As filed with the Securities and Exchange Commission on April 10, 1998
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
FORTUNE FINANCIAL SYSTEMS, INC.
(Exact name of small business issuer as specified in its Charter)
--------------------------
Nevada 8200 59-3456-228
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification No.)
-------------------------
6975 South Union Park Center
Suite 180
Salt Lake City, Utah 84047
Telephone (801) 233-0100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------------
Roger C. Royce, President
Fortune Financial Systems, Inc.
6975 South Union Park Center
Suite 180
Salt Lake City, Utah 84047
Telephone (801) 233-0100
Facsimile No. (801) 233-0001
------------------------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
<PAGE>
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount of
Shares to be to be Price Offering Registra-
Registered Registered per Shares(1) Price(1) tion Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share, reserved
for issuance upon conversion
of Series A Preferred Stock(2) 2,000,000 $1.50 $3,000,000 $ 885.00
Common Stock reserved
for issuance upon exercise
of Common Stock
Purchase Warrants (3) 250,000 $5.00 $1,250,000 $ 368.75
Common Stock reserved etc.
Warrants(4) 250,000 $6.00 $1,500,000 $ 442.50
Total $5,750,000 $ 1,696.25
</TABLE>
(1) Estimated solely for the purpose of computing the amount of
the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933, as amended (the "Securities Act"),
based on the average of the closing bid and asked prices for
the Common Stock, per share (the "Common Stock") as reported
on the OTC Bulletin Board at April 7, 1998.
(2) To be offered and sold by the Selling Security Holders upon
conversion of 200,000 outstanding shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock").
The conversion price for the Series A Preferred Stock (as
represented by the stated value) is equal to 17% off the
average closing bid price of the Common Stock for the ten
consecutive trading days ending one trading day prior to the
date of conversion as reported by Bloomberg L.P. The number of
shares of Common Stock registered represents the maximum
number of shares issuable upon conversion based on a minimum
conversion price of $1.00.
(3) To be offered and sold by the Selling Security Holders upon
any exercise of Common Stock purchase warrants exercisable at
$5.00 per share.
(4) To be offered and sold by the Selling Security Holders upon
any exercise of Common Stock purchase warrants exercisable at
$6.00 per share.
Pursuant to Rule 416 under the Securities Act of 1933, there
are also being registered such additional number of shares as may be
issuable as a result of the anti-dilution provisions of the Series A
Preferred Stock.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC.
-------------------------------
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; High Risk
Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page
Price
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Selling Security Holders;
Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Offi- Management
cers, Promoters and Control
Persons
11. Security Ownership of Cer- Principal Stockholders
tain Beneficial Owners and
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Matters
and Counsel
<PAGE>
14. Disclosure of Commission Undertakings
Position on Indemnifica-
tion for Securities Act
Liabilities
15. Organization within Last Not Applicable
Five Years
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis or Plan of Operations
Operation
18. Description of Property Business - Properties
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities
Matters
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagree- Not Applicable
ments with Accountants on
Accounting and Financial
Disclosure
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
ITEM 1.
Preliminary Prospectus dated April 10, 1998
Subject to completion
2,500,000 Shares
FORTUNE FINANCIAL SYSTEMS, INC.
Common Stock, Par Value $.01 Per Share
------------------------
This Prospectus (the "Prospectus") relates to the offer and sale of up
to 2,500,000 shares of Common Stock, $.001 par value (the "Common Stock") of
Fortune Financial Systems, Inc. (the "Company" or "Fortune") by certain selling
stockholders (the "Selling Security Holders"). Of the 2,500,000 shares of Common
Stock offered hereby (the "Shares"), (i) up to an aggregate of 2,000,000 Shares
are issuable upon conversion of up to 20,000 Shares of the Company's 5%
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock") held by the Selling Security Holders; and (ii) up to 500,000 Shares are
issuable upon exercise of three-year Common Stock purchase warrants exercisable
at $5.00 per Share as to 250,000 Shares and $6.00 per Share as to the remaining
250,000 Shares (collectively the "Warrants"). This Prospectus covers the resale
of the 2,500,000 Shares and, in accordance with Rule 416 under the Securities
Act of 1933, such presently indeterminate number of additional Shares as may be
issuable upon conversion of the Series A Preferred Stock based upon fluctuations
in the conversion price of the Series A Preferred Stock (see "Selling Security
Holders").
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "FFSY." On April 7, 1998 the closing bid price for the Common Stock
was $1.50. There can be no assurances that a substantial trading market for its
Common Stock will develop or be sustained in the future. See "Price Range of
Common Stock" and "Description of Securities."
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ________________, 1998
The conversion price for the Series A Preferred Stock is equal to 17%
off the average closing bid price of the Common Stock (as adjusted as described
herein), as reported by Bloomberg L.P., for the ten consecutive trading days
(the "Average Market Price") ending one day prior to the date of each
conversion, as agreed to by the Selling Security Holders and the Company
<PAGE>
pursuant to the Private Equity Line of Credit Agreement dated as of October 28,
1997 (the "October 28, 1997 Agreement") as modified by Amendment dated March 27,
1998 (the "Amendment") (the October 28, 1997 Agreement and the Amendment are
collectively referred to as the "Agreement") entered into by the parties
thereto. The Warrants currently issued are exercisable for 250,000 shares at an
exercise price of $5.00 per share and for 250,000 shares at $6.00 per share. See
"Selling Security Holders."
The Company believes that the number of shares of Common Stock to which
this Prospectus relates should be the maximum number of shares of Common Stock
that are likely to be issued to the Selling Security Holders and sold hereby.
The Selling Security Holders have advised the Company that they propose
to sell the Shares, from time to time, publicly through broker-dealers acting as
agents for others, or in private sales. See "Selling Security Holders" and "Plan
of Distribution." The Company will not receive any of the proceeds from the sale
of the Shares offered hereby by the Selling Security Holders except upon any
exercise of the Warrants.
The Company will pay all offering expenses for the offering, estimated
at approximately $37,000.00, including (i) the SEC registration fee ($1,696.25);
(ii) legal fees and expenses ($16,000.00); (iii) blue sky fees ($1,000.00); (iv)
accounting fees and expenses ($10,000.00); (v) printing expenses ($8,000.00);
and (vi) miscellaneous expenses ($303.75), but will not pay any discounts or
commissions incurred by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules and regulations under the Securities Exchange Act of
1934, including Regulation M thereunder, may apply to their sales in the market
and has furnished each of the Selling Security Holders with a copy thereof. The
Company has also informed the Selling Security Holders of the need for delivery
of copies of this Prospectus in connection with any sale of Shares registered
hereunder.
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THIS DATE.
The Company will furnish its stockholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center New York, New York
10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
<PAGE>
ITEM 3. PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information.
Other than historical and factual statements, the matters and items
discussed in this Prospectus are forward-looking statements that involve risks
and uncertainties. Actual results may differ materially from the results
discussed in the forward-looking statements. Certain factors that could
contribute to such differences are discussed with the forward-looking statements
throughout this Prospectus and are summarized in Sections "High Risk Factors"
and "Management's Discussion and Analysis or Plan of Operations."
Fortune Financial Systems, Inc. (the "Company") is the parent company
to four wholly-owned subsidiaries. These are Professional Marketing, Inc., a
Utah corporation ("PMI"); Internet Development, Inc., a Utah corporation
("IDI"); Success Media, Inc., a Florida corporation ("SMI") and Fortune
Marketing International, Inc., a Florida corporation ("Fortune Marketing").
Through its subsidiaries the Company operates a financial and business training,
coaching and consulting company which provides training services and consulting
in a range of areas specializing in personal finance, small business, real
estate and Internet product and services.
In addition, the Company has entered into a 10-year license agreement
with option for 10 additional years with Success Holdings, L.L.C., whereby the
Company is entitled use the "Success" trademark in connection with its business
training, workshops, conferences and business coaching programs.
In addition to it's four operating companies, the Company has developed
a program in conjunction with Success Magazine, an international publication
focussed on the entrepreneur, whereby the magazine will be co-branded with many
or all of the Company's programs, and the Company intends to create joint
ventures with entrepreneurs in foreign countries who will license the
publication and distribution rights to the magazine and the right to establish a
seminar and training company in a particular territory.
The Company's executive offices are located at 6975 Union Park Center,
Suite 180, Midvale, Utah 84047. Telephone No.: (801) 233-0100; Facsimile No.:
(801) 233-0001.
The Offering and Outstanding Securities
Common Stock Outstanding..............19,957,253 shares of Common Stock
Common Stock Offered
by Selling Security Holders......2,500,000 shares of Common Stock1
Proceeds to be received upon
exercise of Warrants.............$2,750,0002
<PAGE>
Risk Factors..........................Investment in these securities involves a
high degree of risk. See "High Risk
Factors."
OTC Bulletin Board Symbol............."FFSY"
- --------------------
1 Includes up to 500,000 shares issuable upon the exercise of the Warrants.
2 Under the terms of the Warrants, outstanding Warrants to purchase 250,000
shares are exercise at $5.00 per share and Warrants to purchase 250,000
shares are exercisable at $6.00 on or prior to October 28, 2000.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Not covered by Accountant's Report)
Summary of Selected Consolidated Financial Information
Consolidated Statement of Operations Data:
Period from Inception
(September 3, 1996) Nine Months Ended
March 31, 1997 December 31, 1997
Operating Revenue $ 5,762,534 $ 18,996,191
Operating Expenses $ 4,817,136 $ 20,049,197
Operating Income (loss) $ 945,398 $ (1,053,006)
Net Income (loss) $ 615,398 $ (534,180)
Net Income Per Share (loss) $ .06 $ (.03)
Balance Sheet Data:
March 31, 1997 December 31, 1997
Cash $ 73,593 $ 692,077
Working Capital (deficit) $ 902,660 $ (510,563)
Total Assets $ 2,200,731 $ 6,207,270
Total Liabilities $ 977,228 $ 2,515,556
Stockholders' Equity $ 1,223,503 $ 2,381,448
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED IN THIS PROSPECTUS.
Limited Operating History; Loss of Significant Revenues
The Company has only a limited operating history upon which an
evaluation of the Company's performance and prospects can be made. The Company's
prospects must be considered in light of the numerous risks, expenses, delays,
problems and difficulties frequently encountered in the establishment of a new
business in industries characterized by emerging markets, and products, and
intense competition and regulation. Accordingly, there can be no assurance that
the Company will be able to successfully manage and grow operations, or that
failure to do so will not augment the risk inherent in the establishment of an
expanding business. In April 1997, the Company sold its Fortune 21, Inc.
subsidiary (Fortune 21). Fortune 21 accounted for $5,762,534 of the Company's
revenues for the period from September 3, 1996 through March 31, 1997;
accordingly, the Company's financial performance may not be indicative of actual
period operations and there can be no assurance about its ability to generate
comparable revenues and profits in future periods.
Limited Marketing Activity, Uncertainty of Market Acceptance
Developing market acceptance for the Company's existing and proposed
products and services will require substantial marketing and sales efforts and
the expenditure of a significant amount of funds to inform its members and
others of the benefits and cost advantages of the Company's services and
products and to achieve name recognition. There can be no assurance that the
Company will be able to successfully develop or position its products or
services, or that any marketing efforts undertaken by the Company will result in
increased demand for or market acceptance of the Company's products and
services.
Regulation
While the Company is not subject to extensive levels of regulation, a
greater number of jurisdictions are broadening the scope of products and
services that come within the jurisdiction of the regulatory authorities within
such states, particularly relevant to the industry in which the Company
operates. Consequently, the trend in regulation on a national basis is to
encompass organizations, similar to the Company, within the ambit of state
regulatory authority, the consequence of which may involve limited or greater
control relevant to the products and services distributed by the Company.
<PAGE>
Competition
Although there is limited competition at present in the industry in
which the Company operates, the market could ultimately be characterized by
intense competition, at such time as other organizations perceive the
opportunities available in the industry. In addition, there are no significant
barriers to entry in the business in which the Company engages. For this reason,
the Company's business could be subject to substantial future competition. Many
of the competitors will be substantially larger and have greater financial
resources than the Company. There can be no assurances that the Company will be
able to compete profitably with such other companies on a long-term basis.
Customer Base and Market Acceptance
While the Company believes it can continue to develop a customer base
in the markets it operates through expansion, strategic alliances, and other
commercial relationships, any inability of the Company to develop and expand
such a customer base would have a material adverse effect on the Company.
Although the Company believes that its products and services offer advantages
over competitive products, no assurance can be given that these products will
attain any degree of market acceptance on a sustained basis or that they will
generate revenue sufficient for profitable operations.
Dependence on Key Personnel
The success of the Company will be largely dependent on the efforts of
the members of the management of the Company, especially Mr. Roger Royce, its
Chief Executive Officer, Chairman and President and Mr. Douglas Shane Hackett,
its Executive Vice-President of Marketing and Company co-founder. Although the
Company has entered into employment and consulting agreements with various
members of the management, including Messrs. Royce and Hackett of the Company,
there can be no assurance that such persons will continue their employment with
the Company. The loss of the services of one or more of such key personnel would
have a material adverse effect on the Company's ability to maximize its use of
its products and technologies or to develop related products and technologies.
The success of the Company also is dependent upon its ability to hire and retain
additional qualified executive, programming, engineering and marketing
personnel. There can be no assurance that the Company will be able to hire or
retain such necessary personnel.
Control of the Company by Present Shareholders
Members of management and their affiliates will own and control the
vote of approximately 70.5% of the outstanding shares of Common Stock, which,
among other things, will enable them to elect the Company's entire Board of
Directors and generally control the operations of the Company.
