwise set forth in written
disclosure schedules (the "Seller's Schedules")
13
<PAGE>
which shall be delivered to the Buyers prior to the date of Closing, a copy of
which is attached hereto. The Seller's Schedules are numbered to correspond to
the various sections of this Article 4 setting forth certain exceptions to the
representations contained in this Article 4 and certain other information called
for by this Agreement. Unless otherwise specified, no disclosure made in any
particular Seller's Schedule shall be deemed made in any other Schedule unless
expressly made therein (by cross-reference or otherwise).
4.1 Organization and Standing of Seller.
-----------------------------------
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Seller has all requisite
corporate power and authority to sell the Assets, free and clear of any and all
Liens. A certified copy of Seller's Articles of Incorporation and Bylaws are
attached to Schedule 4.1.
------------
4.2 Due Authorization.
-----------------
This Agreement has been duly authorized, executed and delivered by
Seller and constitutes a valid and binding agreement of Seller, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, and other similar laws relating
to, limiting or affecting the enforcement of creditors rights generally or by
the application of equitable principles. As of the Closing all corporate action
on the part of Seller required under applicable law in order to consummate the
transactions contemplated hereby will have occurred. Seller represents that (i)
the approval of its stockholders is not required by Law or Seller's Articles of
Incorporation or Bylaws in order to consummate the transactions contemplated by
this Agreement; or (ii) such approval has been obtained.
4.3 No Conflict or Violation; Consents.
----------------------------------
Except as set forth on Schedule 4.3, none of the execution, delivery
------------
or performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by Seller with
any of the provisions hereof or thereof, will (a) violate or conflict with any
provision of the governing documents of Seller or, (b) violate any applicable
Regulation or Court Order. Except as set forth on Schedule 4.3, no notices to,
------------
declaration, filing or registration with, approvals or consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities) are necessary to be made or obtained by Seller in
connection with the execution, delivery or performance of this Agreement or any
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby.
4.4 Real Property.
-------------
4.4.1 General. Seller leases all real property necessary for the
conduct of its business as presently conducted.
4.4.2 Owned Real Property. Seller does not own any real property.
14
<PAGE>
4.4.3 Leased Real Property. Schedule 4.4.3 sets forth all Leases
pursuant to which Facilities are leased by Seller (as lessee), true and correct
copies of which have been delivered to SkyNet. To Seller's knowledge, such
Leases constitute all written Leases, subleases or other occupancy agreements
pursuant to which Seller occupies or uses Facilities. Seller has good and valid
leasehold title to, and enjoys peaceful and undisturbed possession of, all
leased property described in such Leases (the "Leased Property"), free and clear
of any and all Encumbrances created by Seller. With respect to each such parcel
of Leased Property (i) to the knowledge of Seller, there are no pending or
threatened condemnation proceedings relating to such Leased Property or any
portion thereof, (ii) to the knowledge of Seller, neither Seller nor third party
has entered into any sublease, license, option, right, concession or other
agreement or arrangement, written or oral, granting to any person the right to
use or occupy such Leased Property or any portion thereof or interest therein
and (iii) to its knowledge, Seller has not received notice of any pending or
threatened special assessment relating to such Leased Property or otherwise have
any knowledge of any pending or threatened special assessment relating thereto.
To Seller's knowledge each leased Facility is supplied with utilities necessary
for the operation of such Facility as currently conducted.
4.4.4 With respect to each Lease listed on Schedule 4.4.3, (i) to the
knowledge of Seller there has been no material default under any such Lease by
Seller or by any other party, (ii) such Lease is a valid and binding obligation
of Seller, is in full force and effect with respect to Seller and is enforceable
against Seller, in accordance with its terms, except as the enforceability
thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally or (2) general principles of equity,
whether considered in a proceeding at law or in equity, (iii) no action has been
taken by Seller, and no event has occurred which, with notice or lapse of time
or both, would permit termination, modification or acceleration by a party
thereto other than Seller without the consent of Seller under any such Lease
that is material to Seller, (iv) no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any such
Lease that is material to Seller and (v) Seller has not assigned, transferred,
conveyed, mortgaged or encumbered any interest therein or in any leased property
subject thereto (or any portion thereof).
4.5 Personal Property.
-----------------
4.5.1 General. Seller owns or leases all personal property assets
necessary for the conduct of its Business as presently conducted.
4.5.2 Owned Personal Property. Except as set forth in Schedule 4.5.2,
--------------
Seller has good and marketable title to all such personal property owned by it,
free and clear of any and all Encumbrances. To the knowledge of Seller, any
exceptions from such personal property being transferred free and clear of all
Encumbrances are not, in the aggregate, material. With respect to each such item
of personal property (i) there are no Leases, subleases, licenses, options,
rights, concessions or other agreements, written or oral, granting to any party
or parties the right of use of any portion of such item of personal property,
(ii) there are no outstanding options or rights of first refusal in favor of any
other party to purchase any such item of personal property or any
15
<PAGE>
portion thereof or interest therein and (iii) there are no parties (other than
Seller and its Employees) who are in possession of or who are using any such
item of personal property.
4.6 Litigation.
----------
4.6.1 Except as set forth in Schedule 4.6, to the knowledge of Seller
------------
there is no pending Proceeding:
4.6.1.1 that has been commenced by or against Seller or that
otherwise relates to or may materially affect the Business, or any of the Assets
or Vehicles; or
4.6.1.2 that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions hereunder.
4.6.2 To the knowledge of Seller, no such Proceeding has been
threatened.
4.6.3 There is no Court Order to which Seller or any of the Assets
or Vehicles is subject.
4.7 Environmental Matters.
---------------------
4.7.1 Seller has not received any notice to the effect that, or
otherwise have knowledge that Seller is not in compliance in any material
respect with, or is in violation of, any such Environmental Laws or Permits
required thereunder.
4.7.2 To the knowledge of Seller, there are no existing Environmental
Claims against Seller, nor has it received any written notification or otherwise
have any knowledge, of any allegation of any actual, or potential responsibility
for, or any inquiry or investigation regarding, any disposal, release or
threatened release at any location of any Hazardous Substance generated by
Seller.
4.7.3 To the knowledge of Seller, there have been no releases (i.e.,
----
any past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing, or dumping) of
Hazardous Substances in quantities exceeding the reportable quantities as
defined under federal or state law by Seller on, upon or into the Facilities
during Seller's occupancy thereof other than those authorized by Environmental
Laws including, the Permits required thereunder.
4.7.4 To the knowledge of Seller, there are no consent decrees,
consent orders, judgments, judicial or administrative orders or agreements
(other than Permits) with or liens by, any Governmental Authority or quasi-
governmental entity relating to any Environmental Law which specifically
regulate, obligate or bind Seller by name.
4.8 Third Party Consents.
--------------------
16
<PAGE>
Except as set forth elsewhere in this Agreement, to the knowledge of
Seller there are no authorizations, consents, approvals or notices required to
be obtained or given by Seller or waiting periods required to expire, in order
that this Agreement and the transactions provided for herein may be consummated
by Seller.
4.9 Labor Matters.
-------------
4.9.1 Schedule 4.9.1 contains a list of Employees as of March 13,
--------------
1999 (which list shall be provided on or before March 19, 1999). Seller has
provided the Buyers with a table setting forth the current salary or hourly
wages and other compensation payable by Seller to each of such Employees (the
"Salary Table").
4.9.2 Except as set forth on Schedule 4.9.2, Seller is not a party to
--------------
any agreement with respect to its Employees with any labor organization, group
or association. There is no unfair labor practice charge or complaint against
Seller pending before the National Labor Relations Board or any other
governmental agency arising out of Seller's activities which if adversely
determined would result in a Material Adverse Effect on Seller.
4.9.3 Seller is in material compliance with all applicable
Regulations respecting employment practices, terms and conditions of employment,
wages and hours, equal employment opportunity, and the payment of social
security and similar taxes.
4.9.4 Except as set forth on Schedule 4.9.4, Seller has not entered
--------------
into any severance arrangement in respect of any present or former Employee that
will result in any obligation of Buyers or Seller to make any payment to any
present or former Employee following termination of employment or upon
consummation of the transactions contemplated by this Agreement. Buyers
specifically acknowledge that they have reached an agreement with Mr. Jerry
Pontecelli respecting a severance payment to Mr. Pontecelli by Sub in the event
Mr. Pontecelli is not employed by Sub immediately following the Closing. Seller
shall have no liability for or obligation to Buyers in respect of such
agreement.
4.10 Intellectual Property.
---------------------
4.10.1 Schedule 4.10.1 sets forth a list and description of all
---------------
intellectual property Assets in which, to Seller's knowledge, Seller has an
interest and which is used in or material to the Business (the "Intellectual
Property").
4.10.2 With respect to each item of Intellectual Property, without
any further action by, consent of or payment of additional fees, royalties or
other compensation to any other person or entity, the Buyers will be entitled to
exclusive use of the Intellectual Property to the same extent Seller was
entitled to use such Intellectual Property prior to the Closing Date. To
Seller's knowledge, Seller's use of the Intellectual Property does not infringe
or conflict with any rights of patent, copyright, trademark or trade secret of
any other party. Seller has not received any notice of infringement or conflict
with (and has no knowledge of any threatened claim of infringement or conflict
with) asserted rights of others with respect to any Intellectual Property used
by Seller in the Business.
17
<PAGE>
4.11 Financial Statements; Books and Records.
---------------------------------------
4.11.1 The Financial Statements and the Closing Balance Sheet
fairly present the Assets and Liabilities of Seller and financial condition and
results of operations indicated thereby and were prepared in accordance with
GAAP. The Financial Statements comply in all material respects with the
requirements of Regulation S-X promulgated under the 1934 Act. A copy of the
Financial Statements is attached hereto as Schedule 4.11.1.
----------------
4.11.2 Seller maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
with management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's authorization and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
4.12 Insurance.
---------
Schedule 4.12 sets forth a list of substantially all of Seller's
-------------
policies or binders of insurance as of the date of this Agreement (generally
showing as to each policy or binder the carrier, policy number, coverage limits,
expiration dates, and a general description of the type of coverage provided),
of which Seller is the owner, insured or beneficiary. To its knowledge, Seller
is not in default under any of such policies or binders, and has not failed to
give any notice or to present any claim under any such policy or binder in a due
and timely fashion. Such policies and binders are in full force and effect on
the date hereof and shall be kept in full force and effect by Seller through the
Closing Date.
4.13 Accounts Receivable.
-------------------
The Accounts Receivable reflected in the Closing Balance Sheet, and
all Accounts Receivable arising since December 31, 1998, represent bona fide
claims against debtors for sales, services performed or other charges arising on
or before the date of recording thereof, and all the goods delivered and
services performed which gave rise to said accounts were delivered or performed
in accordance with the applicable orders, Contracts or customer requirements.
All such Accounts Receivable are fully collectible in the ordinary course of
business except to the extent of an amount not in excess of the reserve for
doubtful accounts reflected on the Closing Balance Sheet.
4.14 Tax Matters.
-----------
4.14.1 Filing of Tax Returns. Except as set forth in Schedule 4.14.1, to
----------------
Seller's knowledge, Seller has timely filed with the appropriate taxing
authorities all Tax Returns in respect of Taxes required to be filed through the
date hereof. The Tax Returns filed are complete and accurate in all material
respects. Except as specified in Schedule 4.14.1, Seller has not requested any
---------------
extension of time within which to file Tax Returns in respect of any Taxes.
18
<PAGE>
4.14.2 Payment of Taxes. All Taxes due from Seller, or for which it
could be liable, in respect of periods (or portions thereof) beginning before
the Closing Date have been timely paid or an adequate reserve (in conformity
with GAAP) has been established therefor, as set forth in Schedule 4.14.2 or the
------
Financial Statements, and Seller has no material Liability for Taxes in excess
of the amounts so paid or reserves so established.
4.14.3 Audits, Investigations or Claims. To Seller's knowledge, no
deficiencies for Taxes of Seller have been claimed, proposed or assessed by any
taxing or other governmental authority. There are no pending or, to the
knowledge of Seller, threatened audits, assessments or other Actions for or
relating to Taxes of Seller. Audits of federal, state and local Tax Returns by
the relevant taxing authorities have been completed for the periods set forth on
Schedule 4.14.3 and, except as set forth in such Schedule, Seller has not been
- ---------------
notified that any taxing authority intends to audit a Tax Return for any other
period. No extension of a statute of limitations relating to Taxes is in effect
with respect to Seller.
4.15 Bulk Sales Compliance and Transfer Taxes.
----------------------------------------
Neither the sale and transfer of the Assets and Vehicles to be
acquired pursuant to this Agreement will result in or be subject to any law
pertaining to bulk sales or transfers which either: (i) makes such sales or
transfers ineffective as to creditors of Seller or (ii) exposes the Buyers to
liabilities asserted by creditors of Seller.