Lack of Reporting Information
The Company, while having a limited trading market for its Common
Stock, is not subject to the reporting requirements under the Securities
Exchange Act of 1934. As a result, until the Company registers its securities
under the federal securities laws, stockholders will not have ready access to
the information required to be reported by publicly-held companies under such
Act and the regulations thereunder.
<PAGE>
Limited Market for the Company's Common Stock; Possible Volatility of Securities
Prices
There is currently only a limited trading market for the Common Stock
of the Company. The Common Stock of the Company trades on the OTC Bulletin Board
under the symbol "FFSY," which is a limited market and subject to substantial
restrictions and limitations in comparison to the Nasdaq System. There can be no
assurance that a substantial trading market will develop (or be sustained, if
developed) for the Common Stock. Recent history relating to the market prices of
newly public companies indicates that, from time to time, there may be
significant volatility in the market price of the Company's securities because
of factors unrelated, as well as related, to the Company's operating
performance. There can be no assurances that the Company's Common Stock will
ever qualify for inclusion within the Nasdaq System, or that more than a limited
market will ever develop for its Common Stock.
Possible Applicability of Rules Relating to Low-Priced Stocks; Possible Failure
to Qualify for NASDAQ SmallCap Market Listing.
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5 per share, subject to certain exceptions. Upon completion of this
Offering, the shares of Common Stock, offered hereby may be deemed to be "penny
stocks" and thus will become subject to rules that impose additional sales
practice requirements on broker/dealers who sell such securities to persons
other than established customers and accredited investors, unless the Common
Stock is listed on the NASDAQ SmallCap Market. There can be no assurance that
the Company will be able to satisfy the listing criteria of the NASDAQ SmallCap
Market or will trade for $5 or more per security after the Offering.
Consequently, the "penny stock" rules may restrict the ability of broker/dealers
to sell the Company's securities and may affect the ability of purchasers in
this Offering to sell the Company's securities in a secondary market.
Although the Company intends to apply for listing of the Common Stock
on the NASDAQ SmallCap Market, there can be no assurance that the trading of the
Common Stock will develop or, if developed, will be sustained. Furthermore,
there can be no assurance that the Securities purchased by the public hereunder
may be resold at their original offering price or at any other price.
In order to qualify for initial listing on the NASDAQ SmallCap Market,
a company must, among other things, have a public float of at least 1 million
shares, a $5 million market value of public float, a minimum bid price of $4.00
per share, at least 3 market makers, and at least 300 shareholders. In addition,
the Company must have net tangible assets of $4 million or net income of
$750,000 in the latest fiscal year or two of the last three fiscal years. The
maintenance standards (as opposed to entry standards) require at least $2
million in net tangible assets or $500,000 in net income in the latest fiscal
year or two of the last three years, a public float of at least 500,000 shares,
a $1 million market value of public float, a minimum bid price of $1.00 per
share, at least two market makers, and at least 300 shareholders.
If the Company is or becomes unable to meet the listing criteria
(either initially or on a maintenance basis) of the NASDAQ SmallCap Market and
is never traded or becomes delisted therefrom, trading, if any, in the Common
Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, the "Electronic Bulletin Board"
<PAGE>
administered by the National Association of Securities Dealers, Inc. (the
"NASD"). In such an event, the market price of the Common Stock may be adversely
impacted. As a result, an investor may find it difficult to dispose of, or
obtain accurate quotations as to the market value of the Common Stock.
Anti-Takeover Provisions
The Board of Directors has the authority to issue 5,000,000 shares of
which 20,000 shares have been issued of the Company's preferred stock
("Preferred Stock") and to fix the dividends, liquidation, conversion,
redemption and other rights, preferences and limitations of such shares without
any further vote or action of the stockholders. Accordingly, the Board of
Directors is empowered, without stockholder approval, to issue Preferred Stock
with dividend, liquidation, conversion voting or other rights which could
adversely affect the voting power or the rights of the holders in the Company's
Common Stock. In the event of issuance, the Preferred Stock could be utilized
under certain circumstances, as a method of discouraging, delaying or preventing
a change in the control of the Company. Furthermore, certain provisions of the
Company's Articles of Incorporation and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt of the
Company. In addition, certain provisions of the Nevada General Corporation Act
also may be deemed to have certain anti-takeover effects.
Limitation of Liability
The Nevada General Corporation Law provides that a director is not
personally liable for monetary damages to the Company or any other person for
breach of fiduciary duty, except under very limited circumstances. Such a
provision makes it more difficult to assert a claim and obtain damages from a
director in the event of his unintentional breach of fiduciary duty.
<PAGE>
ITEM 7. SELLING SECURITY HOLDERS
Private Equity Line of Credit Agreement
The Selling Security Holders have purchased the Series A Preferred
Stock and Warrants in a private placement transaction pursuant to a Private
Equity Line of Credit Agreement dated October 28, 1997 ("October Agreement").
The stated value of the Series A Preferred Stock is $100.00 per Share. In
addition, three-year Warrants to purchase 250,000 shares of Common Stock,
exercisable at $5.00 per share, and three-year Warrants to purchase 250,000
shares of Common Stock, exercisable at $6.00 per Share, have been issued
pursuant to the October Agreement. The parties modified the October Agreement by
an Amendment dated March 27, 1998.
In accordance with the October Agreement, on October 28, 1997, the
Company issued 20,000 shares of its Series A Preferred Stock and Warrants to
purchase 500,000 shares of Common Stock for a cash consideration of $2,000,000
cash. As contemplated by the October Agreement, an additional 20,000 shares of
Series A Preferred Stock, at a purchase price of $100.00 per share, or an
aggregate of $2,000,000, were to be issued and sold to the Selling Security
Holders provided a Registration Statement covering the resale of Shares had
become effective under the Securities Act by February 25, 1998 and certain other
conditions were fulfilled. Because the Company failed to obtain the
effectiveness of its Registration Statement on or before February 25, 1998, the
Company was obligated to pay to the Selling Security Holders an aggregate of
$60,000 for the first 30-day period that such registration statement was not
declared effective and an aggregate of $120,000 for each 30-day period
thereafter. The October Agreement also provided that should the Company fail to
obtain the effectiveness of its registration statement within 210 days following
October 28, 1997, the Selling Security Holders will have the right to sell to
the Company the initial 20,000 shares of Series A Preferred Stock acquired at
the initial closing at the stated value thereof plus accrued and unpaid
dividends. Performance of this obligation is secured by a Security and Pledge
Agreement of various of the Company's assets as well as a pledge of 2,000,000
shares of Common Stock by Mr. Peter R. Morris, a director and principal
stockholder of the Company. The October Agreement also provided that commencing
with the effective date of the registration statement and for a two-year period
thereafter, the Selling Security Holders were to be obligated to purchase up to
160,000 additional shares of Series A Preferred Stock ($16,000,000) provided the
Company has fulfilled its various covenants under the Agreement.
The Company did not register under the conditions of the October
Agreement and, following negotiations, the Company and the Selling Security
Holders entered into an Amendment to the October Agreement. As provided for by
the Amendment, the parties agree that neither of them would have the obligation
to purchase or sell additional shares of the Series A Preferred Stock as
provided by the October Agreement. All penalties, defaults and price adjustments
provided for under the October Agreement were waived under the terms of the
Amendment. The Company remains obligated to use its best efforts to process
expeditiously the Registration Statement. In the event the Registration
Statement does not become effective by July 27, 1998, or in the alternative, if
the Company or other persons are not able to provide the Selling Security
Holders with shares of Common Stock of the Company which would have the rights
and benefits comparable to shares of Common Stock registered under the
Securities Act, the Selling Security Holders would have the right to put their
shares of Series A Preferred Stock to the Company and foreclose on all
collateral provided to them under the October Agreement. The foregoing
notwithstanding, the Selling Security Holders would agree to extend to the
<PAGE>
Company a grace period of 60 days from the end of July 27, 1998 in which the
Company would have the right to exercise a redemption option and make a one-time
payment equal to 120% of the stated value of the Preferred Stock to be acquired.
At such time as the Registration Statement becomes effective, the Company also
has a right to a redemption option to acquire 10% of the Series A Preferred
Stock on a monthly basis over a 10-month period (i.e., 2,000 shares of Series A
Preferred Stock each month) at a redemption price of 120% of the stated value of
such shares of Series A Preferred Stock. In addition, on or prior to the earlier
of July 27, 1998 or the date this Registration Statement becomes effective, the
Company will have the right to redeem, in whole or in part, and from time to
time, the Series A Preferred Stock at 110% of the stated value of the Series A
Preferred Stock and without payment of accrued but unpaid dividends.
As modified by the Amendment, at the option of each of the Selling
Security Holders, the Series A Preferred Stock may be converted at any time into
shares of the Company's Common Stock equal in number to the amount to be
determined by dividing $100.00 (representing the stated value thereof) by a
percentage of the average closing price of the Company's Common Stock over the
10-day trading period ending on the day prior to the conversion of the Series A
Preferred Stock, less a discount of 17%. The Selling Security Holders, however,
have agreed to convert not more than 10% of the Series A Preferred Stock during
any 30-day period for a total of 10 months beginning on the earlier of the date
hereof or the date of effectiveness of this Registration Statement.
Holders of Series A Preferred Stock have a right to receive, out of
funds legally available therefor, preferential non-participating dividends at
the rate of 5% of the stated value per Share per year, payable in four equal
installments on March 31, June 30, September 30 and December 31 in each year.
Such dividends are cumulative and if dividends for any dividend period at the
rate specified above shall not have been paid or declared, the deficiency will
be paid with interest thereon at the prime rate as quoted from time to time by
The Wall Street Journal before any dividends are set apart for or paid on any
shares of Common Stock of the Company. The Holders of the Series A Preferred
Stock are entitled to one vote for each share of Series A Preferred Stock owned
by them on all matters required or permitted to be submitted to a vote of the
stockholders of the Company.
With respect to the Warrants, each of the Selling Security Holders
received Warrants to purchase 125,000 Shares of Common Stock exercisable at
$5.00 per Share and Warrants to purchase up to 125,000 Shares of Common Stock at
an exercise price of $6.00 per Share. The Warrants may be exercisable in whole
or in part at any time on or prior to October 28, 2000. The Holders of the
Warrants are not entitled to any rights of a stockholder of the Company. In
addition, the Holders are entitled to an adjustment in the exercise price and/or
the number of shares of Common Stock to be received upon exercise of the
Warrants in the event the Company undertakes certain transactions, including
payment of dividends or distributions with respect to its Common Stock,
subdivisions or combinations of its outstanding Common Stock and
recapitalizations in connection with a consolidation or merger in which the
Company is the continuing corporation.
Performance of the Company's obligations is secured by a Security and
Pledge Agreement consisting of substantially all of the assets of the Company
and a pledge of 2,000,000 shares of Common Stock by Mr. Peter Morris, a director
and one of the principal stockholders of the Company.
<PAGE>
The Company has agreed to indemnify the Selling Security Holders
against any liabilities under the Securities Act of 1933 or otherwise, arising
out of or based upon any untrue or alleged untrue statement of a material fact
in the Registration Statement or this Prospectus or by any omission of a
material fact required to be stated therein except to the extent that such
liabilities arise out of or are based upon any untrue or alleged untrue
statement or omission in any information furnished in writing to the Company by
the Selling Security Holder expressly for use in the Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to its Certificate of Incorporation and By-laws, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In connection with the registration of the resale of the Shares offered
hereby, the Company will supply Prospectuses to the Selling Security Holder and
use its best efforts to qualify the Shares for sale in any states wherein
qualification is required.
Joseph Charles and Associates, Inc. and Stenton Leigh Capital
Corporation will receive a total finder's fee of $360,000.00 upon full
completion of the original transaction.
Stock Ownership
The following table sets forth the name of each of the Selling Security
Holders, the amount of shares of Common Stock held directly or indirectly or
underlying the Series A Preferred Stock and Warrants of the Company owned by the
Selling Security Holders on March 31, 1998, the amount of shares of Common Stock
to be offered by the Selling Security Holders and the amount to be owned by the
Selling Security Holders following sale of this shares of Common Stock upon
completion of this offering. As of March 31, 1998, there were outstanding
19,957,253 shares of Common Stock of the Company.
<TABLE>
<CAPTION>
Number Shares Shares to be
Name of Selling of Shares to be Owned After
Security Holder Owned(1) Offered(1) Offering
<S> <C> <C> <C>
Deere Park Capital Management, Inc. (2) 1,250,000 1,250,000 0
Profutures Special Equities Fund, L.P.(3) 1,250,000 1,250,000 0
- ----------------------------
</TABLE>
(1) Represents maximum number of shares of Common Stock issuable upon
exercise of Series A Preferred Stock based on a minimum conversion
price of $1.00 per share and exercise of the Warrants. This Prospectus
also covers the resale of such presently indeterminate number of
additional Shares as may be issuable upon conversion of the Series A
Preferred Stock based upon such fluctuations in the conversion price.
(2) Address: 650 Dundee Road, Suite 460, Northbrook, Illinois 60062.
Includes 250,000 Shares of Common Stock underlying Warrants.
(3) Address: 1310 Highway, 620 South, Suite 200, Austin, Texas 78734.
Includes 250,000 shares of Common Stock underlying Warrants.
Neither the Selling Security Holders nor their affiliates have held any
position, office or had any material relationship with the Company previously.
The Company has agreed to pay for all costs and expenses incident to
the issuance, offer, sale and delivery of the Shares, including, but not limited
to, all expenses and fees of preparing, filing and printing the Registration
Statement and Prospectus and related exhibits, amendments and supplements
thereto and mailing of such items. The Company will not pay selling commissions
and expenses associated with any such sales by the Selling Security Holders. The
Company has agreed to indemnify the Selling Security Holders against civil
liabilities including liabilities under the Securities Act of 1933.
<PAGE>
ITEM 8. PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holders may be sold
from time to time by the Selling Security Holders, or by pledgees, donees,
transferees or other successors in interest. Such sales may be made on one or
more exchanges or in the over-the-counter market, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Shares may be sold by one or more of the
following methods, including, without limitation: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face or other direct transactions between the Selling Security
Holders and purchasers without a broker-dealer or other intermediary. In
effecting sales, broker-dealers or agents engaged by the Selling Security
Holders may arrange for other broker-dealers or agents to participate. Such
broker-dealers may receive commissions or discounts from the Selling Security
Holders in amounts to be negotiated immediately prior to the sale. Such
broker-dealers and agents and any other participating broker-dealers, or agents
may be deemed to be "underwriters" within the meaning of the Act, in connection
with such sales. In addition, any securities covered by this Prospectus that
qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather than
pursuant to this Prospectus.
Upon the Company being notified by the Selling Security Holders that
any material arrangement has been entered into with a broker-dealer, agent or
underwriter for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a
broker-dealer, agent or underwriter, a supplemented Prospectus will be filed, if
required, pursuant to Rule 424(c) under the Act, disclosing (a) the name of each
such broker-dealer, agent or underwriter (b) the number of Shares involved, (c)
the price at which such Shares were sold, (d) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), agent(s) or underwriter(s);or
other items constituting compensation or indemnification arrangements with
respect to particular offerings, where applicable, (e) that such
broker-dealer(s), agent(s) or underwriter(s) did not conduct any investigation
to verify the information set out or incorporated by reference in this
Prospectus, as supplemented; and (f) other facts material to the transaction.
ITEM 9. Legal Matters
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or which any of its property is the subject.
<PAGE>
ITEM 10. MANAGEMENT
Directors and Executive Officers
The current executive officers, directors and significant employees of
the Company and its subsidiaries are as follows:
Name Age Position
Roger C. Royce 57 President, Chief Executive Officer
and Director
Douglas Shane Hackett 34 Executive Vice President, Marketing
and Director
Stephen H. Ross 53 Vice President, Chief Financial
Officer, Secretary, Treasurer,
and Director
Joeseph W. Larkin 46 Vice President
Robert W. Harte 32 Director
Steven Comer 41 Director
Steven Thorne 29 Director
Roger C. Royce, President, CEO and Director. Mr. Royce, age 57, brings
to the company over 30 years of operating experience in managing rapid growth
enterprises and running large conglomerate companies in both the public and
private sector. Mr. Royce is the former President and CEO of Motel 6
Corporation, Woodfin Suites Hotles, Inc. and Senior Vice President of
Development and Operations for Fotomat Corporation. He is also known for his
business involvement in numerous entrepreneurial companies in multiple
industries including specialization in the education and training area. He holds
a B.A. Degree and a M.B.A. from California Western University and has taken
postgraduate work at UCLA and Harvard University.
Douglas S. Hackett, Director, Vice President and Secretary. Mr.
Hackett, age 34, has served as Executive Vice President, Secretary and a
Director of the Company since September 10, 1996. He also serves as President of
Fortune Marketing International and is responsible for all marketing and
advertising for the Company including direct management of infomercial and
workshop sales divisions. Prior to serving the Company, Mr. Hackett was Vice
President of Marketing, Financial Services and Broadcasting for the Charles J.
Givens Organization, Financial Concepts and Financial Programs, where he oversaw
the growth and development of one of the largest and most successful personal
development and financial training companies. Mr. Hackett began his career in
radio, having been responsible for the creation and production of several
nationally syndicated radio shows, including "Baseball Sunday with Joe
Garagiola," "Football Sunday" and NBA Basketball Sunday. Mr. Hackett graduated
from William Jewell College in Liberty, Missouri with Bachelor of Arts degrees
in Communications and Public Relations. Additionally, he studied International
Business and Literature at Harlaxton College in Grantham, England.
<PAGE>
Stephen H. Ross, Vice President, Chief Financial Officer, Secretary,
Treasurer and Director. Stephen H. Ross, 53, C.P.A., serves as the Chief
financial Officer and director. He is a seasoned result-oriented senior
executive with over 25 years of experience in business both national and
international. For twelve years he was with Peat Marwick and served as a Partner
in the firm. He has held numerous positions of Chief Financial Officer and has
been a principal in his own company specializing in acquisitions, financing and
turnarounds. Mr. Ross is an accounting graduate from Utah State University and
is a CPA in Utah and California.
Joseph W. Larkin, Vice President of Strategic Planning and Human
Resources. Mr. Larkin, 46, has extensive business experience and has held
numerous positions as Vice President of Strategic Planning, Vice President of
Human Resources, Vice President of Marketing and was a Principal and President
of the Consulting firm of Hendrix Information Group. Mr. Larkin has a B.A., M.A.
degree from Brigham Young University and is completing his Ph.D. at the
University of Southern California.
Robert W. Harte, Director Mr. Harte, age 32, serves as principal and
General Managing Partner of various Limited Partnerships and limited liability
companies who manage projects in excess of $50 million in the aggregate. He is
founder and chief executive of Prime Residential Management Company, a full
service property management company. He has served in numerous executive and
advisory roles providing strategic planning, management and administration for
companies such as VMS Reality Partners and Success Holdings, LLC, a media
holding company whose subsidiaries include Success Magazine and Working at Home.
Mr. Harte is a graduate of Quincy University with Bachelor of Science in
Business.
Steven Comer, Director and CEO of Internet Development Inc. ( a
subsidiary) Steven Comer, age 41, has more than 14 years of experience in the
home-based business training and seminar industry. Mr. Comer created Odyssey
Corporation which provided consulting and marketing services to national
training firms. Mr. Comer has authored several training programs that have been
marketed throughout North America. Mr. Comer studied at Brigham Young University
majoring in Electrical Engineering, with additional emphasis in Business
Management.
Steven G. Thorne, Director and President of Professional Marketing,
Inc. (a subsidiary). Mr. Thorne, age 29, has held senior management and training
positions in the telemarketing industry for the past six years. He is co-founder
and president of PMI. Mr. Thorne is responsible for more than 180 employees
working in the areas of telemarketing customer service, coaching and
administration. Mr. Thorne served for two years as the general sales manager for
the telemarketing division of Financial Freedom Report managing 70 sales
consultants. Mr. Thorne also served as a training and team leader for TSI, a
major telemarketing firm in Salt Lake City. Mr. Thorne received his B.S. degree
in business from the University of Phoenix.
Each director is elected to hold office until the next annual meeting
of stockholders and until his successor is elected and qualified. The officers
of the Company serve at the pleasure of the Company's board of directors.
There are no family relationships among any of the executive officers
or directors of the Company.
Board Committees
The Company has an Executive Committee, a Compensation Committee and an
Audit Committee.
The Compensation Committee will administer the Company's future stock
option plan and make recommendations to the full Board of Directors concerning
compensation, including incentive arrangements, of the Company's officers and
key employees.
The Audit Committee will review the engagement of the independent
accountants and review the independence of the accounting firm. The Audit
Committee will also review the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal accounting controls. The
Audit Committee consists of a majority of independent directors.
<PAGE>
ITEM 11. PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1997 (a) by each
person known to the Company to own beneficially or more than 5% of any class of
the Company's securities, including those shares subject to outstanding options
and (b) by each of the Company's Officers and Directors and (c) by all officers
and directors of the Company as a group. As of March, 1998, there were
19,957,253 shares of Common Stock of the Company issued and outstanding.
Name and Address Shares Beneficially Percent
of Owner(1) Owned of Class
James S. Byrd, Jr. 3,206,000 16.06%
and Kimberly Byrd, as
Tenants by the Entirety
1856 Alaqua Drive
Longwood, Florida
Douglas Shane Hackett, 3,000,000 15.03%
and Robin Hackett, as
Tenants by the Entirety
1900 Alaqua Drive
Longwood, Florida
Peter R. Morris(3) 3,100,000 15.53%
875 North Michigan Avenue
Suite 3335
Chicago, Illinois
Success Holdings, LLC(2) 3,100,000 15.53%
733 Third Avenue
New York, New York 10017
Stephen H. Ross
2013 Lincoln Circle 0 0%
Salt Lake City, Utah 84124
Roger C. Royce 1,000,000 5.01%
4362 S. Parkview
Salt Lake City, Utah 84124
Steven Thorne 440,000 2.20%
9873 N. Meadow Lane
Highland, Utah
<PAGE>
Steven Comer 229,188 1.15%
538 S. 1020 West
Orem, Utah
Joseph W. Larkin 0 0%
6657 Morro St.
Salt Lake City, Utah
Deere Park Capital Management, Inc. (4) 1,250,000 6.20%
Profutures Special Equities Fund, L.P.(5) 1,250,000 6.20%
All Officers and Directors
as a Group (7 persons) 14,075,188 70.53%
- -------------------
(1) The persons named in this table have sole voting and investment power
with respect to all shares of Common Stock reflected as beneficially
owned by them.
(2) Does not include shares held by Peter R. Morris, individually, Success
Holdings, LLC's Chairman.
(3) Does not include shares owned by Success Holdings LLC of which Mr.
Morris is Chairman.
(4) Address is 650 Dundee Road, Suite 460, Northbrook, Illinois 60062.
Includes 250,000 Shares of Common Stock underlying Warrants.
(5) Address is 1310 Highway, 620 South, Suite 200, Austin, Texas 78734.
Includes 250,000 shares of Common Stock underlying Warrants.
<PAGE>
ITEM 12. DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 100,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value. As of February 28, 1998, the Company had 19,957,253 shares of common
stock issued and outstanding and 20,000 shares of Series A Convertible Preferred
Stock issued and outstanding.
The transfer agent for the Company is North American Transfer Co., 147
West Merrick Road, Freeport, New York 11520.
Common Stock
The holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders, and are not
entitled to cumulate their votes in the election of directors. This means that
holders of more than 50% percent of shares voting for the election of directors
can elect all of the directors. The holders of 50% percent of the outstanding
Common Stock constitute a quorum at any meeting of shareholders, and the vote by
the holders of a majority of the outstanding shares are required to effect
certain fundamental corporate changes, such as liquidation, merger or amendment
of the Articles of Incorporation.
The Common Stock has no preemptive or other subscription rights and
there are no conversion rights or redemption or sinking fund provisions. Shares
of Common Stock are not liable for further call or assessment.
Holders of shares of Common Stock are entitled to receive ratably any
dividends as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and
distribution to holders of preferred stock, if any.
Series A Convertible Preferred Stock
The Company has authorized, the issuance of 200,000 shares of Series A
Preferred Stock. See Selling Security Holders for a description of the Series A
Preferred Stock.
ITEM 13. LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida.
EXPERTS
The financial statements of the Company appearing in this Prospectus
have been audited by Parks, Tschopp, Whitcomb & Orr, PA, independent certified
public accountants, to the extent and for the periods indicated in their report
appearing elsewhere herein, and have been included herein in reliance upon such
report, given upon the authority of said firm as experts in accounting and
auditing.
<PAGE>
ITEM 16. BUSINESS
General
Fortune Financial Systems, Inc. (the "Company") is the parent company
to four wholly-owned subsidiaries. These are Professional Marketing, Inc., a
Utah corporation ("PMI"); Internet Development, Inc., a Utah corporation
("IDI"); Success Media, Inc., a Florida corporation ("SMI"); and Fortune
Marketing International, Inc., a Florida corporation ("Fortune Marketing").
Through its subsidiaries the Company operates a financial and business training,
coaching and consulting company which provides training services and consulting
in a range of areas specializing in personal finance, small business and
Internet product and services.
In addition, the Company has entered into a 10-year license agreement
with option for 10 additional years with Success Holdings, L.L.C., whereby the
Company is entitled use the "Success" trademark in connection with its business
training, workshops, conferences and business coaching programs.
In addition to its four operating companies, the Company has developed
a program in conjunction with Success Magazine, an international publication
focussed on the entrepreneur, whereby the magazine will be co-branded with all
of the Company's programs, and the Company intends to create joint ventures with
entrepreneurs in foreign countries who will license the publication and
distribution rights to the magazine and the right to establish a seminar and
training company in a particular territory.
Fortune Marketing International, Inc.
Fortune Marketing operates a financial, business, real estate and
Internet training, coaching and consulting company which provides educational,
training, business coaching and consulting services to individuals and
businesses throughout the United States who want to start or expand a small
business, create or build wealth or utilize the Internet. Fortune Marketing
conducts seminars, conferences and workshops in two primary areas of financial
and business education and also offers a newsletter, Business Advantage, and a
business advice and support network to participants. The primary area of focus
is a general training program teaching the mechanics of starting a small
business, personal finance and the use of the Internet.
Training Programs range from a basic $79.95 small business primer to a
three or five-day intensive training course costing $1,500.00 to $1,995.00,
which teaches participants key requirements to launching, marketing and
operating a successful small business. Current course topics include: small
business secrets; development of a business plan; development of a marketing
plan, including an advertising campaign; tax strategies; financial analysis and
evaluation, including return on equity, cash flows, balance sheets, income
statements and market value methods of raising capital; record keeping methods;
business expansion; retirement planning and current trends in business and hot
market niches and about personal finance. Through Fortune Marketing's toll-free
telephone support network (the "coaching system"), advisers are available to
participants five days a week from 9 a.m. to 6 p.m. to provide advice on
business planning, partnerships, raising capital (including venture capital and
SBA loans) taxes, marketing and sales, money market accounts, debt and credit,
insurance, retirement plans and business opportunities. Participants receive a
five-volume reference library, especially prepared by Fortune Marketing, which
presents a step by step method of starting and operating a small business. These
<PAGE>
volumes are entitled: How to Start a Successful Small Business, Marketing a
Successful Small Business, Personal Selling, Negotiation for Profit and Small
Business Tax Strategies. Participants also receive four motivational cassettes
on sales, negotiating and body language, and a business basics workbook.