4.16 Contracts.
---------
4.16.1 Except as set forth on Schedule 4.16.1, to the knowledge of
---------------
Seller, all Contracts have been executed by all parties, and are in all material
respects in full force and effect as of the date hereof. All Contracts will
continue to be binding in accordance with their respective terms and
modifications until their respective expiration or termination dates. Seller is
not subject to any liability or payment resulting from renegotiation of amounts
paid it under any Contract with the government of the United States or any
agency, department or other subdivision thereof.
4.16.2 Except as set forth in Schedule 4.16.2:
----------------
4.16.2.1 To the knowledge of Seller, Seller is, and at all times
since December 31, 1998 has been, in material compliance with all applicable
terms and requirements of each Contract under which Seller has any obligation or
liability;
4.16.2.2 Seller has not given to or received from any other Person,
at any time since December 31, 1998, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential material
violation or material breach of, or default under, any Contract.
19
<PAGE>
4.16.3 There are no renegotiations of, attempts to renegotiate, or, to
the knowledge of Seller, outstanding rights to renegotiate any material amounts
paid or payable to Seller under any Contracts with any Person and to the
knowledge of Seller, no such Person has made written demand for such
renegotiation.
4.17 Customers.
---------
Schedule 4.17 is a substantially complete listing all of the customers
-------------
of the Business as of February 28, 1999.
4.18 Employee Benefit Matters.
------------------------
4.18.1 Except as may be required under applicable Laws, the Buyers will
not be subject to any obligations or liability under any of the Employee Plans.
The term "Employee Plans" refers to all employment contracts, employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), pension plans, bonus, profit sharing, stock
option or other agreements or arrangements, including any hospitalization,
disability or other insurance plans, vacation and sick pay policies, or any
other employee fringe benefit plan providing for employee benefits to which
Seller is a party or by which Seller is bound in connection with the Business.
Except to the extent otherwise assumed by the Buyers under this Agreement or
with respect to Sub's agreement with Mr. Jerry Pontecelli, the Buyers are not
responsible for any severance pay or other payments on account of termination by
Seller of any of the Employees of Seller.
4.18.2 None of the Employee Plans is a "multi-employer plan" as defined
in Section 3(37) of ERISA.
4.18.3 In each case where Seller or any affiliate has terminated a
defined benefit pension plan that is subject to Title I of ERISA relating to the
employees of the Business, assets have been sufficient so that all required
benefits in fact have been provided. As of the Closing, Seller will terminate
the Employees under the current terms and conditions of its Employee Plans.
4.19 No Significant Agreements Excluded.
----------------------------------
To the knowledge of Seller, there are no supplier or customer
agreements, contracts or commitments to which Seller is a party that are of
material importance to the ongoing operation of the Business by the Buyers that
are not being transferred to the Buyers under the terms of this Agreement.
4.20 Compliance with Law.
-------------------
To the knowledge of Seller, Seller has conducted the Business in
compliance with applicable Regulations and Court Orders. Seller has not
received any notice to the effect that, or has otherwise been advised that,
Seller is not in compliance with such Regulations or Court Orders.
20
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4.21 SkyNet Stock.
------------
4.21.1 The SkyNet Stock is not being registered under the Act on
the basis of the statutory exemption provided by Section 4(2) thereof, relating
to transactions not involving a public offering, and SkyNet's reliance on the
statutory exemption thereof is based in part on the representations of Seller
contained in this Agreement;
4.21.2 Seller represents (a) that it has, or as of the Closing,
will have reviewed such reports and registration statements of SkyNet as have
been filed with the Securities and Exchange Commission and the Confidential
Private Placement Memorandum dated December 22, 1998, as supplemented (the
"Securities Reports") and that it has such knowledge and experience in financial
and business matters that it is capable of utilizing the information set forth
therein concerning SkyNet to evaluate the risk of investing in SkyNet; (b) that
it has been advised that the SkyNet Stock to be issued by SkyNet will not be
registered under the Act, except as otherwise provided in this Agreement or the
Registration Rights Agreement, and accordingly, Seller may only be able to sell
or otherwise dispose of such shares in accordance with Rule 144 or except as
otherwise provided in this Agreement; (c) that the SkyNet Stock will be held for
investment and not with a view to, or for resale in connection with the public
offering or distribution thereof; (d) that the SkyNet Stock so issued will not
be sold without registration thereof under the Act (unless such shares are
subject to registration or in the opinion of counsel to SkyNet an exemption from
such registration is available), or in violation of any law; and (e) that the
certificate or certificates representing the SkyNet Stock will be imprinted with
a legend in form and substance substantially as follows:
'THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
and SkyNet is hereby authorized to notify its transfer agent of the status of
the SkyNet Stock and to take such other action including, but not limited to,
the placing of a "stop-transfer" order on the transfer agent's books and records
to assure compliance with the Act.
4.21.3 Seller has, either upon the date hereof or before the
Closing hereunder, been afforded the opportunity to review and is familiar with
the Securities Reports and has based its decision to invest solely on the
information contained therein, and the information contained within this
Agreement and the associated exhibits and schedules, and has not been furnished
with any other literature, prospectus or other information except as included in
the Reports or this Agreement; and
21
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4.21.4 Seller understands that no federal or state agency has
approved or disapproved the SkyNet Stock, passed upon or endorsed the merits of
the transfer of such shares set forth within this Agreement, or made any finding
or determination as to the fairness of such shares for investment.
4.22 Absence of Certain Changes or Events.
------------------------------------
Except as set forth on Schedule 4.22, since December 31, 1998 there
-------------
has not been any:
4.22.1 Material Adverse Change with respect to Seller or the
Business;
4.22.2 failure to operate the Business in the ordinary course
consistent with past practice so as to use its commercially reasonable efforts
to preserve the Business intact and to preserve the continued services of its
Employees and the goodwill of suppliers, customers and others having business
relations with Seller;
4.22.3 sale, assignment, license, transfer or Encumbrance of any of
the Assets, tangible or intangible, singly or in the aggregate, other than sales
of products and services in the ordinary course of business and consistent with
past practice;
4.22.4 new Contracts, or extensions, modifications, terminations or
renewals thereof, except for Contracts entered into, modified or terminated in
the ordinary course of business and consistent with past practice;
4.22.5 damage, destruction or loss (whether or not covered by
insurance) having a Material Adverse Effect on the Assets or the Business of
Seller;
4.22.6 amendment of the articles of incorporation or bylaws of any
Seller;
4.22.7 failure to pay any material obligation of Seller when due;
4.22.8 cancellation of any indebtedness or waiver of any rights of
substantial value to Seller, except in the ordinary course of business and
consistent with past practice; or
4.22.9 agreement by Seller to do any of the foregoing.
4.23 Brokers' Fees.
-------------
No broker, finder or other person or entity acting in a similar
capacity has participated on behalf of Seller in connection with the
transactions contemplated by this Agreement. The Sellers have not incurred any
Liability for brokers' fees, finders' fees, agents' commissions or other similar
forms of compensation in connection with this Agreement or the transactions
contemplated hereby.
4.24 Full Disclosure.
---------------
22
<PAGE>
Neither this Agreement, including all exhibits and schedules and other
closing documents, nor any other financial statement, document or other
instrument heretofore or hereafter furnished by Seller to the Buyers in
connection with the transaction contemplated herein, contains or will contain
any untrue statement of any material fact or, to the knowledge of Seller, omit
or will omit to state any material fact required to be stated in order to make
such statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. No representation by
Seller in this Agreement and no statement contained in any Disclosure Schedule
to this Agreement contains any untrue statement of a material fact, or, to the
knowledge of Seller, omits to state a material fact necessary to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.
5. REPRESENTATIONS OF SKYNET AND SUB
As an inducement of Seller to enter into this Agreement, SkyNet and
Sub hereby make as of the date hereof and as of the Closing Date, the following
representations to Seller, except as otherwise set forth in written disclosure
schedules (the "Buyers' Schedules") which shall be delivered to Seller prior to
the Closing, a copy of which is attached hereto. The Buyers' Schedules are
numbered to correspond to the various sections of this Article 5 setting forth
certain exceptions to the representations contained in this Article 5 and
certain other information called for by this Agreement. Unless otherwise
specified, no disclosure made in any particular Buyers' Schedule shall be deemed
made in any other Buyers' Schedule unless expressly made therein (by cross-
reference or otherwise).
5.1 Organization and Standing of SkyNet.
-----------------------------------
SkyNet is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. SkyNet has all requisite
corporate power and authority to enter into this Agreement. A certified copy of
SkyNet's Certificate of Incorporation and Bylaws are attached as Schedule 5.1.
------------
5.2 Organization and Standing of Sub.
--------------------------------
Sub is a corporation duly organized, validly existing and in good
standing in the State of Nevada. Sub has all requisite corporate power and
authority to enter into this Agreement. A certified copy of Sub's Articles of
Incorporation and Bylaws are attached as Schedule 5.2.
5.3 Authorization and Enforceability
--------------------------------
This Agreement has been duly authorized, and executed the Buyers and
constitutes a valid and binding agreement of each of the Buyers, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, and other similar laws relating
to, limiting or affecting the enforcement of creditors rights generally or by
the application of equitable principles. As of the Closing all corporate action
on the part of each Buyer required under applicable law in order to consummate
the
23
<PAGE>
transactions contemplated hereby will have occurred. The Buyers represent
that (i) the approval of its stockholders is not required by Law or SkyNet's
Certificate of Incorporation, Sub's Articles of Incorporation or the Buyers'
Bylaws in order to consummate the transactions contemplated by this Agreement;
or (ii) such approval has been obtained.
5.4 No Conflict or Violation; Consents.
----------------------------------
Except as set forth on Schedule 5.4, none of the execution, delivery
------------
or performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by each of the
Buyers with any of the provisions hereof or thereof, will (a) violate or
conflict with any provision of the governing documents of any Buyer, (b)
violate, conflict with, or result in a material breach of (with or without
notice of passage of time) under, or result in the termination of, or accelerate
the performance required by, or result in a right to terminate, accelerate,
modify or cancel under, or require a notice under, or result in the creation of
any Encumbrance upon any of its respective assets under, any Contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other arrangement to which any Buyer is a party or by which any Buyer is bound
or to which any of its respective assets are subject, (c ) violate any
applicable Regulation or Court Order or (d) impose any Encumbrance on any assets
of any Buyer. Except as set forth on Schedule 5.4, no notices to, declaration,
------------
filing or registration with, approvals or Consents of, or assignments by, any
Persons (including any federal, state or local governmental or administrative
authorities) are necessary to be made or obtained by any Buyer in connection
with the execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.
5.5 SkyNet Stock.
------------
The SkyNet Stock to delivered by SkyNet at Closing pursuant to Section
3.1.1 hereof shall be validly and legally issued, free and clear of any and all
Liens, and fully paid and non-assessable.
5.6 Approval.
--------
The Board of Directors of each of SkyNet and Sub has approved the
execution of this Agreement and the transactions contemplated thereby.
5.7 Brokers' Fees.
-------------
Neither SkyNet nor Sub has incurred any liability for brokers' fees,
finders' fees, agents' commissions or other similar forms of compensation in
connection with this Agreement or the transactions contemplated hereby for which
Seller shall have any responsibility.
5.8 Absence of Certain Changes or Events.
------------------------------------
24
<PAGE>
Except as disclosed in the Securities Reports or on Schedule 5.8,
------------
since June 30, 1998, there has not been any:
5.8.1 Material Adverse Change with respect to either of the Buyers;
5.8.2 failure by the Buyers to operate their business in the ordinary
course so as to use its commercially reasonable efforts to preserve the business
and the continued services of their employees and the goodwill of suppliers,
customers and others having business relations with the Buyers;
5.8.3 sale, assignment, license, transfer or Encumbrance of any and all of
the assets of Buyers, tangible or intangible, singly or in the aggregate, other
than sales of products and services in the ordinary course of business and
consistent with past practice;
5.8.4 new contracts, or extensions, modifications, terminations or
renewals thereof, except for contracts entered into, modified or terminated in
the ordinary course of business and consistent with past practice;
5.8.5 actual termination of any material customer account or group of
accounts or actual material reduction in purchases or royalties payable by any
such customer;
5.8.6 damage, destruction or loss (whether or not covered by insurance)
having a Material Adverse Effect on the assets or the business of Buyers;
5.8.7 amendment of the articles of incorporation or bylaws of Buyers;
5.8.8 failure to pay any material obligation of Buyers when due;
5.8.9 cancellation of any indebtedness or waiver of any rights of
substantial value to Buyers;
5.8.10 agreement by Buyers to do any of the foregoing;
5.9 Litigation.
----------
5.9.1 Except as disclosed in the Securities Reports or set forth in
Schedule 5.9, there is no pending Proceeding:
- ------------
5.9.1.1 that has been commenced by or against any of the Buyers or
that otherwise relates to or may affect Buyers' business, or any of the Buyers'
assets; or
5.9.1.2 that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
hereunder.