Participants work with Fortune Marketing advisers in applying a business plan
model provided by Fortune Marketing to their respective businesses. The business
plan model topics include the Executive Overview, Introduction and Background,
Target Market Profile, Marketing Strategy, Business Objectives, Financial
Projections. Budgets, Expenses, and Summary. Participants also receive Business
Advantage, a monthly update information package, through which Fortune Marketing
provides the latest information on Business Trends/Strategies, Tax
Developments/Laws, Human Resource Trends, Financial Markets (Investments,
Interest Rates), Personal Finance, Real Estate and Successful Members.
Distribution and Sales
The Company markets its products and services through direct response
media, such as television, radio and mail programs, and as a component of free
workshops offered around the country. The workshops serve as lead generators,
introducing interested attendees to the Company programs described above. These
attendees may enroll in one or more of the Company's business training programs
or purchase other products or services offered, and become members of the
Fortune Marketing coaching system. The free workshops are typically half-day
seminars, held in a group of three to six sessions, and offered during a three
to four-day period in a given geographic market. During the workshops, attendees
are exposed to the Company's products and services and are offered the
opportunity to enroll in the more extensive training programs offered by Fortune
Marketing.
The Company currently has three infomercials in various stages of
production: a small business infomercial which has been released and tested in
several markets, a Wealth Building infomercial in production and an Internet
infomercial which is in pre-production. The release and national distribution of
these three infomercials are an integral component of the Company's growth plan.
The products offered by the Company through these infomercials are a basic video
and book training course which introduce the purchaser to the Fortune programs.
Professional Marketing, Inc.
PMI, a Utah corporation organized in July, 1996, is a telephone sales
and marketing company based in American Fork, Utah, which employs a
telemarketing staff of approximately 90 telesales consultants who market
business and financial services and products to Company clients and members, as
well as to unrelated persons for third-party clients. PMI provides the Company
with the marketing and sales staff necessary to respond effectively to sales
leads generated through the Company's seminar, training and infomercial
programs.
Internet Development, Inc.
IDI provides Internet access, training and other Internet business
products and programs. IDI, a Utah corporation organized on March 7, 1996, is
based in Orem, Utah and was acquired by the Company on May 2, 1997. IDI is a
vendor to the Company, supplying all of the Company's Internet products,
<PAGE>
programs and services. Internet training, products and business programs are a
substantial segment of the Company's product mix, and by acquiring IDI, the
Company achieved integration of this component of its business. The Company
intends to create a significant marketing program for IDI, including the
production and national roll-out of an Internet infomercial and seminar program.
Success Consulting, Inc.
SCI is a newly-formed subsidiary of Fortune Marketing, organized for
the purpose of handling the Company's coaching system and consulting functions
to its dues-paying members. By spinning off these functions to this new
subsidiary, the Company intends to expand its coaching and consulting services
into new areas. These programs are offered to Fortune Marketing members, each of
whom pays monthly dues (currently $19.95), which entitles the member to
unlimited access to the Company's consultants, comprised of business owners,
certified financial planners and college business professors, who provide basic
advisory services. The dues also entitle the member to the Company's monthly
newsletter and a copy of Success Magazine. SCI will collect monthly dues from
all Company members, and provide all training and coaching as described in this
document. Currently, there are approximately 1,500 members in the Company
coaching system.
Success Media, Inc.
SMI is a wholly-owned subsidiary which is a media production and buying
company which produces and purchases all media for the Company and for third
parties. SMI produces infomercials, television, radio and print advertising and
receives fees and commissions for its services.
Government Regulation
In addition to federal, state and local laws applicable to businesses
generally, the Company's business is subject to regulation by the Federal Trade
Commission ("FTC"), the U.S. Postal Service, and various states' Attorneys
General and other state and local consumer protection agencies. Although the
Company does not offer business opportunities currently, to the extent that it
may do so in the future such activity is regulated by the FTC and state
authorities. The Company believes that its operations comply in all material
respects with applicable Federal and State laws.
Competition
The Company competes directly with several companies that generate
sales from presenting financial and education seminars and programs. Some of
these competitors have substantially greater financial, marketing and other
resources than the Company. The Company believes that it has, by virtue of the
breadth and depth of its programs and services, positioned itself to distinguish
the Company from its competitors.
Employees
As of March 31, 1998 the Company currently employs 310 persons
full-time (including the employees employed by various subsidiaries and
affiliates of the Company).
<PAGE>
Business Transactions
The Company's immediate predecessor is U.S. Medical Services, Inc., a
Nevada corporation ("USMS"), whose predecessor was Vancouver Tax Shelter and
Investment Seminar, Inc. ("VTS"). VTS was incorporated on October 2, 1985 in
British Columbia, Canada, for the purpose of operating an investment and seminar
company in Canada. VTS abandoned its business plan due to its inability to raise
necessary capital.
On November 3, 1985, VTS issued 6,000 shares of its Common Stock to
investors through a private offering conducted in British Columbia. VTS
subsequently engaged in the acquisition business and under new management,
increased its authorized share capital to 2,500,000 shares, and issued 1,903,703
shares.
VTS did not proceed with acquisitions and remained inactive until 1994,
when VTS management was presented with an opportunity in the computerized
medical services industry. In furtherance of that opportunity, the Company
organized a wholly-owned Nevada subsidiary corporation, U.S. Medical Services,
Inc. (USMS) on June 6, 1994.
On June 25, 1994, all of the VTS shareholders entered into a share
exchange agreement, whereby they exchanged their VTS shares for shares of USMS
on a one-for-one basis VTS then became inactive and was wound up on May 16,
1996.
During the third quarter of 1996, USMS began negotiation with Fortune
21, Inc., a Florida corporation incorporated on August 9, 1996. On September 10,
1996, USMS and Fortune 21, Inc. entered into an exchange agreement whereby the
two shareholders of Fortune 21, Inc. (James S. Byrd, Jr. and Douglas S. Hackett)
exchanged all of their shares of Fortune 21, Inc. (comprising all the issued and
outstanding shares of Fortune 21, Inc.), for 6,025,000 shares of the Company's
Common Stock (including 2,000,000 previously issued to Byrd in July 1996,
1,000,000 of which was assigned to Hackett in August 1996. ) The Company
subsequently changed its name from U.S. Medical Services, Inc. to Fortune
Financial Systems, Inc. On September 30, 1996, the Company's then wholly-owned
subsidiary Fortune 21, Inc., acquired substantially all of the assets of
Performance Link, Inc., a Florida corporation originally incorporated on March
1, 1994 ("PLI"). As consideration for the assets acquired, the Company issued 1
million shares of Common Stock to James J. Francis, the sole shareholder of PLI
a prior officer of the Company. Subsequent to this acquisition on November 25,
1996, PLI and Fortune filed articles of merger, with PLI as the surviving
corporation and, simultaneously, PLI amended its corporate charter to change its
name to "Fortune 21, Inc."
On November 5, 1996, the Company entered into an agreement with Real
Estate Link, Inc., a company that provides real estate investment financing,
pursuant to which the Company issued 25,000 shares of Common Stock in
consideration for the acquiring the rights to certain real estate educational
materials. An additional 12,500 shares of Common Stock were issued to Real
Estate Link on February 23, 1997.
On February 7, 1997, the Company and its principal shareholders,
Messrs. Byrd and Hackett, entered into a Contribution and Operating Agreement
<PAGE>
("Contribution Agreement") with Peter R. Morris ("Morris") and Success Holdings,
LLC, an Illinois limited liability company ("Success"). Pursuant to the terms of
the Contribution Agreement, the Company issued a total of 6.2 million shares of
Common Stock (3.1 million shares to each of Morris and Success), in
consideration for a minimum of $500,000 cash, $3 million in media credits and
certain licensing rights to trademarks and intellectual property owned by
Success. In addition, Morris agreed to guarantee a $250,000 credit line for use
by the Company
On March 22, 1997, the Company entered into an Acquisition and Plan of
Reorganization Agreement with the stockholders of PMI, which was subsequently
amended, whereby the Company agreed to acquire all of the issued and outstanding
capital stock of PMI, in exchange for a total of 1,060,000 shares of the
Company's Common Stock, with 440,000 shares of the Company's Common Stock issued
to each of Robert A. Stahura and Steven G. Thorne (currently a director of the
Company), with the additional stock to be issued to PMI's key employees.
On May 2, 1997 the Company acquired all of the outstanding stock of
IDI, in exchange for 1,000,000 shares of the Company's common stock, with
458,000 shares each being allocated to Brent Crabtree and Steven Comer, (who is
a director of the Company) and the balance of the shares to other IDI
stockholders. Some of these shares are subject to hold back provisions, based
upon performance.
Effective April 1, 1997, the Company divested itself of the common
stock of Fortune 21, Inc., a subsidiary, by transferring the stock to James
Byrd, a former officer and director of the Company. This transfer was due to the
discontinuation of certain real estate and seminar programs offered by Fortune
21.
<PAGE>
ITEM 17. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATIONS
General
Fortune Financial Systems, Inc. (FFSY or the Company) is in the
business of providing products, training, consulting and other services in a
range of areas specializing in Internet, small business, real estate and
personal finance. Until September 3, 1996 the only activity of the Company was
raising equity funding. Through a reverse common stock acquisition and common
stock purchase in September, 1996, formal business operations began. The Company
has established a fiscal year-end of March 31.
In March, 1997, FFSY began to establish, acquire and sell companies to
establish itself as the premier provider of financial and business training
services. Results of operations for the nine months ended December 31, 1997
include the operations of FFSY's wholly-owned subsidiaries from their dates of
acquisition, and of subsidiaries sold during the period owned by FFSY.
The following discussion and analysis should be read in conjunction
with the consolidated financial information and notes thereto, and is qualified
in its entirety by the foregoing and by other more detailed financial
information included elsewhere in this Prospectus.
Background
FFSY's immediate predecessor was U.S. Medical Services, Inc., a Nevada
corporation ("USMS") whose predecessor was Vancouver Tax Shelter and Investment
Seminar, Inc. ("VTS"). VTS was incorporated on October 2, 1985 in British
Columbia, Canada, for the purpose of operating an investment and seminar company
in Canada. VTS abandoned its business plan due to its inability to raise
necessary capital.
On November 3, 1985, VTS issued 6,000 shares of its Common Stock to
investors through a private offering conducted in British Columbia. VTS
subsequently engaged in the acquisition business and, under new management,
increased its authorized share capital to 2,500,000 shares and issued 1,903,703
shares.
VTS did not proceed with acquisitions and remained inactive until 1994,
when VTS management was presented with an opportunity in the computerized
medical services industry. In furtherance of that opportunity, the Company
organized a wholly-owned Nevada subsidiary corporation, U.S. Medical Services,
Inc. on June 6, 1994.
On June 25, 1994, all of the VTS shareholders entered into a share
exchange agreement, whereby they exchanged their VTS shares for shares of USMS
on a one-for-one basis. VTS then became inactive and was wound up on May 16,
1996.
During the third quarter of 1996, USMS began negotiation with Fortune
21, Inc., a Florida corporation incorporated on August 9, 1996. On September 10,
1996, USMS and Fortune 21, Inc. entered into an exchange agreement whereby the
shareholders of Fortune 21, Inc. exchanged all of their shares of Fortune 21,
Inc. for shares of the USMS's common stock. USMS subsequently changed its name
from U.S. Medical Services, Inc. to Fortune Financial Systems, Inc. ("FFSY").
Fortune 21 was a seminar company based in Orlando, Florida. On April 1,
1997 Fortune Financial Systems, Inc. sold the operations and stock of Fortune
21. FFSY agreed to provide administrative services to Fortune 21 for a period of
one year with one year extensions.
In March of 1997, FFSY acquired the stock of Professional Marketing,
Inc. ("PMI"). This acquisition was completed by trading stock in FFSY for all of
the stock in PMI. PMI is a telephone sales and marketing company which was
organized in July, 1996. PMI's telesales consultants market business, financial
services and products. Additionally, PMI offers coaching programs where clients
contract with a personal PMI coach who assists in enhancing their business.
<PAGE>
In May of 1997 FFSY acquired the stock of Internet Development, Inc.
("IDI"). This acquisition was completed by trading stock in FFSY for all of the
stock in IDI. IDI provides internet access, training, programs and other
Internet business opportunities. IDI was organized in March of 1996.
Additionally, IDI offers an integrated software management program for the small
business person.
In August of 1997 FFSY organized Fortune Marketing International
("FMI"). FMI operates a financial, real estate, business and Internet training,
coaching and consulting company. FMI trains entrepreneurs throughout the United
States who want to start or expand a small business and build wealth. FMI
conducts seminars, conferences, workshops and offers a newsletter to train and
support its clients. The primary focus of this training program is to teach the
mechanics of starting and operating a small business, and the use of the
Internet.
The company's business strategy is to acquire and operate a network of
training companies and to offer related services to support the core business
with the idea of providing training and knowledge to make the small and private
business person successful.
Results of Operations
The following table sets forth for the periods indicated certain line
items from FFSY's statement of operations as a percentage of FFSY's consolidated
revenue:
<TABLE>
<CAPTION>
Period from
Inception
(September 3, 1996
through Nine Months Ended
March 31, 1997 December 31, 1997
<S> <C> <C>
Net sales--------------------------------------------------- 100.0% 100.0%
Cost of sales----------------------------------------------- 58.4 76.0
Gross profit------------------------------------------------ 41.6 24.0
General and administrative expenses------------------------- 25.2 29.5
Other income------------------------------------------------ - 1.2
Net income (loss) before taxes------------------------------ 16.4 (4.3)
</TABLE>
Net sales for the nine months ended December 31, 1997 of $19.0 million
represents a 330% increase over the period from inception, September 3, 1996
through March 31, 1997. The increase is due to (i) the addition of products and
services from Company acquisitions accounted for from acquisition dates, (ii)
sales occurred during the seminar busy season and (iii) the fact that the nine
month reporting period is 50% longer than the period from inception reporting
period. The first quarter of a calendar year is typically the seminar busy
season.
Corresponding with the revenue increase is a 429% increase in cost of
sales to $14.4 million. The dollar increase correlates to the previously
explained increase in revenue. The increase as a percentage of net sales is
primarily due to revenue splitting agreements with third-party partners who
provide revenue leads. The revenues split due the companies providing successful
leads is included in cost of sales.
<PAGE>
General and administrative expenses of $5.6 million is a 387% increase
over the period from inception, September 3, 1996 through March 31, 1997. The
aggregate dollar increase is due to the building of a corporate structure along
with the general and administrative expenses that relate to the companies
acquired and formed. As a percentage of sales these expenses have increased
modestly to a level more reflective of a company that is no longer in the
start-up phase and is experiencing rapid sales growth.
Other income consists primarily of interest income earned on a note
receivable from the sale of a subsidiary along with management fees earned from
a management agreement to continue to manage the sold subsidiary.
Plan of Operations for the Company and Liquidity
During the next 12 months, the Company will continue to operate and
manage its wholly-owned subsidiaries. In addition, the Company plans to continue
to identify, evaluate and acquire other companies that will fit within its
business strategy. It is the intention of the Company to utilize various
combinations of cash, promissory notes and stock in executing acquisitions. At
the present time, there are no understandings, agreements or commitments with
respect to any prospective acquisition.
In July, 1997 the Company completed a private placement Regulation "D"
offering for $1,000,000. Additionally, the Company has been financed by internal
cash flow and by periodic short-term loans which in the aggregate have not
exceeded $600,000. Some of the short-term loans have stock conversion features.
The company entered into a $20,000,000 credit facility dated October
28, 1997, which was ultimately contingent on the Company becoming effective on
Form S-1 and Form 10 registration statements with the Securities and Exchange
Commission no later than 120 days subsequent to the initial closing date. The
Company issued 20,000 shares of its Series A Preferred Stock and Warrants to
purchase 500,000 shares of Common Stock for a cash consideration of $2,000,000.
The warrants allow the Investors to purchase an aggregate of 500,000 shares of
Common Stock at the following prices: (i) 250,000 shares at a price of $6.00 per
share, and (ii) 250,000 shares at a price of $5.00 per share.
The Company was not able to fulfill the conditions of the October
Agreement and, accordingly, modified the Agreement by an Amendment dated March
27, 1998. As provided for by the Amendment, the parties agree that neither of
them would have the obligation to purchase or sell additional shares of the
Series A Preferred Stock as provided by the October Agreement. All penalties,
defaults and price adjustments provided for under the October Agreement were
waived under the terms of the Amendment. The Company remains obligated to use
its best efforts to process expeditiously the Registration Statement. In the
event the Registration Statement does not become effective by July 27, 1998, or
in the alternative, if the Company or other persons are not able to provide the
Selling Security Holders with shares of Common Stock of the Company which would
have the rights and benefits comparable to shares of Common Stock registered
under the Securities Act, the Selling Security Holders would have the right to
put their shares of Series A Preferred Stock to the Company and foreclose on all
collateral provided to them under the October Agreement.
<PAGE>
The foregoing notwithstanding, the Selling Security Holders would agree
to extend to the Company a grace period of 60 days from the end of July 27, 1998
in which the Company would have the right to exercise a redemption option and
make a one-time payment equal to 120% of the stated value of the Preferred Stock
to be acquired. At such time as the Registration Statement becomes effective,
the Company also has a right to a redemption option to acquire 10% of the Series
A Preferred Stock on a monthly basis over a 10-month period (i.e., 2,000 shares
of Series A Preferred Stock each month) at a redemption price of 120% of the
stated value of such shares of Series A Preferred Stock. In addition, on or
prior to the earlier of July 27, 1998 or the date this Registration Statement
becomes effective, the Company will have the right to redeem, in whole or in
part, and from time to time, the Series A Preferred Stock at 110% of the stated
value of the Series A Preferred Stock and without payment of accrued but unpaid
dividends.
As modified by the Amendment, at the option of each of the Selling
Security Holders, the Series A Preferred Stock may be converted at any time into
shares of the Company's Common Stock equal in number to the amount to be
determined by dividing $100.00 (representing the stated value thereof) by a
percentage of the average closing price of the Company's Common Stock over the
10-day trading period ending on the day prior to the conversion of the Series A
Preferred Stock less a discount of 17%. The Selling Security Holders, however,
have agreed to convert not more than 10% of the Series A Preferred Stock during
any 30-day period for a total of 10 months beginning on the earlier of the date
hereof or the date of effectiveness of this Registration Statement.
Should the Company make additional acquisitions, the number of total
employees could increase substantially, based upon the size of the acquisition.
The Company has no significant commitments for expenditures other than
commitments under certain employment agreements and the lease of its corporate
and subsidiary's offices. The Company has entered into employment contracts with
key members of management, the terms of which expire at various times through
2002. The contracts provide for minimum salary levels, aggregating $4,500,000,
and incentive bonuses based on the attainment of certain management goals
primarily based on net sales and net operating income before taxes.
Generally, the Company has few capital expenditure requirements except
for sophisticated phone systems, stations and office equipment. The Company
estimates that it will incur additional capital expenditures of approximately
$1,000,000 during the next 12 months to support its growth.
Should the Company not make any new acquisitions, management believes
that operating cash flow, available cash and available credit resources,
together with the net proceeds from the credit facility, will be adequate to
make the repayments of indebtedness, to meet the working capital cash needs of
the Company and to meet anticipated capital expenditure needs during the next 12
months. However, it is the Company's intention to identify, evaluate and make
additional acquisitions within the next twelve months. Because the Company's
cash requirements in the future are heavily dependent upon the frequency and
cost of future acquisitions, as well as the combination of cash, promissory
notes and stocks used in executing acquisitions, it is impossible to determine
at this time the effect of the Company's acquisition strategy on its future cash
requirements. If significant acquisition opportunities arise, the Company may
need to seek additional capital to complete them.
<PAGE>
Litigation
There is no known litigation pending against the Company.
Seasonality and Inflation
The Company has some seasonality in its operations. The
seminar/training season is typically strong in the first quarter, slow in the
second and third quarters and strong in the fourth quarter. The affect of
seasonality is contingent on the mix of sales among the subsidiaries and may be
further affected by the timing of future acquisitions.
The effect of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's future
operating results.
ITEM 18. Description of Property
The Company leases approximately 2,844 square feet of office space at
6975 Union Park Center, suite 180, Midvale, Utah. The monthly lease expense for
the Midvale office is approximately $4,325.00. The lease expires on September
20, 2002. The Company leases 3,100 square feet of office space at 1200 West
State Road 434, Longwood, Florida. The base rent under the lease is $3,409.25
per month. The lease expires on July 31, 1997 and has two one-year lease
renewals. Additionally, the Company leases 8,600 square feet of office space at
443 Commerce Road, Orem. The monthly lease expense for the Orem office is
approximately $4,300.00. The lease expires in May, 2001. The Company also leases
approximately 10,000 square feet of office space at 791 East 340 South, American
Fork, Utah. The base rent under the lease is approximately $5,717.00 per month
and expires in December, 2000.
The Company does not currently own real property.
<PAGE>
ITEM 19. CERTAIN TRANSACTIONS
The following section describes transactions since inception to which
the Company or its subsidiaries were a party and in which any of the Company's
officers, directors, director nominees, or principal shareholder had a direct or
indirect interest:
Under the terms of the September 10, 1996 Exchange Agreement, Byrd and
Hackett each received 3 million shares of the Company's Common Stock and,
thereby gained control of the Company. These included 2,000,000 shares
previously issued to Byrd in July 1996, 1,000,000 of which were assigned to
Hackett in August 1996. Byrd and Hackett each made a capital contribution of
$50,000 to the Company. Subsequently, Byrd became Chairman, President and CEO of
the Company and Hackett became Vice President and Secretary and a Director of
the Company. Each of Byrd and Hackett were issued an additional 500,000 shares
of the Company's Common Stock subsequently in consideration of additional
capital contributions made to the Company, in the amount of $80,000 each.
Under the terms of Fortune 21's acquisition of substantially all of the
assets of PLI, the Company issued 1 million shares of its Common Stock to PLI,
which were distributed to Francis. Francis served as the Company's Vice
President, Treasurer and a Director.
On November 5, 1996, the Company issued 25,000 shares of Common Stock
to Real Estate Link, Inc., a company that provides real estate investment
financing in consideration for acquiring the rights to certain real estate
educational materials. James J. Francis, the Company's then Vice President,
Treasurer and a Director, also is a Director of Real Estate Link. An additional
12,500 shares of Common Stock were issued to Real Estate Link on February 23,
1997.
On February 7, 1997, the Company and its principal shareholders,
Messrs. Byrd and Hackett, entered into a Contribution and Operating Agreement
("Contribution Agreement") with Peter R. Morris ("Morris") and Success Holdings,
LLC, an Illinois limited liability company ("Success"). Pursuant to the terms of
the Contribution Agreement, the Company issued a total of 6.2 million shares of
Common Stock (3.1 million shares to each of Morris and Success), in
consideration for a minimum of $500,000 cash, $3 million in media credits and
certain licensing rights to trademarks and intellectual property owned by
Success. In addition, Morris agreed to guarantee a $250,000 credit line to the
Company.
On July 14, 1997, the company acquired all of the stock of Gateway
Marketing International, Inc., an educational material and distribution company,
from Roger C. Royce, President and CEO for 1,000,000 shares of the Company's
common stock. Mr. Royce subsequently became President and CEO of the Company
under a 5-year contract.
As of December 31, 1997, Messrs. Byrd, Hackett and Morris had loans to
the Company in the aggregate of over $360,000.00 of which $172,000.00 was
outstanding. These loans are short term non-interest bearing and will be paid
upon demand.
<PAGE>
ITEM 20. PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades in the over-the-counter market under
the symbol "FFSY." There was no trading in the Company's Common Stock prior to
October, 1995. The following table shows the quarterly high and low bid prices
for 1995, 1996 and 1997 as reported by the National Quotation Bureau
Incorporated. These prices reflect inter-dealer quotations without adjustments
for retail markup, markdown or commission, and do not necessarily represent
actual transactions.
Year Period High Low
1995 First Quarter N/A N/A
(USMS) Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
1996 First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter $ 0 $ 0
Fourth Quarter $ 0 $ 0
1997 First Quarter $0 $0
Second Quarter $0 $0
Third Quarter $8.75 $3.72
Fourth Quarter $7.91 $2.59
1998 First Quarter $4.00 $1.75
DIVIDEND POLICY
The Company has not paid, and does not anticipate paying in the
foreseeable future, any dividends on its Common Stock. The Company currently
intends to retain its future earnings for use in operations and expansions of
its business. Declaration and payment of future dividends, if any, will be at
the sole discretion of the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 as adjusted to give effect to the issuance and sale of the
20,000 shares of Series A Convertible Preferred Stock sold by the Company in
October 1997. This table should be read in conjunction with the financial
statements and related notes appearing elsewhere in this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
Actual
<S> <C>
5% convertible series "A" preferred stock, convertible into common stock
or a note payable,cumulative, aggregate liquidation preference
of $2,200,000; 5,000,000 shares authorized; .001 par value;
20,000 shares issued and outstanding $ 1,310,000
Stockholders' equity:
Common Stock, 100,000,000 shares authorized; .001
par value; 19,957,253 shares issued and outstanding 19,957
Additional paid-in capital 5,298,081
Warrants outstanding 300,000
Stock subscriptions receivable (3,300,000)
Retained earnings 63,410
-----------
Total stockholders equity $ 2,381,448
============
</TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected financial data for the period from inception (September 3,
1996) through March 31, 1997, have been derived from the audited financial
statements of the Company. The selected financial data for the nine months
ending December 31, 1997 is derived from the unaudited financial statements of
the Company. The unaudited financial statements include all adjustments,
consisting of only normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for these periods. Operating results for the nine months ended
December 31, 1997 are not necessarily indicative of the operating results that
may be expected for the entire fiscal year ending March 31, 1998. This
information should be read in conjunction with the Financial Statements and
"Management's Discussion and Analysis of Financial Condition or Plan of
Operations."