25
<PAGE>
5.9.2 To the knowledge of each of the Buyers, no such Proceeding has been
threatened.
5.9.3 There is no Court Order to which any of the Buyers or any of the
assets owned or used by the Buyers is subject.
5.10 Third Party Consents.
--------------------
There are no authorizations, consents, approvals or notices required
to be obtained or given by any of the Buyers or waiting periods required to
expire, in order that this Agreement and the transactions provided for herein
may be consummated by each of the Buyers.
5.11 Financial Statements; Books and Records.
---------------------------------------
5.11.1 The financial statements of SkyNet contained in the
Securities Reports fairly present the assets and liabilities of Buyers and their
financial condition and results of operations indicated thereby and were
prepared in accordance with GAAP. The Financial Statements comply in all
material respects with the requirements of Regulation S-X promulgated under the
1934 Act. A copy of SkyNet's Financial Statements is attached hereto as Schedule
--------
5.11.1.
- ------
5.11.2 Buyers maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
with management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's authorization and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
5.12 Insurance.
---------
Schedule 5.12 sets forth a list of the Buyers' policies or binders of
-------------
insurance as of the date of this Agreement (generally showing as to each policy
or binder the carrier, policy number, coverage limits, expirations dates and a
general description of the type of coverage provided), of which the Buyers are
the owner, insured or beneficiary). To the knowledge of Buyers, the policies of
insurance maintained by the Buyers are sufficient for (i) compliance with all
applicable Laws and Regulations and all of the Contracts, (ii) covering all
reasonably foreseeable damage to and liabilities or contingencies relating to
Buyers' conduct of their respective businesses. Buyers are not in default under
any of such policies or binders, and has not failed to give any notice or to
present any claim under any such policy or binder in a due and timely fashion.
Such policies and binders are in full force and effect on the date of the
signing this Agreement and name Seller as an additional named insured to the
extent necessary under the Transportation Agreement or any Contract with any
Major Customer.
26
<PAGE>
5.13 Tax Matters.
-----------
5.13.1 Filing of Tax Returns. Except as set forth in the Securities
Reports or on Schedule 5.13.1, Buyers have timely filed with the appropriate
---------------
taxing authorities all Tax Returns in respect of Taxes required to be filed
through the date hereof. The Tax Returns filed are complete and accurate in all
material respects.
5.13.2 Payment of Taxes. All Taxes due from Buyers or which each could
be liable, in respect of periods (or portions thereof) beginning before the
Closing Date have been timely paid or an adequate reserve (in conformity with
GAAP) has been established therefor, as set forth in Schedule 5.13.2 or their
---------------
respective financial statements, and Buyers have no material Liability for Taxes
in excess of the amounts so paid or reserves so established.
5.13.3 Audits, Investigations or Claims. No deficiencies for Taxes of
Buyers have been claimed, proposed or assessed by any taxing or other
governmental authority. Except as set forth on Schedule 5.13.3, there are no
------
pending or, to the knowledge of Buyers threatened audits, assessments or other
Actions for or relating to any Liability in respect of Taxes of Buyers.
5.14 Full Disclosure.
---------------
Neither this Agreement, including all exhibits and schedules and other
closing documents, nor any other financial statement, document or other
instrument heretofore or hereafter furnished by the Buyers to Seller in
connection with the transaction contemplated herein, contains or will contain
any untrue statement of any material fact or, to the knowledge of the Buyers,
omit or will omit to state any material fact required to be stated in order to
make such statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. No representation by the
Buyers in this Agreement and no statement contained in any Disclosure Schedule
to this Agreement contains any untrue statement of a material fact, or, to the
knowledge of the Buyers, omits to state a material fact necessary to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.
6. CLOSING
6.1 Closing.
-------
Subject to satisfaction or waiver of all conditions precedent set
forth in Sections 8 and 9 of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place on March 15,
1999 or the day on which the last of the conditions precedent set forth in
either Section 8 or 9 of this Agreement is fulfilled (the "Closing Date") or at
such other time, date and place as the parties may agree. The Closing shall be
conducted at the offices of Fleet Delivery Service at 10:00 a.m. or at such
other times as the parties may designate. The effective date and time of this
Agreement and the transactions contemplated hereby shall be 12:01 a.m. Pacific
Standard Time on March 15, 1999.
27
<PAGE>
6.2 Obligations of Seller.
---------------------
At or prior to the Closing, Seller shall deliver to the Buyers, in
each case, in form and substance satisfactory to the Buyers:
6.2.1 an Assignment and Bill of Sale in form and substance acceptable to
the parties and such other instruments of transfer or assignment as shall be
necessary or appropriate to vest in Sub good and marketable title to the Assets;
6.2.2 an Assignment and Bill of Sale in form and substance acceptable to
the parties and such other instruments of transfer or assignment as shall be
necessary or appropriate to vest in Sub good and marketable title to the
Vehicles;
6.2.3 copies of all of the Assets which are in the form of documentation,
including without limitation, customer contracts, customer lists, employment
contracts, personnel records, maintenance contracts and configuration files.
6.2.4 a certificate of the Chief Executive Officer or President of Seller,
dated as of the Closing Date, to the effect that (1) all of the representations
made by Seller upon the execution and delivery of this Agreement remain true and
correct as of the Closing Date and (2) Seller has performed and complied with in
all material respects all of the covenants, agreements and obligations set forth
in this Agreement to be performed or complied with by it on or prior to the
Closing Date;
6.2.5 copies of resolutions adopted by the Board of Directors of Seller
duly authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby, certified by an
appropriate officer as being true and correct as of the Closing Date;
6.2.6 each of the Ancillary Agreements;
6.2.7 A Vehicle Sale Agreement in form and substance acceptable to the
parties between the Buyers and certain affiliates of Seller pursuant to which
the motor vehicles identified on Schedule 6.2.7 hereof (the "Affiliate
--------------
Vehicles") will be purchase by Sub and sold by the owners thereof as of the
Closing Date;
6.2.8 an undertaking of Seller's certified public accountants to provide
to SkyNet as may be reasonably requested from time to time following the Closing
Date such consents and other assistance as may be required to permit SkyNet to
comply with its requirements under the 1933 Act and the 1934 Act, including
without limitation, consents to the inclusion of the Financial Statements and
their report thereon in periodic reports, registration statements, or other
filings of SkyNet under the 1933 Act or the 1934 Act from time to time. Costs
incident to such requests shall be borne by the Buyers.
6.2.9 such other documents as may be described in Articles 8 and 9 of this
Agreement.
28
<PAGE>
6.3 Obligations of SkyNet and Sub.
-----------------------------
At the Closing, SkyNet and Sub shall deliver:
6.3.1 the SkyNet Stock, in accordance with Article 3 of this Agreement;
6.3.2 a certificate of the Chief Executive Officer or President of SkyNet
and Sub, dated as of the Closing Date, to the effect that (i) all of the
representations made by the Buyers upon the execution and delivery of this
Agreement remain true and correct as of the Closing Date and (ii) SkyNet and Sub
have performed and complied with in all material respects all of the covenants,
agreements and obligations set forth in this Agreement to be performed or
complied with by it on or prior to the Closing Date;
6.3.3 copies of resolutions adopted by the Board of Directors of each of
SkyNet and Sub duly authorizing and approving the execution of this Agreement
and the consummation of the transactions contemplated hereby, certified by an
appropriate officer as being true and correct as of the Closing Date;
6.3.4 each of the Ancillary Agreements;
6.3.5 The Vehicle Sale Agreement described in Section 6.2.7 above; and
6.3.6 such other documents as may be described in Articles 8 and 9 of this
Agreement.
6.4 Further Documents or Necessary Action.
-------------------------------------
The Buyers and Seller each agree to take all such further actions on
or after the Closing Date as may be necessary, desirable or appropriate in order
to confirm or effectuate the transactions contemplated by this Agreement. Costs
incident to the performance of such obligations shall be borne by the party
requesting the performance by the other party.
7. COVENANTS AND AGREEMENTS
Seller covenants to and agrees with the Buyers, and each of the Buyers
covenants to and agrees with Seller, as follows:
7.1 Conduct of Business Pending the Closing.
---------------------------------------
During the period from the date of this Agreement to the Closing Date,
Seller shall conduct its business operations in the ordinary and usual course
and shall maintain its records and books of account in a manner consistent with
prior periods. Seller shall exercise reasonable efforts to preserve intact the
present business organization and personnel of Seller and the present goodwill
of Seller with persons having business dealings with it. Except as otherwise
required or contemplated hereby, Seller further covenants and agrees that, from
the date of this Agreement to the Closing Date, it shall not, without the
consent of the Buyers:
29
<PAGE>
7.1.1 enter into any negotiations, discussions or agreements contemplating,
affecting or respecting the Assets or Vehicles or any of the Seller' ability to
transfer the Assets or Vehicles;
7.1.2 enter into any negotiations, discussions or agreements contemplating
or respecting the acquisition of Seller or any material Asset or the Vehicles
identified hereunder (other than in the ordinary course of business), whether
through a sale of stock, a merger or consolidation, the sale of all or
substantially all of the assets of Seller, any type of recapitalization or
otherwise;
7.1.3 incur any Liabilities or take any action that would materially
diminish the value of the Assets or Vehicles;
7.1.4 take any action which would materially interfere with or prevent
performance of this Agreement; or
7.1.5 engage in any activity or enter into any transaction which would be
inconsistent in any material respect with any of the representations or
covenants set forth in this Agreement, as if such representations and covenants
were made at a time subsequent to such activity or transaction and all
references to the date of this Agreement were deemed to be such later date.
7.2 Access By the Buyers; Confidentiality.
-------------------------------------
During the period from the date of this Agreement to the Closing Date,
Seller shall cause the Buyers, its agents and representatives to be given
reasonable access during normal business hours to the premises, buildings,
offices, books, records, assets (including the Assets), Liabilities, operations,
contracts, files (excluding restricted files, such as personnel, medical, claims
and legal files), financial and tax information and other operational data and
information of Seller, and shall cooperate with the Buyers in conducting its due
diligence investigation of Seller; provided that such access shall not
--------
unreasonably interfere with the normal operations and employee relationships of
Seller and shall be in compliance with all applicable Law. All information
provided to or learned by the Buyers as a result of such access or otherwise in
connection with the transactions contemplated by this Agreement shall be held in
confidence.
7.3 Access By Seller; Confidentiality.
---------------------------------
During the period from the date of this Agreement to the Closing Date,
the Buyers shall cause Seller, its agents and representatives to be given full
access during normal business hours to the premises, buildings, offices, books,
records, assets, liabilities, operations, contracts, files, personnel, financial
and tax information and other data and information of the Buyers, and shall
cooperate with Seller in conducting its due diligence investigation of the
Buyers; provided that such access shall not unreasonably interfere with the
--------
normal operations and employee relationships of the Buyers and shall be in
compliance with all applicable Law. The Buyers shall provide Seller with copies
of all reports and/or filings it makes with the Securities and Exchange
Commission from the date hereof through the Closing. All information provided
to or learned by
30
<PAGE>
Seller as a result of such access or otherwise in connection
with the transactions contemplated by this Agreement shall be held in
confidence.
7.4 Notice of Breach or Failure of Condition.
----------------------------------------
Sellers and the Buyers agree to give prompt notice to the other of the
occurrence of any event or the failure of any event to occur that might preclude
or interfere with the timely satisfaction of any condition precedent to the
obligations of Seller or the Buyers under this Agreement.
7.5 Contract Consents.
------------------
Buyers agree to use their best efforts to obtain agreement from the
Seller's customers identified on Schedule 7.5 (individually, a "Major Customer"
------------
and collectively, the "Major Customers") to the assignment of all Seller's post-
Closing Contract obligations, liabilities and rights by Seller to Sub.
Specifically:
7.5.1 Within ten days of the date of this Agreement, one or more of
Buyer's representatives will accompany one or more of Seller's representatives
to meetings with authorized representatives of each of the Major Customers, and
any other client from which Buyers and Seller mutually agree a consent to
assignment is required.
7.5.2 At those meetings, a request shall be made to each Major Customer to
consent in writing to Seller's assignment of all of its contract obligations,
liabilities and rights to Sub. An Agreement to Assign, in form and substance
acceptable to Buyers and Seller, shall be signed by an authorized representative
of both Buyers and Seller and shall be presented to the Major Customer
representative at such meeting. In the event a Major Customer elects not to sign
a consent to the assignment of the Contract is not received within ten days of
the meeting, Seller shall be entitled to cancel such contract without liability
to Buyers and without adjustment to the Purchase Consideration.
7.5.3 Buyers agree that as of the Closing Date, Seller shall have assigned
all obligations, liabilities and rights to all Assets (including Contracts, and
any other contract or agreement, oral or written, between Seller and its
clients, customers, suppliers, subcontractors, and independent contractors in
the operation of the Business). Buyers shall acknowledge the assignment of all
such post-Closing obligations, liabilities and rights to all such Assets,
notwithstanding contrary provisions in any of the Contracts or any other
document or agreement which purport to prohibit such an assignment without prior
consent.