<PAGE>
ITEM 21. Executive Compensation
Below is the aggregate annual remuneration of each of the highest paid
persons who are officers or directors of the Company during the Company's last
fiscal year. The Company's fiscal year end was March 31, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
================== ==================================================== =======================================================
Annual Compensation Long-Term Compensation
---------------------------- ==========================
Awards Payouts
================== --------- ------------ ------------ ---------------- --------------- ------------ ------------- ============
Securi-
ties
March Other Under- All
31 Annual Restricted lying LTIP Other
Name and Fiscal Salary Bonus Compen- Stock Options/ Payouts Com-
Principal Year ($) ($) sation Award(s) SARs ($) pensa-
Position ($) ($) (#) tion
($)
================== --------- ------------ ------------ ---------------- --------------- ------------ ------------- ============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas Shane
Hackett* 1997 $85,500 N/A N/A
Executive Vice N/A N/A N/A N/A
President
================== --------- ------------ ------------ ---------------- --------------- ------------ ------------- ============
James S. Byrd
Chairman** 1997 $85,500 N/A N/A N/A N/A N/A N/A
================== ========= ============ ============ ================ =============== ============ ============= ============
James J. Francis
Vice President 1997 $59,500 N/A N/A N/A N/A N/A N/A
================== ========= ============ ============ ================ =============== ============ ============= ============
</TABLE>
The Company did not provide any additional compensation to its directors or
executive officers. No options were granted to such officers or directors in the
last fiscal year.
Employment Agreements
The Company has entered into the employment agreements described below:
Roger C. Royce
Employment Agreement on July 28, 1997. Under the Employment Agreement
Royce serves as Chairman, President and Chief Executive Officer of the Company.
As compensation for his services, Royce receives a base salary of $25,000 per
month, subject to an annual 5% increase. In the event of a cash flow shortage
after the Company's credit line has been exhausted, the base salary may be
reduced to $15,000 per month. Royce is entitled to a cash bonus equal to 10% of
the Company's net earnings before taxes and before deductions for bonuses
("pre-tax profits"), not to exceed $200,000. Royce is also entitled to receive
<PAGE>
an additional bonus in the event that the Company's pre-tax profits exceed $5
million, on a sliding scale. The additional bonus is to be paid in a combination
of cash and stock options ( percentages to be determined by the Board) with the
following net values: for pre-tax profits between $5 and $6 million: $250,000;
for pre-tax profits between $6 and $7 million: $350,000; for pre-tax profits in
excess of $7 million: $500,000. Royce is entitled to participate in all employee
benefit plans available to Fortune Marketing employees and is entitled to five
weeks of paid vacation per year. He also receives a total of $2,400.00 per month
of additional benefits including an automobile allowance, an entertainment
allowance and a club membership. The term of the Employment Agreement is five
years unless earlier terminated according to its terms. Royce is subject to
certain non-solicitation and non-competition provisions under the Employment
Agreement.
Douglas S. Hackett
Employment Agreement on February 7, 1997. Under the Employment
Agreement, Hackett serves as Executive Vice President and is Director of the
Company. As compensation for his services, Hackett receives a base salary of
$25,000 per month, subject to an annual 5% increase. In the event of a cash flow
shortage after the Company's credit line has been exhausted, the base salary may
be reduced to $15,000 per month. Hackett is entitled to a cash bonus equal to
10% the Company's pre-tax profits, not to exceed $200,000, however. Hackett is
also entitled to receive an additional bonus in the event that the Company's
pre-tax profits exceed $5 million, on a sliding scale. The additional bonus is
to be paid in a combination of cash and stock options (percentages determined by
the Board) with the following net values: for pre-tax profits between $5 and $6
million: $250,000; for pre-tax profits between $6 and $7 million: $350,000; for
pre-tax profits in excess of $7 million: $500,000. Hackett is entitled to
participate in all employee benefit plans available to Fortune Marketing
employees and is entitled to five weeks of paid vacation per year. He also
receives a total of approximately $2,400.00 per month of additional benefits
including a automobile allowance, a monthly entertainment allowance and a club
membership. The term of the Employment Agreement is five years unless earlier
terminated according to its terms. Hackett is subject to certain
non-solicitation and non-competition provisions under the Employment Agreement.
James S. Byrd, Jr.
Upon the resignation of James Byrd as Chairman of the Board as of
December 31, 1997, the Company agreed to continue using the legal and
acquisition expertise of Mr. Byrd who was a cofounder of the Company. Under the
new Consulting Agreement which replaced Mr. Byrd's five year employment
contract, the Company agreed that Mr. Byrd will continue to act as the Company's
active legal counsel, consult in matters of corporate finance, seek
acquisitions, develop shareholder stock appreciation programs and promote the
Company. It is anticipated that this arrangement will have a minimum term of
four years and he will receive a fee of $15,000.00 per month. Further, Mr. Byrd
will participate in a pro-rata "stock lock up" which is unanimously agreed to by
the Company's major shareholders. Mr. Byrd will also receive the sum of
$5,000.00 per month in a non compete agreement in which he has agreed to not
involve himself in forming or working with any company which competes in anyway
with the Fortune Companies.
<PAGE>
ITEM 22. FINANCIAL STATEMENTS
Financial Statements
FORTUNE FINANCIAL SYSTEMS, INC.
AND SUBSID\8trIARIES
March 31,
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Table of Contents
March 31, 1997
Independent Auditors' Report...............................................1
Consolidated Balance Sheet...........................................2
Consolidated Statement of Operations.................................3
Consolidated Statement of Stockholders' Equity.......................4
Consolidated Statement of Cash Flows.................................5
Notes to Consolidated Financial Statements.................................6
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
Fortune Financial Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Fortune Financial
Systems, Inc. and Subsidiaries as of March 31, 1997, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the period from inception (September 3, 1996) through March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fortune Financial
Systems, Inc. and Subsidiaries, as of March 31, 1997, and the results of their
operations and their cash flows for the period from inception (September 3,
1996) through March 31, 1997 in conformity with generally accepted accounting
principles.
May 20, 1997
Maitland, Florida
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1997
ASSETS
Current assets:
Cash $ 73,593
Finance contracts receivable, less
allowance for collection losses of $200,000 (note 6) 1,373,756
Other accounts receivable 152,544
Inventory 95,215
Prepaid expenses 184,780
-------
Total current assets 1,879,888
---------
Property and equipment, net (note 2) 165,060
Merchant deposits 140,195
Other assets 15,588
------
Total assets $ 2,200,731
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 570,164
Note payable and line of credit (note 5) 77,064
Income taxes payable 330,000
-------
Total current liabilities 977,228
-------
Stockholders' equity:
Common stock, 25,000,000 shares authorized;
.001 par value; 17,315,253 issued and outstanding 17,315
Additional paid in capital 3,890,790
Stock subscriptions receivable (3,300,000)
Retained earnings 615,398
-------
Total stockholders' equity 1,223,503
---------
Total liabilities and stockholders' equity $ 2,200,731
===============
See accompanying notes to consolidated financial statements.
2
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
For the period from inception (September 3, 1996) through March 31, 1997
Sales of products and services $ 5,762,534
Cost of sales 3,366,413
--------
Gross profit 2,396,121
General and administrative expenses 1,450,723
--------
Net income before income taxes 945,398
-------
Income taxes (note 4) 330,000
-------
Net income $ 615,398
============
Net income per share (note 3) $ 0.06
============
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the period from inception (September 3, 1996) through March 31, 1997
<CAPTION>
Additional Stock
Common Stock Paid in Subscriptions Retained
Shares $ Capital Receivable Earnings Total
------ - ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, September 3, 1996 6,000,000 $ 6,000 $ 94,000 $ - $ - $ 100,000
Recapitalization, including impact of
reverse acquisition 1,903,203 1,903 - - - 1,903
Shares issued in exchange for services 3,100,000 3,100 2,996,900 (3,000,000) - -
Shares issued in share for share exchange 1,060,000 1,060 66,940 68,000
- -
Issuance of common stock 5,252,050 5,252 653,507 (300,000) - 358,759
Capital contribution - - 79,443 - - 79,443
Net income - - - - 615,398 1,223,503
---------- ---------- ----------- ------------ ------------ ------------
Balances, March 31, 1997 17,315,253 $ 17,315 $ 3,890,790 $ (3,300,000) $ 615,398 $ 1,223,503
========== ========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the period from inception (September 3, 1996) through March 31, 1997
Cash flows from operating activities:
Net income $ 615,938
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
3,770
Cash provided by (used for) changes in assets
and
liabilities:
Finance contract and other receivables (1,526,300)
Inventories (95,215)
Prepaid expenses (184,780)
Accounts payable accrued expenses 572,067
Income taxes payable 330,000
Other assets (155,783)
-----------------
Net cash used in operating activities (440,843)
-----------------
Cash flows from investing activities:
Additions to property and equipment (168,830)
-----------------
Net cash used in investing activities (168,830)
-----------------
Cash flows from financing activities:
Proceeds from sale of common stock 606,202
Proceeds from long-term debt 77,064
-----------------
Net cash provided by financing activities 683,266
-----------------
Net increase in cash and cash equivalents 73,593
Cash and cash equivalents, beginning of period -
-----------------
Cash and cash equivalents, end of period $ 73,593
=================
Supplemental disclosures of cash flow information:
Cash paid for interest $ -
=================
Income taxes paid $ -
=================
See accompanying notes to consolidated financial statements.
5
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(1) Organization and Significant Accounting Policies
------------------------------------------------
(a) Organization
------------
The accompanying consolidated financial statements include the accounts of
Fortune Financial Systems, Inc. (Fortune or the Company) and its wholly
owned subsidiaries, Fortune 21, Inc. (Fortune 21) and Professional
Marketing, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.
U.S. Medical Services, Inc. (USMS) was incorporated on June 6, 1994 in the
State of Nevada with capital stock of 25,000,000 shares with no par value.
Fortune 21 was incorporated under the laws of the State of Florida on
September 3, 1996. It provides financial and business training services.
On September 10, 1996, Fortune agreed to exchange shares with USMS, a
Nevada public company. Accordingly, Fortune 21 exchanged 6,000,000 shares
of the company stock for 6,000,000 of USMS stock in a business combination
accounted for as a reverse acquisition. During the period USMS was in
existence prior to the reverse acquisition, its only activity was to raise
equity capital. For accounting purposes, the reverse acquisition is
reflected as if Fortune issued its stock (6,000,000 shares) for the net
assets of USMS. The net assets of USMS were not adjusted in connection with
the reverse acquisition since they were monetary in nature. Coincident with
the reverse acquisition, USMS changed its name to Fortune Financial
Systems, Inc.
Performance Link, Inc. (Performance) was incorporated in 1994 for the
purpose of providing business and financial services.
On September 30, 1996, Fortune acquired the net assets of Performance in
exchange for 1,025,000 shares of stock. This business acquisition has been
accounted for as a purchase transaction, and accordingly, the assets and
liabilities of Performance have been reflected in the accompanying
consolidated financial statements at fair market value. The accompanying
statements of operations include the results of operations of Performance
subsequent to the acquisition date. Coincident with the business
combination, Performance changed its name to Fortune 21, Inc.
(Continued)
6
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1), Continued
On March 31, 1997, Fortune acquired the net assets of Professional
Marketing International in exchange for 1,060,000 shares of stock. This
business combination has been accounted for as a purchase transaction, and
accordingly, the assets and liabilities of Professional Marketing
International as of March 31, 1997 have been reflected in the accompanying
consolidated balance sheet at fair market value. The accompanying
consolidated statement of operations does not include the results of
operations of Professional Marketing International because the acquisition
occurred on March 31, 1997. These operations will be accounted for by
Fortune prospectively.
(b) Revenue recognition
-------------------
The principal sources of revenues are derived from the sale of business
training products and services, and are recognized when the products or
services are delivered.
(c) Cash flows
----------
The Company considers all investments, originally purchased with a maturity
of three months or less, to be cash equivalents.
(d) Property and equipment
----------------------
Property and equipment acquired through the acquisition of other companies
is recorded at the predecessor Company's net book value prior to date of
acquisition. All other property and equipment is recorded at cost.
Depreciation is calculated using the straight-line method over the
following estimated useful lives:
Furniture and equipment 5 years
Leasehold improvements 7 years
(e) Inventory
---------
Inventory consists of product supplies such as books and tapes. Inventory
is stated at cost or the first-in, first-out method.
(Continued)
7
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1), Continued
(f) Income taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) Use of Estimates
----------------
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(h) Concentration of Credit Risk and Fair Value of Financial Instruments
--------------------------------------------------------------------
The carrying amount reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these financial
instruments. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade and other
accounts receivable which amount to approximately $1,500,000. The Company
performs periodic credit evaluations of its trade customers and generally
does not require collateral.
(2) Property and Equipment
----------------------
At March 31, 1997, furniture and equipment consist of the following:
Furniture and equipment $ 127,509
Leasehold improvements 41,321
-----------
168,830
Less accumulated depreciation 3,770
-----------
$ 165,060
===========
8
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Net Income Per Share
--------------------
Net income per share is based on the weighted average shares outstanding of
10,489,047 for the period from inception (September 3, 1996) through March 31,
1997. For purposes of computing the weighted average number of shares
outstanding, the number of shares of Fortune 21 stock outstanding prior to the
business combination with the Company has been adjusted as if the conversion of
those shares took place on September 3, 1996.
(4) Income Taxes
------------
Income tax expense for the period ended March 31, 1997 consist of:
Current Deferred Total
Federal $ 310,000 - $ 310,000
State 20,000 - 20,000
----------- ----------- ----------
$ 330,000 - $ 330,000
=========== =========== ==========
Income tax expense (benefit) attributable to income from continuing operations
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to income (loss) from continuing operations before income taxes as a
result of the following:
Computed "expected" tax expense $ 320,000
Increase in income tax expense resulting from:
State and local income taxes, net of federal
income tax benefit 30,000
Other (20,000)
-------
$ 330,000
=============
9
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Note Payable and Line of Credit
-------------------------------
Note payable and line of credit consist of the following:
Line of credit payable to bank (with borrowings up to
$35,000), bearing interest at the banks prime rate,
plus 1% renewable annually $ 27,064
Note payable to individual, bearing interest at 10%
due in September, 1997 50,000
------
$ 77,064
=========
(6) Subsequent Events
-----------------
Acquisition
-----------
On May 2, 1997, Fortune acquired the net assets of Internet Development,
Inc. based in Orem, Utah. The acquisition was made in a share for share
exchange accounted for on a purchase transaction in which Fortune issued
250,000 shares. Up to an additional 750,000 shares of stock could be earned
by the sellers if the acquired company achieves certain income levels.