7.6 Production of Schedules and Exhibits.
------------------------------------
Not less than five (5) days prior to the Closing, each of the parties
hereto shall produce, to the extent not previously completed, the Schedules and
Exhibits required to be prepared pursuant to this Agreement. The Schedules and
Exhibits prepared subsequent to the execution of this Agreement shall be given
such force and effect as though such Schedules and Exhibits were produced at the
time of the execution of this Agreement.
31
<PAGE>
7.7 Best Efforts.
------------
The Sellers and the Buyers shall use their respective best efforts to
obtain all consents or approvals necessary to bring about the satisfaction of
the conditions required to be performed, fulfilled or complied with by them
pursuant to this Agreement and to take or cause to be taken all action, and to
do or cause to be done all things, necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement as expeditiously as practicable.
7.8 Exclusive Dealing.
-----------------
In consideration of the Buyers expending considerable time and
expenses in connection with the transactions contemplated in this Agreement,
including those incurred for due diligence inquiries and legal fees, Seller
hereby covenants and agrees that until sixty (60) days after the date on which
this Agreement is terminated pursuant to Article 13 (except in the event of a
termination of this Agreement by Seller as a result of a breach by Buyers of
their obligations hereunder or by the Buyers under the condition set forth in
Section 8.5 hereof), Seller will not, directly or indirectly, through any
representative or otherwise, solicit or entertain offers from, negotiate with or
in any manner encourage, discuss, accept or consider any proposal of any other
person relating to the acquisition of the Assets, in whole or in part, whether
directly or indirectly, through purchase, merger, consolidation or otherwise.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS
All obligations of the Buyers under this Agreement are subject to the
satisfaction by Seller at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by the Buyers:
8.1 Representations True at Closing.
-------------------------------
The representations of Seller contained in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on the Closing Date as though such
representations were made again on the Closing Date.
8.2 Performance.
-----------
The Sellers shall have performed and complied in all material respects
with all agreements and conditions required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.
8.3 No Adverse Changes.
------------------
Except as contemplated by this Agreement, there shall have been no
material adverse change in the condition, prospects, Assets, business or
operations, financial or otherwise, of Seller from December 31, 1998 to the
Closing Date.
32
<PAGE>
8.4 Litigation.
----------
On the Closing Date, there shall not be any pending or threatened
Proceedings in any court or by or before any Governmental Authority with a view
to seek, or in which it is sought, to restrain or prohibit the consummation of
the transactions contemplated by this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the transactions
contemplated by this Agreement.
8.5 Due Diligence.
-------------
The Buyers shall have completed, to their satisfaction, a due
diligence review of the financial condition, results of operations, properties,
assets, liabilities, business and prospects of Seller.
8.6 Transportation Agreement.
------------------------
Seller shall have entered into a Transportation Agreement agreeable in
form and substance to the parties.
8.7 Registration Rights Agreement.
-----------------------------
The Registration Rights Agreement agreeable in form and substance to
the parties shall have been executed and delivered by Seller.
8.8 Transitional Sublease.
---------------------
The Transitional Sublease shall have been executed and delivered by
Seller.
8.9 Replacement Las Vegas Facility.
------------------------------
Sub shall have entered into a Lease Agreement for the new site of its
Las Vegas, Nevada operations.
8.10 Assignment of Leases.
--------------------
The landlords under each of the Leases identified on Schedule 4.4.3
--------------
shall have consented to the assignment of such leases from Seller to Sub and
delivered a Consent to Lease Assignment and Estoppel Certificate agreeable in
form and substance to the parties.
8.11 Escrow Agreement.
----------------
Seller shall have executed and delivered the Escrow Agreement.
33
<PAGE>
8.12 Certificate.
-----------
Seller have delivered to the Buyers a certificate, dated as of the
Closing Date, of the Sellers to the effect that the conditions set forth in
Sections 8.1, 8.2, 8.3, 8.4, and 8.10 have been satisfied.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
satisfaction by the Buyers at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Seller:
9.1 Representations True at Closing.
-------------------------------
The representations of the Buyers contained in this Agreement shall
have been true and correct in all material respects when made and shall be true
and correct in all material respects on the Closing Date as though such
representations were made again on the Closing Date.
9.2 Performance.
-----------
The Buyers shall have performed and complied, in all material
respects, with all agreements and conditions required by this Agreement to be
performed or complied with by the Buyers prior to or at the Closing.
9.3 No Adverse Changes.
------------------
Except as contemplated by this Agreement, there shall have been no
Material Adverse Change in the condition, business or operations, financial or
otherwise, of the Buyers from June 30, 1998 to the Closing Date except as
otherwise set forth in the Securities Reports.
9.4 Litigation.
----------
On the Closing Date, there shall not be any pending Proceedings in any
court or by or before any Governmental Authority with a view to seek, or in
which it is sought, to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or in which it is sought to obtain divestiture,
rescission or damages in connection with the transactions contemplated by this
Agreement and no investigation by any Governmental Authority shall be pending
which might result in any such Proceeding.
9.5 Governmental Consents.
---------------------
All requirements for the valid consummation by the Buyers of the
transactions contemplated by this Agreement shall have been applied for by
Buyers, and all authorizations, consents, waivers, approvals or other actions by
any Governmental Authority or third party
34
<PAGE>
which are required for the consummation of the transactions contemplated by this
Agreement shall have been applied for by Buyers.
9.6 Transportation Agreement.
------------------------
The Transportation Agreement shall have been executed and delivered by
Sub.
9.7 Registration Rights Agreement.
-----------------------------
The Registration Rights Agreement shall have been executed and
delivered by SkyNet.
9.8 Due Diligence.
-------------
The Seller shall have completed, to its satisfaction, a due diligence
review of the financial condition, results of operations, properties, assets,
liabilities, business and prospects of the Buyers.
9.9 Escrow Agreement.
----------------
SkyNet and Sub shall have executed and delivered the Escrow Agreement
and delivered the Escrow Shares to the Escrow Agent hereunder.
9.10 Replacement Las Vegas Facility.
------------------------------
Sub shall have entered into a Lease Agreement for the new site of its
Las Vegas, Nevada operations.
9.11 Interstate and Intrastate Operational Authority.
-----------------------------------------------
Buyers shall have applied for and made diligent efforts in a timely
manner to obtain all necessary interstate and intrastate operational authority,
and to expeditiously and accurately complete the appropriate forms and
procedures to obtain such authority.
9.12 Third Party Consents.
--------------------
All statutory requirements, if any, for the valid consummation by
Seller of the transactions contemplated by this Agreement shall have been
fulfilled and all authorizations, consents, waivers, approvals or other actions
by any third party which are required for the consummation of the transactions
contemplated by this Agreement shall have been received and shall be in full
force and effect.
9.13 Assignment of Lease.
-------------------
Each of the Leases described on Schedule 4.4.3 shall have been
--------------
assigned from Seller to Sub, and each lessor under such lease shall have
consented to such assignment.
35
<PAGE>
9.14 Certificate.
-----------
The Buyers shall have delivered to Seller a certificate, dated as of
the Closing Date, to the effect that the conditions set forth in Sections 9.1,
9.2, 9.3, 9.4, 9.9, 9.12 and 9.13 have been satisfied.
10. POST CLOSING COVENANTS
Seller covenants to and agrees with the Buyers, and each of the Buyers
covenants to and agrees with Seller, as follows:
10.1 Access to Books and Records.
---------------------------
Following the Closing Date, Buyers and Seller agree to provide the
other party with access to each of the Books and Records as they may reasonably
request from time to time in order to permit the requesting party to comply with
the requirements of any federal or state laws or requests of federal or state
regulatory agencies as may exist from time to time or as may be necessary to
prepare its audited financial statements for periods following the Closing Date.
Costs incident to requests under this Section shall be borne by the requesting
party.
10.2 Restrictions on Transfer of SkyNet Stock.
----------------------------------------
In order to assist in compliance with federal and state securities
laws and to further the purposes of this Agreement, Seller agrees that it will
not, except as may be permitted or contemplated by the Registration Rights
Agreement, sell, transfer, pledge, hypothecate or otherwise encumber any of the
SkyNet Stock until the one year anniversary of the Closing Date.
10.3 Employee Matters.
----------------
10.3.1 As of the Closing Date, all of the Employees identified on
Schedule 4.9.1 shall cease to be employees of Seller, and Sub agrees that it
- --------------
will hire substantially all such persons as of the Closing Date. Buyer further
agrees that it shall not terminate more than 40 of these or other employees in
any single city or operating location, within 90 days of the date of the sale.
10.3.2 Buyer is aware that the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America, Local 631, has petitioned the
National Labor Relations Board to become the exclusive bargaining representative
of Seller's full time and regular part time drivers and warehouse employees
(excluding all office clericals, dispatchers, assistant dispatchers, guards and
supervisors, as defined in the National Labor Relations Act as amended) employed
at the Employer's 3860 West Tompkins Ave, Las Vegas, Nevada facility. The
Teamsters Union has won a representation election for the above described
bargaining unit. Seller, consistent with its obligations under the National
Labor Relations Act, has extended recognition to the Teamsters Union as the
exclusive bargaining representative of the above described bargaining unit. Sub
agrees that, as of the Closing Date, it will hire at least a majority
36
<PAGE>
of the employees in the above described bargaining unit and to recognize the
above-named union as the exclusive bargaining representative for those employees
in such bargaining unit that are employed by Sub following the Closing.
10.4 Real Property Lease Matters.
---------------------------
10.4.1 Real Property Leases. To the extent the conditions in Sections
--------------------
9.14 and 8.10 of this Agreement to Seller's and the Buyer's obligation to
perform their respective obligations under this Agreement have not been
satisfied as of the Closing Date and waived by the parties, Sub and Seller shall
make best efforts in good faith to timely contact those landlords, landowners,
Realtors, property managers or property brokers who have legal authority to
change tenancies or tenants as to the Leases, and to expeditiously complete the
appropriate forms and procedures, to assign the Leases and any liabilities
thereunder, to Sub as the Closing Date, Buyer shall be solely liable for any and
all costs required for such lease assignment.
10.4.2 Rental of Las Vegas Facility. To assist the transition of the
----------------------------
Assets and Vehicles to Sub, Seller shall, pursuant to the Transitional Sublease
in form and substance acceptable to the parties, sublease to Sub Seller's leased
facilities at 3860 West Tompkins Ave., and 4610 Wynn Rd, Suite F, Las Vegas,
Nevada. which facilities Sub agrees to vacate within 60 days of the Closing
Date. Sub agrees to a month-to-month rental on such properties, to be
responsible for all utilities, maintenance and repairs without exception, and to
additionally pay Seller the following monthly rates:
<TABLE>
<CAPTION>
Rental for each 30-day Monthly Rental
Location period following the following the 60th day
- --------------------------------- Closing Date after the Closing Date
---------------------- -----------------------
<S> <C> <C>
3860 West Tompkins Ave. $6,000 monthly $65,000
4610 Wynn Rd., Suite F $2,000 monthly $15,000
</TABLE>
10.5 Transfer of Right to Use the Name "Fleet Delivery Service".
----------------------------------------------------------
The parties acknowledge and agree that, until such time as the
Transportation Agreement shall terminate, Seller shall retain the sole and
exclusive right to use the name "Fleet Delivery Service." At such time as Sub
has obtained all required interstate and intrastate authorities to conduct the
Business, the Transportation Agreement shall terminate, and (i) Seller shall
immediately thereafter make all filings required to relinquish its right to use
the name "Fleet Delivery Service" and (ii) Sub shall take all actions necessary
to avail itself of the right to use the name "Fleet Delivery Service"
thereafter.
10.6 Compliance with Law.
-------------------
The Buyers agree that they shall use their respective best efforts to
comply with all applicable Laws on and after the Closing Date.
37
<PAGE>
11. NON-COMPETITION
11.1 Covenant Not to Compete.
-----------------------
11.1.1 For a period of two (2) years after the Closing Date, Seller agrees
that neither it nor any person or entity directly or indirectly controlling,
controlled by or under common control with Seller, shall compete with the Buyers
in the non-passenger carrier business. The term "Restricted Area" shall mean the
six states of Arizona, California, Oregon, Nevada, Utah and Washington.
11.1.2 Notwithstanding the foregoing, the performance by Seller of (i) any
services required of regulated carriers pursuant to applicable Law, which the
parties hereto acknowledge as of the date of this Agreement to consist of the
transportation, on an exigent or emergency basis, of materials to or from
medical laboratories or hospitals, and (ii) the transport of baggage in
taxicabs, buses, minibuses or limousines, shall not constitute competition in
the non-passenger carrier business for purposes of the foregoing covenant not to
compete.