Assignment of Accounts Receivable
---------------------------------
In April 1997, the Company entered into an agreement with a finance company
to assign an undivided interest in its portfolio of finance contracts,
subject to limited recourse provisions, in an amount not to exceed $
1,500,000.
The assignment of said contracts was used to secure an advance of $501,000
which was used for working capital.
10
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC.
AND
SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1997
(Unaudited)
ASSETS
------
Current assets:
<S> <C>
Cash and cash equivalents $ 692,077
Accounts receivable, less allowances of $62,080 836,404
Current portion of finance contracts receivable, less
allowances of $214,633 310,350
Receivable from an officer 2,724
Inventory 60,995
Prepaid assets 102,443
-------------
Total current assets 2,004,993
Furniture and equipment, net 497,815
Finance contracts receivable, less current portion and
allowances of $107,317 155,174
Note receivable from stockholder 3,005,734
Merchant deposits 317,754
Other assets 25,534
Goodwill 200,000
-------------
$ 6,207,004
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable$ 1,175,245
Refunds payable 382,680
Accrued expenses 232,792
Commissions payable 177,425
Income taxes payable 50,000
Notes payable and line of credit 197,414
-------------
Total current liabilities 2,515,556
-------------
5% Convertible series "A" preferred stock, convertible into
common stock or a note payable, cumulative, aggregate
liquidation preference of $2,200,000; 5,000,000 shares
authorized; .001 par value; 20,000 shares issued and outstanding 1,310,000
------------
Commitments (note 5)
Stockholders' equity:
Common stock, 100,000,000 shares authorized;
.001 par value; 19,957,253 shares issued and outstanding 19,957
Additional paid in capital 5,298,081
Warrants outstanding 300,000
Stock subscriptions receivable (3,300,000)
Retained earnings 63,410
-------------
Total stockholders' equity 2,381,448
-------------
$ 6,207,004
=============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
For the nine months ended December 31, 1997
(Unaudited)
Sales of products and services $ 18,996,191
Cost of sales 14,428,246
----------------
Gross profit 4,567,945
Selling, general and administrative expenses 5,620,951
----------------
Loss from operations (1,053,006)
Other income (expense):
Interest income 162,804
Management fee (note 7) 75,000
Other income 1,022
----------------
Total other income, net 238,826
Loss before benefit for income tax (814,180)
Benefit for income taxes (note 4) (280,000)
-----------------
Net loss $ (534,180)
=================
Net loss applicable to common shares $ (551,988)
=================
Net loss per common share (both basic and diluted) $ (0.03)
=================
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the nine months ended December 31, 1997
(Unaudited)
<S> <C>
Cash flows from operating activities:
Net loss $ (534,180)
Adjustments to reconcile net loss to net
cash used in operating activities:
Interest income on note receivable from stockholder (159,384)
Depreciation 37,398
Provision for doubtful accounts 584,030
Common stock issued for services 8,000
Changes in assets and liabilities:
Accounts receivable (736,366)
Finance contracts receivable (987,474)
Receivable from an officer (2,724)
Inventory (60,995)
Prepaid expenses (102,443)
Other assets (315,069)
Accounts payable 1,362,961
Refunds payable 382,680
Accrued expenses 115,687
Commissions payable 177,425
Income taxes payable (280,000)
-------------
Net cash used in operating activities (510,454)
-------------
Cash flows from investing activities:
Advances to stockholder (1,366,881)
Purchases of furniture and equipment (327,118)
Net cash used in investing activities (1,693,999)
------------
Cash flows from financing activities:
Proceeds from sale of preferred stock and warrants 1,610,000
Proceeds from sale of common stock 1,042,587
Proceeds from issuance of debt 840,414
Repayments of debt (670,064)
-------------
Net cash provided by financing activities 2,822,937
------------
Net increase in cash and cash equivalents 618,484
Cash and cash equivalents, beginning of period 73,593
--------------
Cash and cash equivalents, end of period $ 692,077
=============
Supplemental disclosures of cash flow information:
Cash paid for interest $ -
==================
Income taxes paid $ -
==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the nine months ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid in Warrants Subscriptions Retained
Shares Amount Capital Outstanding Receivable Earnings Total
----------------------- ------- ----------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1997 17,315,253 $ 17,315 $ 3,890,790 - $(3,300,000) $ 615,398 $ 1,223,503
Shares issued for acquisition
of business 1,000,000 1,000 200,932 - - - 201,932
Shares issued in exchange
for marketing rights 1,000,000 1,000 199,000 - - - 200,000
Issuance of common stock for cash 626,000 626 999,375 - - - 1,000,001
Shares issued in exchange
for services 16,000 16 7,984 - - - 8,000
Warrants outstanding - - - 300,000 - - 300,000
Net loss - - - - - (534,180) (534,180)
Preferred stock dividends - - - - - (17,808) (17,808)
----------- ----------- ------------ ------------ ------------ ---------- -----------
Balances, December 31, 1997 19,957,253 $ 19,957 $ 5,298,081 $ 300,000 $ (3,300,000) $ 63 ,410 $ 2,381,448
=========== =========== ============ ============ ============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(1) Organization and Significant Accounting Policies
------------------------------------------------
(a) Organization
------------
The accompanying consolidated financial statements include the
accounts of Fortune Financial Systems, Inc. (Fortune or the
Company) and its wholly owned subsidiaries, Fortune Marketing
International, Inc., Professional Marketing, Inc., Internet
Development, Inc. and Success Media, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
On April 1, 1997, Fortune entered into a Stock Sale and
Management Agreement, whereby, Fortune sold all of the issued and
outstanding common stock of Fortune 21 to a company owned by a
former director and significant shareholder of Fortune. Fortune
agreed to manage Fortune 21 for a period of one year with annual
renewals (See note 7).
On May 2, 1997, Fortune acquired the stock of Internet
Development, Inc. (IDI) in exchange for 1,000,000 shares of
common stock. This business combination has been accounted for as
a purchase transaction, and accordingly, the assets and
liabilities of IDI have been reflected in the accompanying
Consolidated Balance Sheet at fair market value. The estimated
fair value of the assets acquired approximate net book value and
therefore, no goodwill was recorded. The accompanying
Consolidated Statement of Operations includes the results of
operations of IDI subsequent to the acquisition date.
Fortune has formed and incorporated several other companies that
provide related products or services or support the operations of
other subsidiaries.
(b) Revenue recognition
-------------------
The principal sources of revenues are derived from the sale of
business training products and services, and are recognized when
the products or services are delivered.
(c) Cash flows
----------
The Company considers all investments, originally purchased with
a maturity of three months or less, to be cash equivalents.
(d) Furniture and equipment
-----------------------
Furniture and equipment are recorded at cost. Depreciation is
calculated using the straight-line method over their estimated
useful lives. Leasehold improvements are amortized over the terms
of the respective leases or the estimated economic lives of the
assets, whichever is shorter. The depreciation and amortization
periods are as follows:
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Computer equipment 2 - 5 years
Office equipment 3 - 7 years
Leasehold improvements and other 5 - 33 years
(e) Inventories
-----------
Inventories consist of product supplies such as books, tapes and
software. Inventories are stated at the lower of cost or market,
cost being determined using the first-in, first-out method.
(f) Income taxes
------------
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply when differences are expected to be realized or settled.
(g) Advertising
-----------
The Company expenses the cost of advertising for seminars in the
period the seminar occurs. For the nine months ended December 31,
1997, advertising expense totaled approximately $1,170,000 and is
included in cost of sales in the accompanying Consolidated
Statement of Operations.
(h) Finance Contracts Receivable
----------------------------
The Company offers a financing option to purchase its training
products. Generally, the amounts financed are payable in 18
monthly installments at an annual interest rate of 18%. Interest
is recognized when the monthly installment is received.
A third party is used to service and collect the financed
amounts. The third party is paid on a fee schedule for the
services performed.
Management performs periodic reviews of the performance of the
portfolio to assess collectability and the adequacy of the
allowance for uncollectible accounts. For the nine months ended
December 31, 1997 approximately $4,000 in contracts have been
written off as uncollectible and $326,000 has been expensed and
included in selling, general and administrative expenses.
(i) Net Loss per Common Share
-------------------------
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Basic net loss per common share ("Basic EPS") excludes dilution
and is computed by dividing net loss applicable to common shares
by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share ("Diluted
EPS") reflects the potential dilution that could occur if
contracts to issue common stock including preferred stock were
exercised or converted into common stock. The computation of
Diluted EPS does not assume exercise or conversion of securities
that would have an anti-dilutive effect on net loss per common
share. Because the Company has incurred a loss for the period
presented, no conversions have been considered as they would be
anti-dilutive, thereby decreasing the net loss applicable to
common shares.
For the nine months ended December 31, 1997, preferred stock
dividends of $17,808 have been added to the net loss to determine
the net loss applicable to common shares.
The weighted average number of common shares outstanding was
19,138,024.
(j) Use of estimates
----------------
Management of Fortune has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(k) Concentration of Credit Risk and Fair Value of Financial
---------------------------------------------------------
Instruments
-----------
The carrying amount reported in the Consolidated Balance Sheet
for cash, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the immediate or
short-term maturity of these financial instruments. Financial
instruments which potentially subject Fortune to concentrations
of credit risk consist principally of accounts receivable and
finance contracts receivable which are approximately $1,686,000.
Fortune performs periodic credit evaluations of its trade
customers and generally does not require collateral.
(2) Furniture and Equipment
-----------------------
At December 31, 1997, furniture and equipment consist of the following:
Furniture and equipment $468,638
Leasehold improvements 87,462
------
556,100
Less: accumulated depreciation and
amortization (58,285)
-------
$497,815
========
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(3) Notes Payable
-------------
At December 31, 1997, notes payable consist of the following:
Unsecured bank line of credit, interest at
prime rate plus 2% (10.5% at
December 31, 1997), due on demand $ 25,414
Note payable to a shareholder and
director issued October 16, 1997,
due on demand 94,500
Note payable to a shareholder issued
October 16, 1997, due on demand 25,250
Note payable to a shareholder, officer
and director issued October 16, 1997,
due on demand 52,250
------
$ 197,414
==============
All notes from shareholders, officers and directors are short term
bridge loans which carry no interest rate due to the expected short
term nature of these notes.
(4) Income Taxes
------------
Income tax benefit for the none months ended December 31, 1997 consists
of the following:
Federal $ (268,000)
State (12,000)
-----------
$ (280,000)
===========
The Company is on a calendar year for tax purposes and a March 31
fiscal year for financial reporting purposes. The tax benefit
represents the amount by which the tax calendar year 1997 tax liability
will be reduced.
Income tax benefit attributable to income from continuing operations
differed from the amount computed by applying the U.S. Federal income
tax rate of 34% to income from continuing operations before income
taxes as a result of the following:
Computed "expected" tax benefit $ (276,800)
Increase in income tax benefit
resulting from:
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
State and local income benefit,
net of Federal income tax
benefit (3,200)
------
$ (280,000)
===========
(5) Commitments
-----------
Fortune leases various office and warehouse space, and equipment under
noncancelable operating leases which expire in various years to 2003.
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases.
Aggregate future minimum rental commitments under these leases are as
follows:
Year ending March 31,
1999 $ 349,000
2000 342,000
2001 207,000
2002 85,000
2003 29,000
-----------
Total minimum lease payments $ 1,012,000
=========
Lease payments charged to selling, general and administrative expense
in the Consolidated Statement of Operations for the nine months ended
December 31, 1997 amounted to approximately $173,000.
(6) Supplemental Statement of Operations Information
------------------------------------------------
All of Fortune's acquisitions have been accounted for using the
purchase method.
The following unaudited pro forma acquisition information reflects what
Fortune's results of operations would have been on a consolidated basis
had the purchase of IDI occurred on April 1, 1997. The pro forma
results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the
acquisitions been made at the beginning of the period or of the results
which may occur in the future.
Unaudited Pro Forma Results of Operations
Net revenues $ 19,396,900
Loss from operations (958,859)
Net loss (176,762)
Net loss per common share $ (0.01)
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(7) Related Party Transactions
--------------------------
On April 1, 1997, Fortune entered into a Stock Sale and Management
Agreement, whereby, Fortune sold all of the issued and outstanding
common stock of Fortune 21 to a company owned by a stockholder and
former Chairman of the Board for a $1,484,912 note. The note is for a
seven year period with quarterly principal payments of $74,246
beginning April 1, 1999. Interest at the rate of 10% was charged for
the first six months and 8% per year thereafter and is payable
quarterly starting January 2, 1998. Fortune receives a management fee
of $10,000 per month for the first six months and $5,000 per month
thereafter.
Additionally, Fortune entered into an agreement to provide Fortune 21 a
revolving line of credit. The line is for a five year period that
matures on March 31, 2002. No principal payments are required until the
fifth year at which time quarterly payments equal to one forth of the
outstanding balance must be made and no additional borrowings can be
made in the fifth year. Interest on the line is at 10% for the first
six months and 8% thereafter and is calculated quarterly on the average
outstanding balance during the quarter. As of December 31, 1997,
$1,361,438 has been drawn on the line with accrued interest of $159,384
due on the note and line of credit.