11.2 Covenant Not to Disclose.
------------------------
Seller agrees that it possesses certain data and knowledge of
operations of the Business which are proprietary in nature and confidential,
including, without limitation, trade secrets, which if disclosed to the public
may have a Material Adverse Effect on the Buyers on or after the Closing Date
(collectively, the "Confidential Information"). The Seller covenants and agrees
that it will not, at any time after the Closing, reveal, divulge or make known
to any person (other than the Buyers) or use for its own account or for the
account of any person, firm, corporation or other organization any Confidential
Information which is included in the Assets, except to the extent that such
information is in the public domain. In the event that Seller is requested or
required (by oral question or request for information or documents in any legal
Proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, Seller will notify the Buyers
promptly of the request or requirement so that the Buyers may seek an
appropriate protective order or waive compliance with the provisions of this
Section 11.2. If, in the absence of a protective order or the receipt of a
waiver hereunder, Seller nonetheless is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, Seller may disclose the Confidential Information to the tribunal;
provided, however, that Seller shall use its best efforts to obtain, at the
- --------
request of the Buyers, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyers shall designate.
11.3 Remedies.
--------
The parties hereto recognize that damages in the event of breach of
this Article 11 would be difficult, if not impossible, to ascertain, and it is
therefore agreed that the Buyers, in addition to and without limiting any other
remedy or right it may have, shall have the right to an injunction or other
equitable relief in any court of competent jurisdiction enjoining any such
38
<PAGE>
breach. The existence of this right shall not preclude any other rights and
remedies at law or in equity which the Buyers or Seller may have.
11.4 Invalidity.
----------
It is the desire and intent of the parties to this Agreement that the
provisions of this Article 11 shall be enforced to the fullest extent
permissible under applicable Law. If any particular provisions or portion of
this Article shall be adjudicated to be invalid or unenforceable, this Article
shall be deemed amended to delete therefrom or restrict the application of such
provision or portion adjudicated to be invalid or unenforceable to the extent
(but only to the extent) required to render such provision or portion valid and
enforceable, such amendment to apply only with respect to the operation of such
Article in the particular jurisdiction in which such adjudication is made.
12. INDEMNIFICATION AND RELATED MATTERS
12.1 Survival of Representations.
---------------------------
The representations contained in this Agreement, the schedules and
exhibits hereto, and any agreement, document, instrument or certificate
delivered hereunder, including the Related Documents, shall survive the Closing
until the two year anniversary of the Closing Date; provided, that the
--------
representations contained in Sections 4.7, 4.14, 4.18 and 5.12 shall not
terminate until the expiration of any applicable statute of limitations.
12.2 Indemnification by Seller.
-------------------------
12.2.1 Seller shall indemnify each of SkyNet and Sub (individually, a
"SkyNet Indemnified Party" and collectively, "SkyNet Indemnified Parties")
jointly and severally against, defend and hold each harmless from the following:
12.2.1.1 any liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation by Seller in
this Agreement;
12.2.1.2 any liability of Seller not expressly assumed by the Buyers
under the terms of this Agreement;
12.2.1.3 any liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by Seller in this Agreement; and
12.2.1.4 any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing. In the
event that the Buyers makes a Claim which is determined pursuant to the
arbitration proceeding specified in Section 14.6 hereof to be without reasonable
basis in law or fact, the Buyers shall bear all reasonable costs and
39
<PAGE>
expenses (including court costs and reasonable legal and accounting fees),
incurred by Seller in investigating and defending against such Claim.
12.2.2 The Buyers shall be entitled to offset any amounts due to it under
this Section 12.2 against the Escrow Shares to the extent Escrow Shares are
available, which shall be the limit of Seller's liability for this Section and
any and all of Seller's liability arising from or relating to this Agreement.
12.3 Indemnification by the Buyers.
-----------------------------
SkyNet and Sub shall jointly and severally indemnify Seller against,
defend and hold it harmless from the following:
12.3.1 any liability, loss, damage or deficiency resulting from or arising
out of any inaccuracy in or breach of any representation by the Buyers in this
Agreement;
12.3.2 any liability, loss, damage or deficiency resulting from or arising
out of any breach or nonperformance of any covenant or obligation made or
incurred by the Buyers in this Agreement, including but not limited to any and
all performance or payment obligations arising following Closing under any and
all contracts and agreements Seller entered into prior to the Closing Date which
are assumed by Sub hereunder; and
12.3.3 any and all reasonable costs and expenses (including reasonable
legal and accounting fees) related to any of the foregoing. In the event that
Seller make a Claim which is determined pursuant to the arbitration proceeding
specified in Section 14.6 hereof to be without reasonable basis in law or fact,
Seller shall bear all reasonable costs and expenses (including court costs and
reasonable legal and accounting fees), incurred by the Buyers in investigating
and defending against such Claim.
12.4 Third Party Claims.
------------------
12.4.1 If any Proceeding (including, without limitation, negotiations with
federal, state, local or foreign tax authorities) shall be threatened or
commenced by a third party in respect of which a party (an "Indemnified Party")
may make a Claim hereunder, the Indemnified Party shall notify the party
obligated to indemnify such party hereunder (the "Indemnifying Party") to that
effect with reasonable promptness (so as to not prejudice such party's rights)
after the commencement or threatened commencement of such Proceeding, and the
Indemnifying Party shall have the opportunity to defend against such Proceeding
(or, if the Proceeding involves to a significant extent matters beyond the scope
of the indemnity provisions contained herein, those Claims that are covered
hereby), subject to the limitations set forth below.
12.4.2 If the Indemnifying Party elects to defend against any Proceeding
(or, as described in the preceding parenthetical in Section 12.4.1, above, one
or more claims relating thereto), the Indemnifying Party shall notify the
Indemnified Party to that effect with reasonable
40
<PAGE>
promptness. In such case, the Indemnified Par ty shall have the right to employ
its own counsel and participate in the defense of such matter, but the fees and
expenses of counsel shall be at the expense of the Indemnified Party unless the
employment of such counsel at the expense of the Indemnifying Party shall have
been authorized in writing by the Indemnifying Party.
12.4.3 Any party granted the right to direct the defense of a threatened
or actual Proceeding hereunder shall: (i) keep the other party fully informed of
material developments in the Proceeding at all stages thereof; (ii) promptly
submit to the other party copies of all pleadings, responsive pleadings, motions
and other similar legal documents and papers received in connection with the
Proceeding; (iii) permit the other party and its counsel, to the extent
practicable, to confer on the conduct of the defense of the Proceeding; and (iv)
to the extent practicable, permit the other party and its counsel an opportunity
to review all legal papers to be submitted prior to their submission. The
parties shall make available to each other and each other's counsel and
accountants all of its or their books and records relating to the Proceeding,
and each party shall render to the other such assistance as may be reasonably
required in order to insure the proper and adequate defense of the Proceeding.
The parties shall use their respective good faith efforts to avoid the waiver of
any privilege of either party.
12.4.4 The assumption of the defense of any matter by an Indemnifying
Party shall not constitute an admission of responsibility to indemnify or in any
manner impair or restrict such party's rights to later seek reimbursement of its
costs and expenses if the Indemnifying Party had no indemnification obligation
under this Agreement with respect to such matter. An Indemnifying Party may
elect to assume the defense of a matter at any time during the pendency of such
matter, even if initially such party did not elect to assume such defense, so
long as such assumption at such later time would not prejudice the rights of the
Indemnified Party. No settlement of a matter by the Indemnified Party shall be
binding on an Indemnifying Party for purposes of such party's indemnification
obligations hereunder.
13. TERMINATION
13.1 Termination by Mutual Consent.
-----------------------------
At any time prior to the Closing, this Agreement may be terminated by
the mutual written consent of Seller and the Buyers without liability on the
part of Seller or the Buyers.
13.2 Termination Upon Breach or Default.
----------------------------------
If Seller or the Buyers shall materially default in the observance or
in the due and timely performance of any of the covenants contained in this
Agreement, or if there shall have been a material inaccuracy in or breach by any
of the parties of any of the representations set forth in this Agreement, the
other party may, upon written notice and a reasonable opportunity to cure,
terminate this Agreement, without prejudice to its rights and remedies available
at law, including the right to recover expenses, costs and other damages.
13.3 Termination Based Upon Failure of Conditions.
--------------------------------------------
41
<PAGE>
If any of the conditions of this Agreement to be complied with or
performed by a party on or before the Closing Date, shall not have been complied
with or performed in all material respects by such date and such noncompliance
or nonperformance shall not have been waived in writing by the other party, the
party to whom the benefit of such condition runs may, upon written notice,
terminate this Agreement, without prejudice to its or their rights and remedies
available under law, including the right to recover expenses, costs and other
damages.
13.4 Termination on Termination Date.
-------------------------------
If Closing shall not have occurred (other than through the failure of
any party seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before the Termination Date, or such
later date as the parties may agree upon, this Agreement shall automatically
terminate, without prejudice to any party's rights and remedies available under
law, including the right to recover expenses, costs and other damages.
14. GENERAL
14.1 Entire Agreement.
----------------
This Agreement, and the exhibits and schedules hereto and the
agreements specifically referred to herein, including the Ancillary Documents,
set forth the entire agreement and understanding of Seller and the Buyers in
respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by Seller or the Buyers that is not embodied in this Agreement or in
the documents specifically referred to herein and neither Seller nor the Buyers
shall be bound by or liable for any alleged representation, promise, inducement
or statement of intention not so set forth.
14.2 Binding Effect; Benefits; Assignment.
------------------------------------
The terms of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by and against Seller and its successors and
authorized assigns, and the Buyers and its successors and authorized assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies under or by reason of this Agreement except
as expressly indicated herein. Neither Seller nor the Buyers shall assign any
of their respective rights or obligations under this Agreement to any other
person, firm or corporation without the prior written consent of the other
party.
14.3 Headings.
--------
The headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
14.4 Amendment and Waiver.
--------------------
42
<PAGE>
This Agreement may be amended, modified, superseded or canceled and
any of the terms, covenants, representations or conditions hereof may be waived
only by a written instrument executed by Seller and the Buyers or, in the case
of a waiver, by or on behalf of the party waiving compliance.
14.5 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada as applicable to contracts made and to be
performed in Nevada, without regard to conflict of laws principles.
14.6 Arbitration.
-----------
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be determined by binding arbitration applying the
laws of the State of Nevada as set forth in Section 14.6 hereof. Any
arbitration pursuant to this Agreement shall be conducted in Clark County,
Nevada in accordance with the Nevada arbitration rules. The arbitration shall
be final and binding upon all the parties (so long as the award was not procured
by corruption, fraud or undue means) and the arbitrator's award shall not be
required to include factual findings or legal reasoning. The arbitrator(s) may
award the prevailing party reasonable attorneys' fees and other legal expenses
incurred in connection with the arbitration proceeding. Judgment on the award
rendered by the arbitrator(s) shall be entered in district court in Clark
County, Nevada.
14.7 Public Disclosure.
-----------------
Except as required by Law, neither the Buyers nor Seller shall make
any public disclosure of the existence or terms of this Agreement or the
transactions contemplated hereby without the prior written consent of the other
party, which consent shall not be unreasonably withheld. In the event that
Seller or the Buyers determines that the disclosure of the existence or terms of
this Agreement is required by Law, such party shall so notify the other parties
and shall provide to the other party a copy of any such public disclosure prior
to releasing the same.
14.8 Notices.
-------
All notices, requests, demands and other communications to be given
pursuant to the terms of this Agreement shall be in writing and shall be deemed
to have been duly given if hand delivered, sent by overnight mail by a
nationally recognized overnight delivery service or mailed first class, postage
prepaid:
(a) If to Seller:
Mr. Jack E. Owens
Nevada Fleet Management, Inc.
3950 West Tompkins Avenue
43
<PAGE>
Las Vegas, Nevada 89103
Telephone: (702) 873-8012
Facsimile: (702) 365-7864
David C. Gillman, Esquire
Nevada Fleet Management, Inc.
3950 West Tompkins Avenue
Las Vegas, Nevada 89103
Telephone: (702) 873-8012
Facsimile: (702) 365-7864
and
Mr. Milton Schwartz
714 S. Tonapah
Las Vegas, NV 89106
(b) If to the Buyers:
SkyNet Holdings, Inc.
Fleet Acquisition Corp.
343 South Glasgow Avenue
Inglewood, California
Attention: Mr. Vic Nizic
Facsimile: (310) 568-9637
with a copy to:
Stephen M. Cohen, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Facsimile: (215) 665-8760
Either party may change its address by prior written notice to the other party.
14.9 Counterparts.
---- ------------
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and such counterparts shall together
constitute one and the same instrument. A facsimile signature on any
counterpart shall be deemed to be an original signature.
44
<PAGE>
14.10 Expenses.
----- --------
Each party shall pay their own respective expenses, costs and fees
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and each of the Related Documents and the consummation of the
transactions contemplated hereby, including, without limitation, the fees and
expenses of their respective legal counsel, accountants and financial advisors.
14.11 Invalidity.
----- ----------
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall be held to be invalid, illegal or unenforceable in any
jurisdiction, such provisions shall be deemed amended to the extent necessary
for such provisions to be valid, reasonable and enforceable in such
jurisdiction; provided, however, that such provisions shall not be deemed
amended for purposes of their enforcement in any jurisdiction in which such
provisions would be valid, legal and enforceable without amendment.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be duly executed as of the day and year first above written.
SKYNET HOLDINGS, INC.
By: /s/ Vjekoslav Nizic
--------------------------------------
Vjekoslav Nizic, President and Chief
Executive Officer
FLEET ACQUISITION CORP.
By: /s/ Vjekoslav Nizic
--------------------------------------
Vjekoslav Nizic, President and Chief
Executive Officer
NEVADA FLEET MANAGEMENT, INC.
By: /s/ Milton Schwartz
--------------------------------------
Milton Schwartz, Vice President
46
<PAGE>
EXHIBIT 10.12
VEHICLE PURCHASE AGREEMENT
by and among
SKYNET HOLDINGS, INC.
and
FLEET ACQUISITION CORP.
as the Buyers
NEVADA YELLOW CAB CORPORATION,
and
NEVADA CHECKER CAB CORPORATION
and
NEVADA STAR CAB CORPORATION
as Sellers
Dated March 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS........................................................ 1
1.1 Definitions.................................................. 1
-----------
1.2 Interpretation Provisions.................................... 3
-------------------------
2. SALE AND PURCHASE OF VEHICLES...................................... 4
2.1 Agreement to Sell and Purchase Vehicles...................... 4
---------------------------------------
2.2 Taking of Necessary Action; Further Action................... 4
------------------------------------------
3. PAYMENT OF THE PURCHASE CONSIDERATION.............................. 5
3.1 Purchase Consideration....................................... 5
----------------------
3.2 Escrow Provisions............................................ 5
4. REPRESENTATIONS OF SELLERS......................................... 6
4.1 Organization and Standing of NYC............................. 6
--------------------------------
4.2 Organization and Standing of NCC............................. 6
--------------------------------
4.3 Organization and Standing of NSC............................. 6
--------------------------------
4.4 Due Authorization............................................ 6
-----------------
4.5 Bulk Sales Compliance and Transfer Taxes..................... 6
----------------------------------------
4.6 SkyNet Stock................................................. 7
------------
5. REPRESENTATIONS OF SKYNET AND SUB.................................. 8
5.1 Organization and Standing of SkyNet.......................... 8
-----------------------------------
5.2 Organization and Standing of Sub............................. 8
--------------------------------
5.3 Authorization and Enforceability............................. 8
--------------------------------
5.4 SkyNet Stock................................................. 9
------------
5.5 Approval..................................................... 9
--------
6. CLOSING 9
6.1 Closing...................................................... 9
-------
6.2 Obligations of the Sellers................................... 9
--------------------------
6.3 Obligations of SkyNet and Sub................................10
-----------------------------
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS......................10
7.1 Performance..................................................10
-----------
7.2 Registration Rights Agreement................................10
-----------------------------
7.3 Closing Under Asset Purchase Agreement.......................10
--------------------------------------
7.4 Certificate..................................................10
-----------
</TABLE>
i
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER......................11
8.1 Performance..................................................11
-----------
8.2 Closing Under Asset Purchase Agreement.......................11
--------------------------------------
8.3 Registration Rights Agreement................................11
-----------------------------
8.4 Certificate..................................................11
-----------
9. POST CLOSING COVENANTS.............................................11
9.1 Restrictions on Transfer of SkyNet Stock.....................11
----------------------------------------
9.2 Compliance with Law..........................................11
-------------------
10. INDEMNIFICATION AND RELATED MATTERS...............................12
10.1 Survival of Representations.................................12
---------------------------
10.2 Indemnification by the Sellers..............................12
------------------------------
10.3 Indemnification by the Buyers...............................12
-----------------------------
10.4 Third Party Claims..........................................13
------------------
11. GENERAL...........................................................14
11.1 Entire Agreement............................................14
----------------
11.2 Binding Effect; Benefits; Assignment........................14
------------------------------------
11.3 Headings....................................................14
--------
11.4 Amendment and Waiver........................................14
--------------------
11.5 Governing Law...............................................14
-------------
11.6 Arbitration.................................................15
-----------
11.7 Public Disclosure...........................................15
-----------------
11.8 Notices.....................................................15
-------
11.9 Counterparts................................................16
------------
11.10 Expenses...................................................16
--------
11.11 Invalidity.................................................16
----------
Schedules
1.1.1 Vehicles
3.3.1 Issuance of SkyNet Stock to Sellers
5.1 Certificate of Incorporation and Bylaws of SkyNet
5.2 Articles of Incorporation and Bylaws of Sub
ii
<PAGE>
VEHICLE PURCHASE AGREEMENT
--------------------------
This VEHICLE PURCHASE AGREEMENT (the "Agreement") is made as of March
15, 1999, by and among SKYNET HOLDINGS, INC., a publicly-owned Delaware
corporation ("SkyNet") and FLEET ACQUISITION CORP. ("Sub"), a Nevada corporation
which is a wholly-owned subsidiary of SkyNet (SkyNet and Sub are collectively
referred to as the "Buyers"), and NEVADA YELLOW CAB CORPORATION, a Nevada
corporation ("NYC"), NEVADA CHECKER CAB CORPORATION, a Nevada corporation
("NCC"), and NEVADA STAR CAB CORPORATION, a Nevada corporation ("NSC") (NYC, NCC
and NSC are sometimes referred to individually as a "Seller" and collectively,
the "Sellers").
WITNESSETH:
WHEREAS, Sellers own certain vehicles leased to Nevada Fleet
Management, Inc. ("NFM") for use in a routed courier delivery business operated
by NFM from various locations in Nevada, California, Oregon, Washington,
Arizona; and
WHEREAS, SkyNet currently operates a worldwide courier business; and
WHEREAS, Buyers and NFM are parties to a certain Asset Purchase
Agreement dated as of March 11, 1999 (the "Asset Purchase Agreement") pursuant
to which the Buyers will acquire certain assets and vehicles owned by NFM and
used by NFM in its routed carrier delivery business; and
WHEREAS, Sellers desire to sell certain of their vehicles, which
vehicles are specifically described on a schedule hereto; and
WHEREAS, the Buyers wish to purchase certain of the vehicles
identified herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and representations herein contained, and for other good
and legal consideration, the receipt and sufficiency of which is hereby
acknowledged, the Sellers and the Buyers, intending to be legally bound hereby,
agree as follows:
1. DEFINITIONS
1.1 Definitions.
-----------
When used in this Agreement, the following terms, in their singular
and plural forms, shall have the meanings assigned to them below:
"Act" means the Securities Act of 1933, as amended.
---
"Agreement" is defined in the initial paragraph hereof.
---------
<PAGE>
"Buyers" is defined in the initial paragraph hereof.
------
"Claim" means (i) a claim or demand for any and all Liabilities,
-----
damages, losses, obligations, deficiencies, encumbrances, penalties, costs and
expenses, including reasonable attorneys' fees, resulting from, related to or
arising out of (A) any inaccuracy in any representation, any misrepresentation
or non-fulfillment of any covenant set forth in this Agreement; (B) Sellers'
ownership of the Vehicles; (C) any and all Proceedings, demands, assessments,
audits, judgments and claims arising out of any of the foregoing.
"Closing" is defined in Section 6.1.
-------
"Closing Date" is defined in Section 6.1.
------------
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
-----------
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes any agreement to give any of the foregoing in the future, and any
contingent sale or other title retention agreement or lease in the nature
thereof.
"Escrow Agent" means Mr. Jack E. Owens.
"Governmental Authority" means any foreign, federal, state, regional
----------------------
or local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Indemnified Party" is defined in Section 11.4.
-----------------
"Knowledge" or "to the knowledge" of a party (or similar phrases)
--------- ----------------
means to the extent of matters (i) which are actually known by such party or
(ii) which, based on facts of which such party is aware, would be known to a
reasonable Person in similar circumstances exercising reasonable judgment, and
when used in the context of the Sellers shall be deemed to include the knowledge
of the officers, directors and shareholders of the Sellers.
"Law" means any common law and any federal, state, regional, local or
---
foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts of the
-----------
Sellers of any type or nature, whether matured, unmatured, contingent or
unknown, including, without limitation, tort, contract or other claims asserted
against the Sellers which are based on acts or omissions occurring on, before or
after the Closing Date.
"Lien" means any lien, charge, covenant, condition, easement, adverse
----
claim, demand, encumbrance, security interest, option, pledge, or any other
title defect, easement or restriction of any kind.
2
<PAGE>
"1993 Act" means the Securities Act of 1933.
--------
"1934 Act" means the Securities Exchange Act of 1934.
--------
"Person" means any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Proceeding" means any, arbitration, hearing, litigation, or suit
----------
(whether civil, criminal or, administrative) commenced, brought, conducted, or
heard by or before, or otherwise involving, any administrative law, civil or
criminal judge or any mediator, Governmental Authority or arbitrator.
"Purchase Consideration" is defined in Section 3.1.1.
----------------------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement by and between the Sellers, NFM and SkyNet in form and substance to be
agreed by the parties and delivered at the Closing.
"Securities Reports" is defined in Section 4.21.2.
------------------
"Sellers" is defined in the initial paragraph of this Agreement.
-------
"SkyNet Indemnified Party" is defined in Section 11.2.1.
------------------------
"Termination Date" means March 30, 1999.
----------------
"Vehicles" means those vehicles to be sold by the Sellers to Sub
--------
hereunder, as identified on Schedule 1.1.1 hereto.
--------------
1.2 Interpretation Provisions.
--- -------------------------
1.2.1 The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The term "or" is disjunctive
but not necessarily exclusive. The terms "include" and "including" are not
limiting and mean "including without limitation."
1.2.2 References to agreements and other documents shall be deemed to
include all subsequent amendments and other modifications thereto.
1.2.3 References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation.
3
<PAGE>
1.2.4 The captions and headings of this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
1.2.5 The schedules and exhibits to this Agreement are a material
part hereof and shall be treated as if fully incorporated into the body of the
Agreement.
2. SALE AND PURCHASE OF VEHICLES
2.1 Agreement to Sell and Purchase Vehicles.
---------------------------------------
2.1.1 Subject to the terms and conditions hereof and on the basis of
and in reliance upon the covenants, agreements and representations set forth
herein, on the Closing Date Sellers shall sell and deliver the Vehicles to Sub,
and Sub shall purchase the Vehicles from the Sellers. The Vehicles shall be
sold, transferred and conveyed by the Sellers to Sub on an "as is, where is"
basis, with no express or implied warranties of any kind other than that the
Assets and Vehicles shall be free and clear of any and all Liens, and Buyers
agree such construction with respect to warranties is reasonable.
2.1.2 In addition to the foregoing, the parties will, upon request
and without additional consideration, at and subsequent to the Closing Date,
execute and deliver all such further instruments of conveyance and transfer and
confirmation thereof as may be reasonably requested by Sub in order to make
further effective the provisions of this Agreement and to assure the transfers
and vesting of title provided for by this Agreement. All such transfers and
assignments of title shall vest and be effective on the Closing Date.
2.1.3 Buyers shall be responsible for the payment of any obligation
for Taxes (other than Seller's corporate Taxes) arising as a result of the
transactions contemplated by this Agreement, including without limitation
transfer taxes and vehicle registration expenses incident to the sale of the the
Vehicles;
2.2 Taking of Necessary Action; Further Action.
------------------------------------------
The Sellers and each Buyer shall take such reasonable lawful action as
may be reasonably necessary or appropriate in order to effect the consummation
of the transactions contemplated by this Agreement as promptly as practicable.
If, at any time after the Closing Date, any such further action is reasonably
necessary or desirable to carry out the purposes of this Agreement, to vest Sub
with full right, title and possession to all the property, rights, privileges,
power and franchises of the Sellers, the officers and directors of each of the
Buyers and the Sellers are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
4
<PAGE>
3. PAYMENT OF THE PURCHASE CONSIDERATION
3.1 Purchase Consideration.
----------------------
3.1.1 Purchase Consideration
----------------------
The purchase consideration ("Purchase Consideration") for the Vehicles
shall consist of 120,625 newly-issued shares of common stock of SkyNet (the
"SkyNet Stock"). The SkyNet Stock will be issued to the Sellers as set forth on
Schedule 3.1.1.
- --------------
3.2 Escrow Provisions.
3.2.1 Notwithstanding the other provisions of this Article 3, at the
Closing the Buyers and Sellers shall deliver to the Escrow Agent, registered in
the name of each Seller, that number of shares of SkyNet Stock equal to fifty
percent of the total number of shares of SkyNet Stock to be delivered by SkyNet
pursuant to Section 3.1.1 (the "Escrow Shares"). The Escrow Shares shall be
held by the Escrow Agent pursuant to the terms of an Escrow Agreement acceptable
in form and substance to the parties and to be delivered at the Closing (the
"Escrow Agreement").
3.2.2 In the event a Claim arises under this Agreement as to which
the parties agree a SkyNet Indemnified Party is entitled to indemnification or
as to which the arbitration proceeding provided for under Section 11.6 has been
completed, the SkyNet Indemnified Party shall be entitled to receive in
settlement of such Claim a distribution out of the Escrow Shares of such number
of Escrow Shares as are equal in "value" to the amount of the Claim. All Claims
made, if any, on account of any Seller's indemnification obligations under
Section 10.2 hereof shall be resolved by ascribing a "value" to the Escrow
Shares being distributed to the SkyNet Indemnified Party of $4.00 per share.
3.2.3 Except for Escrow Shares with a value (determined in accordance
with Section 3.2.2) equal to the amount of any Claims by SkyNet Indemnified
Parties that may be pending at such time, on (i) the six month anniversary of
the Closing Date, Escrow Agent shall retain one-half of the original number of
Escrow Shares and shall distribute the remainder to Seller in accordance with
the Escrow Agreement, and (ii) on the one year anniversary of the Closing Date,
Seller shall be entitled to delivery from the Escrow Agent any Escrow Shares
that have not been delivered to, or required to have been delivered to, SkyNet
Indemnified Parties pursuant to Section 3.2.2, Article 10 hereof or the Escrow
Agreement on or prior to such date. At all times that all or any part of the
Escrow Shares are held by the Escrow Agent, (i) all dividends or distributions
made with respect to the Escrow Shares shall be deposited with the Escrow Agent
and held in accordance with the Escrow Agreement and (ii) Sellers shall have the
sole right and power to exercise all voting rights pertaining to all or any part
of the Escrow Shares.
5
<PAGE>
4. REPRESENTATIONS OF SELLERS
As an inducement of the Buyers to enter into this Agreement, the
Sellers hereby make, as of the Closing Date, the following representations to
the Buyers, except as otherwise set forth in written disclosure schedules (the
"Sellers' Schedules") which shall be delivered to the Buyers prior to the date
of Closing, a copy of which is attached hereto. The Sellers' Schedules are
numbered to correspond to the various sections of this Article 4 setting forth
certain exceptions to the representations contained in this Article 4 and
certain other information called for by this Agreement. Unless otherwise
specified, no disclosure made in any particular Sellers' Schedule shall be
deemed made in any other Schedule unless expressly made therein (by cross-
reference or otherwise).
4.1 Organization and Standing of NYC.
--------------------------------
NYC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. NYC has all requisite corporate
power and authority to sell the Assets, free and clear of any and all Liens.
4.2 Organization and Standing of NCC.
--------------------------------
NCC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. NCC has all requisite corporate
power and authority to sell the Assets, free and clear of any and all Liens.
4.3 Organization and Standing of NSC.
--------------------------------
NSC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. NSC has all requisite corporate
power and authority to sell the Assets, free and clear of any and all Liens.
4.4 Due Authorization.
-----------------
This Agreement has been duly authorized, executed and delivered by
each of the Sellers and constitutes a valid and binding agreement of each
Seller, enforceable in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, moratorium, and other similar
laws relating to, limiting or affecting the enforcement of creditors rights
generally or by the application of equitable principles. As of the Closing all
corporate action on the part of each of the Sellers required under applicable
law in order to consummate the transactions contemplated hereby will have
occurred. The Sellers represent that (i) the approval of their respective
stockholders is not required by Law or Sellers' Articles of Incorporation or
Bylaws in order to consummate the transactions contemplated by this Agreement;
or (ii) such approval has been obtained.
6
<PAGE>
4.5 Bulk Sales Compliance and Transfer Taxes.
----------------------------------------
The sale and transfer of the Vehicles to be acquired pursuant to this
Agreement will not result in or be subject to any law pertaining to bulk sales
or transfers which either: (i) makes such sales or transfers ineffective as to
creditors of the Sellers or (ii) exposes the Buyers to liabilities asserted by
creditors of the Sellers.
4.6 SkyNet Stock.
------------
4.6.1 The SkyNet Stock is not being registered under the Act on the
basis of the statutory exemption provided by Section 4(2) thereof, relating to
transactions not involving a public offering, and SkyNet's reliance on the
statutory exemption thereof is based in part on the representations of each of
the Sellers contained in this Agreement;
4.6.2 Each of the Sellers represents (a) that it has, or as of the
Closing, will have reviewed such reports and registration statements of SkyNet
as have been filed with the Securities and Exchange Commission and the
Confidential Private Placement Memorandum dated December 22, 1998, as
supplemented (the "Securities Reports") and that it has such knowledge and
experience in financial and business matters that it is capable of utilizing the
information set forth therein concerning SkyNet to evaluate the risk of
investing in SkyNet; (b) that it has been advised that the SkyNet Stock to be
issued by SkyNet will not be registered under the Act, except as otherwise
provided in this Agreement or the Registration Rights Agreement, and
accordingly, such Seller may only be able to sell or otherwise dispose of such
shares in accordance with Rule 144 or except as otherwise provided in this
Agreement; (c) that the SkyNet Stock will be held for investment and not with a
view to, or for resale in connection with the public offering or distribution
thereof; (d) that the SkyNet Stock so issued will not be sold without
registration thereof under the Act (unless such shares are subject to
registration or in the opinion of counsel to SkyNet an exemption from such
registration is available), or in violation of any law; and (e) that the
certificate or certificates representing the SkyNet Stock will be imprinted with
a legend in form and substance substantially as follows:
'THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR
A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
and SkyNet is hereby authorized to notify its transfer agent of the status of
the SkyNet Stock and to take such other action including, but not limited to,
the placing of a "stop-transfer" order on the transfer agent's books and records
to assure compliance with the Act.
7
<PAGE>
4.6.3 Each Seller has, either upon the date hereof or before the
Closing hereunder, been afforded the opportunity to review and is familiar with
the Securities Reports and has based its decision to invest solely on the
information contained therein, and the information contained within this
Agreement and the associated exhibits and schedules, and has not been furnished
with any other literature, prospectus or other information except as included in
the Reports or this Agreement; and
4.6.4 Each Seller understands that no federal or state agency has
approved or disapproved the SkyNet Stock, passed upon or endorsed the merits of
the transfer of such shares set forth within this Agreement, or made any finding
or determination as to the fairness of such shares for investment.
5. REPRESENTATIONS OF SKYNET AND SUB
As an inducement of the Sellers to enter into this Agreement, SkyNet
and Sub hereby make as of the Closing Date, the following representations to the
Sellers, except as otherwise set forth in written disclosure schedules (the
"Buyers' Schedules") which shall be delivered to the Sellers prior to the
Closing, a copy of which is attached hereto. The Buyers' Schedules are numbered
to correspond to the various sections of this Article 5 setting forth certain
exceptions to the representations contained in this Article 5 and certain other
information called for by this Agreement. Unless otherwise specified, no
disclosure made in any particular Buyers' Schedule shall be deemed made in any
other Buyers' Schedule unless expressly made therein (by cross-reference or
otherwise).
5.1 Organization and Standing of SkyNet.
-----------------------------------
SkyNet is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. SkyNet has all requisite
corporate power and authority to enter into this Agreement. A certified copy of
SkyNet's Certificate of Incorporation and Bylaws are attached as Schedule 5.1.
------------
5.2 Organization and Standing of Sub.
--------------------------------
Sub is a corporation duly organized, validly existing and in good
standing in the State of Nevada. Sub has all requisite corporate power and
authority to enter into this Agreement. A certified copy of Sub's Articles of
Incorporation and Bylaws are attached as Schedule 5.2.
------------
5.3 Authorization and Enforceability
--------------------------------
This Agreement has been duly authorized, and executed the Buyers and
constitutes a valid and binding agreement of each of the Buyers, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, and other similar laws relating
to, limiting or affecting the enforcement of creditors rights generally or by
the application of equitable principles. As of the Closing all corporate
8
<PAGE>
action on the part of each Buyer required under applicable law in order to
consummate the transactions contemplated hereby will have occurred. The Buyers
represent that (i) the approval of its stockholders is not required by Law or
SkyNet's Certificate of Incorporation, Sub's Articles of Incorporation or the
Buyers' Bylaws in order to consummate the transactions contemplated by this
Agreement; or (ii) such approval has been obtained.
5.4 SkyNet Stock.
------------
The SkyNet Stock to delivered by SkyNet at Closing pursuant to Section
3.1.1 hereof shall be validly and legally issued, free and clear of any and all
Liens, and fully paid and non-assessable.
5.5 Approval.
--------
The Board of Directors of each of SkyNet and Sub has approved the
execution of this Agreement and the transactions contemplated thereby.
6. CLOSING
6.1 Closing.
-------
Subject to satisfaction or waiver of all conditions precedent set
forth in Sections 8 and 9 of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place on March 16,
1999 or the day on which the last of the conditions precedent set forth in
either Section 8 or 9 of this Agreement is fulfilled (the "Closing Date") or at
such other time, date and place as the parties may agree. The Closing shall be
conducted at the offices of Fleet Delivery Service at 10:00 a.m. on March 15,
1999 or at such other times as the parties may designate. The effective time of
the transactions contemplated by this Agreement shall be 12:01 a.m. Pacific
Standard Time on March 15, 1999.
6.2 Obligations of the Sellers.
--------------------------
At or prior to the Closing, the Sellers shall deliver to the Buyers,
in each case, in form and substance satisfactory to the Buyers:
6.2.1 a Bill of Sale in form and substance acceptable to the parties
and such other instruments of transfer or assignment as shall be necessary or
appropriate to vest in Sub good and marketable title to the Vehicles;
6.2.2 a certificate of the Chief Executive Officer or President of
each of the Sellers, dated as of the Closing Date, to the effect that such
Seller has performed and complied with in all material respects all of the
covenants, agreements and obligations set forth in this Agreement to be
performed or complied with by it on or prior to the Closing Date;
6.2.3 copies of resolutions adopted by the Board of Directors of NYC
duly authorizing and approving the execution of this Agreement and the
consummation of the
9
<PAGE>
transactions contemplated hereby, certified by an appropriate officer as being
true and correct as of the Closing Date;
6.2.4 such other documents as may be described in Articles 8 and 9 of
this Agreement.
6.3 Obligations of SkyNet and Sub.
-----------------------------
At the Closing, SkyNet and Sub shall deliver:
6.3.1 the SkyNet Stock, in accordance with Article 3 of this
Agreement;
6.3.2 a certificate of the Chief Executive Officer or President of
SkyNet and Sub, dated as of the Closing Date, to the effect that SkyNet and Sub
have performed and complied with in all material respects all of the covenants,
agreements and obligations set forth in this Agreement to be performed or
complied with by it on or prior to the Closing Date;
6.3.3 copies of resolutions adopted by the Board of Directors of each
of SkyNet and Sub duly authorizing and approving the execution of this Agreement
and the consummation of the transactions contemplated hereby, certified by an
appropriate officer as being true and correct as of the Closing Date; and
6.3.4 such other documents as may be described in Articles 8 and 9 of
this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYERS
All obligations of the Buyers under this Agreement are subject to the
satisfaction by the Sellers at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by the Buyers:
7.1 Performance.
-----------
The Sellers shall have performed and complied in all material respects
with all agreements and conditions required by this Agreement to be performed or
complied with by the Sellers prior to or at the Closing.
7.2 Registration Rights Agreement.
-----------------------------
The Registration Rights Agreement agreeable in form and substance to
the parties shall have been executed and delivered by the Sellers.
7.3 Closing Under Asset Purchase Agreement.
--------------------------------------
The Closing contemplated by the Asset Purchase Agreement shall have
occurred.
10
<PAGE>
7.4 Certificate.
-----------
Each of the Sellers have delivered to the Buyers a certificate, dated
as of the Closing Date, of the Sellers to the effect that the conditions set
forth in Sections 7.1, 7.2 and 7.3 have been satisfied.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of the Sellers under this Agreement are subject to the
satisfaction by the Buyers at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by the Sellers:
8.1 Performance.
-----------
The Buyers shall have performed and complied, in all material
respects, with all agreements and conditions required by this Agreement to be
performed or complied with by the Buyers prior to or at the Closing.
8.2 Closing Under Asset Purchase Agreement.
--------------------------------------
The Closing contemplated by the Asset Purchase Agreement shall have
occurred.
8.3 Registration Rights Agreement.
-----------------------------
The Registration Rights Agreement shall have been executed and
delivered by SkyNet.
8.4 Certificate.
-----------
The Buyers shall have delivered to the Sellers a certificate, dated as
of the Closing Date, to the effect that the conditions set forth in Sections
8.1, 8.2 and 8.3 have been satisfied.
9. POST CLOSING COVENANTS
The Sellers covenant to and agree with the Buyers, and the Buyers
covenant to and agree with Sellers, as follows:
9.1 Restrictions on Transfer of SkyNet Stock.
----------------------------------------
In order to assist in compliance with federal and state securities
laws and to further the purposes of this Agreement, each of the Sellers agrees
that it will not, except as may be permitted or contemplated by the Registration
Rights Agreement, sell, transfer, pledge, hypothecate or otherwise encumber any
of the SkyNet Stock until the one year anniversary of the Closing Date.
11
<PAGE>
9.2 Compliance with Law.
-------------------
The Buyers agree that they shall use their respective best efforts to
comply with all applicable Laws on and after the Closing Date.
10. INDEMNIFICATION AND RELATED MATTERS
10.1 Survival of Representations.
---------------------------
The representations contained in this Agreement, the schedules and
exhibits hereto, and any agreement, document, instrument or certificate
delivered hereunder, shall survive the Closing until the two year anniversary of
the Closing Date.
10.2 Indemnification by the Sellers.
------------------------------
10.2.1 The Sellers shall jointly and severally indemnify each of
SkyNet and Sub (individually, a "SkyNet Indemnified Party" and collectively,
"SkyNet Indemnified Parties") against, defend and hold each harmless from the
following:
10.2.1.1 any liability, loss, damage or deficiency resulting from or arising
out of any inaccuracy in or breach of any representation by the Sellers in this
Agreement;
10.2.1.2 any liability, loss, damage or deficiency resulting from or arising
out of any breach or nonperformance of any covenant or obligation made or
incurred by the Sellers in this Agreement; and
10.2.1.3 any and all reasonable costs and expenses (including reasonable legal
and accounting fees) related to any of the foregoing. In the event that the
Buyers makes a Claim which is determined pursuant to the arbitration proceeding
specified in Section 14.6 hereof to be without reasonable basis in law or fact,
the Buyers shall bear all reasonable costs and expenses (including court costs
and reasonable legal and accounting fees), incurred by the Sellers in
investigating and defending against such Claim.
10.2.2 The Buyers shall be entitled to offset any amounts due to it
under this Section 10.2 against the Escrow Shares to the extent Escrow Shares
are available, which shall be the limit of Seller's liability for this Section
and any and all of Seller's liability arising from or relating to this
Agreement.
10.3 Indemnification by the Buyers.
-----------------------------
SkyNet and Sub shall jointly and severally indemnify the Sellers
against, defend and hold them harmless from the following:
10.3.1 any liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation by the Buyers
in this Agreement;
12
<PAGE>
10.3.2 any liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by the Buyers in this Agreement; and
10.3.3 any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing. In the
event that any Seller makes a Claim which is determined pursuant to the
arbitration proceeding specified in Section 12.6 hereof to be without reasonable
basis in law or fact, such Sellers shall bear all reasonable costs and expenses
(including court costs and reasonable legal and accounting fees), incurred by
the Buyers in investigating and defending against such Claim.
10.4 Third Party Claims.
------------------
10.4.1 If any Proceeding (including, without limitation, negotiations
with federal, state, local or foreign tax authorities) shall be threatened or
commenced by a third party in respect of which a party (an "Indemnified Party")
may make a Claim hereunder, the Indemnified Party shall notify the party
obligated to indemnify such party hereunder (the "Indemnifying Party") to that
effect with reasonable promptness (so as to not prejudice such party's rights)
after the commencement or threatened commencement of such Proceeding, and the
Indemnifying Party shall have the opportunity to defend against such Proceeding
(or, if the Proceeding involves to a significant extent matters beyond the scope
of the indemnity provisions contained herein, those Claims that are covered
hereby), subject to the limitations set forth below.
10.4.2 If the Indemnifying Party elects to defend against any
Proceeding (or, as described in the preceding parenthetical in Section 11.4.1,
above, one or more claims relating thereto), the Indemnifying Party shall notify
the Indemnified Party to that effect with reasonable promptness. In such case,
the Indemnified Party shall have the right to employ its own counsel and
participate in the defense of such matter, but the fees and expenses of counsel
shall be at the expense of the Indemnified Party unless the employment of such
counsel at the expense of the Indemnifying Party shall have been authorized in
writing by the Indemnifying Party.
10.4.3 Any party granted the right to direct the defense of a
threatened or actual Proceeding hereunder shall: (i) keep the other party fully
informed of material developments in the Proceeding at all stages thereof; (ii)
promptly submit to the other party copies of all pleadings, responsive
pleadings, motions and other similar legal documents and papers received in
connection with the Proceeding; (iii) permit the other party and its counsel, to
the extent practicable, to confer on the conduct of the defense of the
Proceeding; and (iv) to the extent practicable, permit the other party and its
counsel an opportunity to review all legal papers to be submitted prior to their
submission. The parties shall make available to each other and each other's
counsel and accountants all of its or their books and records relating to the
Proceeding, and each party shall render to the other such assistance as may be
reasonably required in order to insure the proper and adequate defense of the
Proceeding. The parties shall use their respective good faith efforts to avoid
the waiver of any privilege of either party.
13
<PAGE>
10.4.4 The assumption of the defense of any matter by an Indemnifying
Party shall not constitute an admission of responsibility to indemnify or in any
manner impair or restrict such party's rights to later seek reimbursement of its
costs and expenses if the Indemnifying Party had no indemnification obligation
under this Agreement with respect to such matter. An Indemnifying Party may
elect to assume the defense of a matter at any time during the pendency of such
matter, even if initially such party did not elect to assume such defense, so
long as such assumption at such later time would not prejudice the rights of the
Indemnified Party. No settlement of a matter by the Indemnified Party shall be
binding on an Indemnifying Party for purposes of such party's indemnification
obligations hereunder.
11. GENERAL
11.1 Entire Agreement.
----------------
This Agreement, and the exhibits and schedules hereto and the
agreements specifically referred to herein, set forth the entire agreement and
understanding of the Sellers and the Buyers in respect of the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intention has been made by the Sellers or
the Buyers that is not embodied in this Agreement or in the documents
specifically referred to herein and neither the Sellers nor the Buyers shall be
bound by or liable for any alleged representation, promise, inducement or
statement of intention not so set forth.
11.2 Binding Effect; Benefits; Assignment.
------------------------------------
The terms of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by and against each of the Sellers and their
respective successors and authorized assigns, and the Buyers and their
respective successors and authorized assigns. Nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies under or by reason of this Agreement except as expressly indicated
herein. Neither the Sellers nor the Buyers shall assign any of their respective
rights or obligations under this Agreement to any other person, firm or
corporation without the prior written consent of the other party.
11.3 Headings.
--------
The headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
11.4 Amendment and Waiver.
--------------------
This Agreement may be amended, modified, superseded or canceled and
any of the terms, covenants, representations or conditions hereof may be waived
only by a written
14
<PAGE>
instrument executed by the Sellers and the Buyers or, in the case of a waiver,
by or on behalf of the party waiving compliance.
11.5 Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada as applicable to contracts made and to be
performed in Nevada, without regard to conflict of laws principles.
11.6 Arbitration.
-----------
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be determined by binding arbitration as set forth
in Section 12.6 applying the laws of the State of Nevada. Any arbitration
pursuant to this Agreement shall be conducted in Clark County, Nevada in
accordance with the Nevada arbitration rules. The arbitration shall be final
and binding upon all the parties (so long as the award was not procured by
corruption, fraud or undue means) and the arbitrator's award shall not be
required to include factual findings or legal reasoning. The arbitrator(s) may
award the prevailing party reasonable attorneys' fees and other legal expenses
incurred in connection with the arbitration proceeding. Judgment on the award
rendered by the arbitrator(s) shall be entered in district court in Clark
County, Nevada.
11.7 Public Disclosure.
-----------------
Except as required by Law, neither the Buyers nor the Sellers shall
make any public disclosure of the existence or terms of this Agreement or the
transactions contemplated hereby without the prior written consent of the other
party, which consent shall not be unreasonably withheld. In the event that the
Sellers or the Buyers determines that the disclosure of the existence or terms
of this Agreement is required by Law, such party shall so notify the other
parties and shall provide to the other party a copy of any such public
disclosure prior to releasing the same.
11.8 Notices.
-------
All notices, requests, demands and other communications to be given
pursuant to the terms of this Agreement shall be in writing and shall be deemed
to have been duly given if hand delivered, sent by overnight mail by a
nationally recognized overnight delivery service or mailed first class, postage
prepaid:
15
<PAGE>
(a) If to the Sellers:
Mr. Jack E. Owens
Nevada Yellow Cab Corporation
Nevada Checker Cab Corporation
Nevada Star Cab Corporation
3950 West Tompkins Avenue
Las Vegas, Nevada 89103
Telephone: (702) 873-8012
Facsimile: (702) 365-7864
David C. Gillman, Esquire
3950 West Tompkins Avenue
Las Vegas, Nevada 89103
Telephone: (702) 873-8012
Facsimile: (702) 365-7864
and
Mr. Milton Schwartz
714 S. Tonapah
Las Vegas, NV 89106
(b) If to the Buyers:
SkyNet Holdings, Inc.
Fleet Acquisition Corp.
343 South Glasgow Avenue
Inglewood, California
Attention: Mr. Vic Nizic
Facsimile: (310) 568-9637
with a copy to:
Stephen M. Cohen, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Facsimile: (215) 665-8760
Either party may change its address by prior written notice to the other party.
16
<PAGE>
11.9 Counterparts.
------------
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and such counterparts shall together
constitute one and the same instrument. A facsimile signature on any
counterpart shall be deemed to be an original signature.
11.10 Expenses.
--------
Each party shall pay their own respective expenses, costs and fees
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and each of the Related Documents and the consummation of the
transactions contemplated hereby, including, without limitation, the fees and
expenses of their respective legal counsel, accountants and financial advisors.
11.11 Invalidity.
----------
In the event that any one or more of the provisions contained in this
Agreement or in any other instrument referred to herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall be held to be invalid, illegal or unenforceable in any
jurisdiction, such provisions shall be deemed amended to the extent necessary
for such provisions to be valid, reasonable and enforceable in such
jurisdiction; provided, however, that such provisions shall not be deemed
amended for purposes of their enforcement in any jurisdiction in which such
provisions would be valid, legal and enforceable without amendment.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Vehicle
Purchase Agreement to be duly executed as of the day and year first above
written.
SKYNET HOLDINGS, INC.
By: /s/ Vjekoslav Nizic
------------------------------------
Vjekoslav Nizic, President and Chief
Executive Officer
FLEET ACQUISITION CORP.
By: /s/ Vjekoslav Nizic
------------------------------------
Vjekoslav Nizic, President and Chief
Executive Officer
NEVADA YELLOW CAB CORPORATION
By: /s/ Milton Schwartz
------------------------------------
Milton Schwartz
Vice President
NEVADA CHECKER CAB CORPORATION
By: /s/ Milton Schwartz
------------------------------------
Milton Schwartz
President
NEVADA STAR CAB CORPORATION
By: /s/ Milton Schwartz
------------------------------------
Milton Schwartz
Vice President
18
<PAGE>
EXHIBIT 21.1
------------
SKYNET HOLDINGS, INC.
Subsidiaries of the Registrant
------------------------------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION OWNERSHIP
- ---- ---------------------- ---------
<S> <C> <C>
SkyNet Holding, Inc. Deleware (USA) Parent
Sky International Limited United Kingdom 100%
SkyNet Worldwide Express Pty Ltd. New South Wales, Australia 100%
DPE International, Ltd. Delaware (USA) 100%
SkyNet, Inc. New York (USA) 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1998 AND THE SIX
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 DEC-31-1998
<CASH> 337,314 78,455
<SECURITIES> 0 0
<RECEIVABLES> 6,380,466 6,975,945
<ALLOWANCES> 734,257 950,769
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,885,815 6,569,467
<PP&E> 2,092,831 2,200,608
<DEPRECIATION> 1,388,535 1,441,717
<TOTAL-ASSETS> 6,885,815 7,594,409
<CURRENT-LIABILITIES> 7,119,218 6,870,699
<BONDS> 0 0
1,400 0
0 0
<COMMON> 4,258 1,610
<OTHER-SE> 397,900 2,051,948
<TOTAL-LIABILITY-AND-EQUITY> 6,885,815 7,594,409
<SALES> 31,838,919 16,947,089
<TOTAL-REVENUES> 31,838,919 16,947,089
<CGS> 19,123,468 10,101,814
<TOTAL-COSTS> 12,134,474 7,191,825
<OTHER-EXPENSES> 29,809 408,622
<LOSS-PROVISION> 400,955 149,319
<INTEREST-EXPENSE> 199,987 162,899
<INCOME-PRETAX> 351,454 (755,172)
<INCOME-TAX> 185,404 6,300
<INCOME-CONTINUING> 166,050 (761,472)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 166,050 (761,472)
<EPS-PRIMARY> 0.04 0.06
<EPS-DILUTED> 0.03 0.06
</TABLE>