The total notes receivable and accrued interest under these two
agreements was $3,005,734 as of December 31, 1997, and is secured by
1,500,000 shares of common stock of the Company held by the
stockholder.
Office/warehouse space, furniture and equipment for the operations in
Florida is rented from Fortune 21. The amount charged is approximately
$3,800 per month. Total payments for the nine months ended December 31,
1997 are approximately $15,000.
(8) Supplemental Cash Flow Information
----------------------------------
The following table supplements the Consolidated Statement of Cash
Flows and sets forth information relating to Fortune's acquisitions of
certain businesses and sale of Fortune 21:
Fair value of assets acquired $ 184,010
Liabilities assumed 25,105
Related party notes receivable
on sale of Fortune 21 1,479,469
(9) Joint Venture Agreement
-----------------------
On December 1, 1997 a joint venture agreement was entered into among
First Resource, Inc. (FRI, a wholly-owned subsidiary of the Company),
Blair Investment Properties, Inc. (Blair) and Home Buyers of America
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
(HBA) to develop a marketing program for the sale of training seminars,
coaching and materials on how to make money buying real estate. Blair
and HBA will contribute $400,000 to the venture to offset marketing
costs. FRI will market, operate and manage the program. The parties to
the agreement will split any net profits and bear any losses on a 50%
basis to FRI and 50% basis to Blair and HBA. Net profits are defined as
all revenues generated as a result of the program less all direct costs
and a reasonable allocation of certain overhead costs, as defined, for
managing the program. The agreement is for a five-year period but can
be cancelled at anytime by either party. If expiration or termination
cancels the agreement none of the parties can participate in a similar
program anywhere in the United States for a two-year period.
As of December 31, 1997, Blair and HBA had contributed $150,000 which
was used to offset marketing costs and has accordingly reduced cost of
sales expense in the accompanying Consolidated Statement of Operations.
(10) Capital Transactions
--------------------
Preferred Stock
The Company entered into a $20,000,000 credit facility (the
"Agreement") dated October 28, 1997, which was ultimately contingent on
the Company becoming effective on a registration statement with the
Securities and Exchange Commission no later than 120 days subsequent to
the initial closing date. On October 28, 1997, the Company issued
20,000 shares of its 5% Convertible Series A Preferred Stock (Series A
Preferred Stock) and Warrants to purchase 500,000 shares of Common
Stock for a net cash consideration of $1,610,000 ($2,000,000 gross
proceeds less direct offering costs of $390,000). The Warrants allow
the Investors to purchase an aggregate of 500,000 shares of Common
Stock for three years at the following prices: (i) 250,000 shares at a
price of $5.00 per share, and (ii) 250,000 shares at a price of $6.00
per share. Of the net cash consideration received, $300,000 was
assigned as the value of the warrants.
Effective March 27, 1998, the agreement was amended. As provided for by
the amendment, the parties agree that neither of them would have the
obligation to purchase or sell additional shares of the Series A
Preferred Stock. All penalties, defaults and price adjustments provided
for under the October Agreement were waived under the terms of the
Amendment. The Company remains obligated to use its best efforts to
process expeditiously a registration statement. In the event a
registration statement does not become effective by July 27, 1998, or
in the alternative, if the Company or other persons are not able to
provide the Selling Security Holders with shares of Common Stock of the
Company which would have the rights and benefits comparable to shares
of Common Stock registered under the Securities Act, the Selling
Security Holders would have the right to put their shares of Series A
Preferred Stock at stated value plus accrued and unpaid dividends and
foreclose on collateral provided to them under the October Agreement.
The Selling Security Holders agreed to extend to the Company a grace
period of 60 days from the end of July 27, 1998 in which the Company
would have the right to exercise a redemption option and make a
one-time payment equal to 120% of the stated value of the Preferred
Stock to be acquired. At such time as the registration statement
becomes effective, the Company also has a right to a redemption option
to acquire 10% of the Series A Preferred Stock on a monthly basis over
(Continued)
<PAGE>
FORTUNE FINANCIAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
a 10-month period (i.e., 2,000 shares of Series A Preferred Stock each
month) at a redemption price of 120% of the stated value of such shares
of Series A Preferred Stock. In addition, on or prior to the earlier of
July 27, 1998 or the date a registration statement becomes effective,
the Company will have the right to redeem, in whole or in part, and
from time to time, the Series A Preferred Stock at 110% of the stated
value of the Series A Preferred Stock and without payment of accrued
but unpaid dividends.
As modified by the Amendment, at the option of each of the Selling
Security Holders, the Series A Preferred Stock may be converted at any
time into shares of the Company's Common Stock equal in number to the
amount to be determined by dividing $100.00 (representing the stated
value thereof) by a percentage of the average closing price of the
Company's Common Stock over the 10-day trading period ending on the day
prior to the conversion of the Series A Preferred Stock less a discount
of 17%. The Selling Security Holders, however, have agreed to convert
not more than 10% of the Series A Preferred Stock during any 30-day
period for a total of 10 months beginning on the earlier of the date
hereof or the date of effectiveness of a Registration Statement.
Common Stock
On May 2, 1997, Fortune purchased Internet Development, Inc. (IDI) in
exchange for 1,000,000 shares of common stock. The stock was valued at
fair market value. The estimated fair value of the assets acquired
approximate net book value and therefore, no goodwill was recorded.
On July 2, 1997, Fortune issued 10,000 shares of common stock as part
of a short-term loan agreement. The Company recorded $2,000 in the note
receivable from stockholder related to this issuance.
On July 14, 1997, Fortune purchased Gateway Management International,
Inc., an educational and distribution company, which has marketing
rights to various educational materials in exchange for 1,000,000
shares of common stock. The stock was valued based upon the estimated
fair value of the assets acquired which consisted solely of marketing
rights and is classified as Goodwill on the Consolidated Balance Sheet.
Management believes that no impairment of the value has occurred since
the date of acquisition. Subsequent to the purchase, Gateway's sole
shareholder became the CEO and President of Fortune.
On July 25, 1997, Fortune sold 625,000 shares of common stock under
rule 504 of the Securities and Exchange Act to a single investor, in
exchange for $1,000,000 in cash.
On August 21, 1997, Fortune issued 1,000 shares of common stock to each
of six employees and recorded in selling, general and administration
the $6,000 related to these issuances.
<PAGE>
ADDITIONAL INFORMATION
The Company intends to furnish to its shareholders annual reports,
which will include financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or as may be required
by law, including Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at certain of the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's website (http://www.sec.gov.). In
addition, following approval of the Common Stock for quotation on The Nasdaq
SmallCap Market, reports and other information concerning the Company may be
inspected at the office of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 78.751 of the General Corporation Law of Nevada, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. A corporation may indemnify against
expenses (including attorneys' fees) and, other than in respect of an action by
or in the right of the corporation, against judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification of expenses may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action was brought shall determine that, despite
the adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 78.751 of
the General Corporation Law of Nevada further provides that to the extent a
director, officer, employee or agent of the corporation has been successful in
the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
The Company's Articles of Incorporation provide that no director or
officer of the Company shall be personally liable to the Company or its
stockholders for breach of fiduciary duty as a director or officer involving any
act or omission in such capacity, provided that the foregoing will not limit the
liability of such officers and directors for acts or omissions involving
intentional misconduct, fraud or knowing violation of the law, or the payment of
dividends in violation of Nevada law. The Company's By-Laws provide that the
Company will indemnify its directors and officers for liabilities arising by
reason of having served the Company in such capacity or where such officer or
director is adjudged to be liable for negligence or misconduct in connection
with actions performed on behalf of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter provision, by-law, contract, arrangement,
statute 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.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Company in connection with the
issuance and distribution of the securities being registered (other than
II-1
<PAGE>
underwriting discounts and commissions and the Representative's nonaccountable
expense allowance) are as follows:
Securities and Exchange Commission registration fee.. $ 1,696.25
Legal fees and expenses.............................. 16,000.00
Accounting fees and expenses......................... 10,000.00
Printing expenses.................................... 8,000.00
Miscellaneous........................................ 1,303.75
Total $ 37,000.00
Item 26. Recent Sales of Unregistered Securities
The following information sets forth certain information with respect
to all securities of the Company sold by it in the past three years. During such
period no securities were registered under the Securities Act of 1933, as
amended (the "Securities Act").
The Company did, however, issue shares of Common Stock as consideration
in the following transactions, all of which were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) Regulation D
thereof. The shares issued in these offerings bear a restrictive legend
indicating they are subject to transfer restrictions and not freely tradeable
pursuant to the Securities Act and Rule 144 promulgated thereunder.
On October 28, 1997, the Company issued an aggregate of 20,000 shares
of its Series A Preferred Stock and common stock purchase warrants to purchase
500,000 shares of common stock to Deere Park Capital Management, Inc. and
Profutures Special Equities Fund, L.P.
On August 21, 1997, the Company issued 1,000 shares of common stock to
each of six employees.
In July 1997, the Company issued 625,000 shares of common stock under
rule 504 to a single investor, in exchange for $1,000,000.00.
On July 14, 1997, the Company issued 1,000,000 shares to the
shareholders of Gateway Management pursuant to an acquisition agreement between
the Company and Gateway.
On July 2, 1997, the Company issued 10,000 shares of common stock to
Norm Kaufman as partial payment of interest on a short-term loan.
On May 2, 1997, the Company issued 1,000,000 shares to the shareholders
of Internet Development pursuant to an acquisition agreement between the Company
and Internet Development, Inc.
On March 22, 1997, the Company issued 1,060,000 shares of Common Stock
to Professional Marketing, Inc. in connection with the acquisition of the stock
of PMI.
On February 23, 1997, the Company issued James Etter, Robert Nelson,
II-2
<PAGE>
and Jennifer Brenner, 35,700, 42,850 and 500 shares, respectively, of the
Company's Common Stock. These shares were issued to the above-named individuals
in connection with a subscription for shares.
On February 7, 1997, the Company issued a total of 6,200,000 shares of
its Common Stock pursuant to the terms of a contribution and operating agreement
with Peter R. Morris and Success Holdings, LLC. These securities were issued in
consideration for a minimum of $500,000 in cash, $3,000,000 in media credits and
certain licensing rights to trademarks intellectual property owned by Success.
In addition, Mr. Morris agreed to guarantee a $250,000 credit line for use by
the Company.
On November 5, 1996, the Company issued 25,000 shares of its Common
Stock in connection with the acquisition of certain real estate educational
materials owned by Real Estate Link, Inc. An additional 12,500 shares were
issued on February 23, 1997 to Real Estate Link, Inc. in connection with a
subscription agreement.
On September 30, 1996, the Company issued 1,000,000 shares as
consideration for the acquisition of all of the assets of Performance Link, Inc.
by the Company's then wholly-owned subsidiary, Fortune 21. These shares were
issued to James J. Francis, a former officer and director of the Company and
PLI's sole shareholder.
On September 10, 1996, the Company issued 6,000,000 shares of its
Common Stock to James S. Byrd and Douglas Shane Hackett, who were officers and
directors of the Company pursuant to an agreement between the Company and
Fortune 21, Inc. Subsequent to the transaction, the Company issued additional
shares to each of Messrs. Byrd and Hackett on November 5, 1996 in the amount of
500,000 shares each in consideration for an additional $73,758 capital
contribution from each individual. These shares included 2,000,000 shares of
stock previously issued to Byrd in July 1996, 1,000,000 of which were assigned
to Hackett in August 1996.
On June 25, 1994, the Company issued 1,903,703 shares of its Common
Stock to all of the shareholders of VTS in exchange for their shares.
Item 27. Exhibits.
Exhibit Number
3.1 Articles of Incorporation of Fortune Financial Systems, Inc. as Amended
3.2 By-Laws of Incorporation of Fortune Financial Systems, Inc. (Merged)
4.1 Form of Common Stock Certificate
5.0 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (to be filed later bY
amendment)
10.1 Exchange Agreement between VTS and USMS, dated June 25, 1994
10.2 Exchange Agreement between USMS and Fortune 21, Inc.,
dated September 10, 1996
II-3
<PAGE>
10.3 Contribution and Operating Agreement among the Company,
Byrd, Hackett, Success and Morris, dated February 7, 1997
10.4 License Agreement between Success Holdings, LLC dated
February 7, 1997
10.5 Acquisition Agreement between the Company and Professional
Marketing, Inc., dated March 22, 1997
10.6 Fortune 21, Inc. Agreement, dated April 1, 1997
10.7 Acquisition Agreement between the Company and Internet
Development, Inc., dated May 3, 1997
10.8 Acquisition Agreement between the Company and
Gateway Management International, Inc., dated July 14, 1997
10.9 Employment Agreement between the Company and Douglas
Shane Hackett, dated February 7, 1997
10.10 Employment Agreement with the Company and Roger C. Royce, dated
July 28, 1997
10.11 Consulting Agreement between James S. Byrd, Jr. and the Company,
dated , December 31, 1997
10.12 Deere Park Capital Management, Inc. and Profutures Special Equities
Fund, L.P. Private Equity Line of Credit Agreement, dated October 28,
1997
23 Consent of Parks, Tschopp, Whitcomb & Orr, P.A. Certified Public
Accountants
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. [contained in such
firm's opinion filed as Exhibit 5.1]
24 Power of Attorney relating to the signing of amendments
hereto is incorporated in the signature pages of this
Registration Statement
27 Financial Data Schedule
Item 28. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this Registration
Statement:
II-4
<PAGE>
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the
plan of distribution.
(2) For determining any liability under the Securities Act of
1933, as amended, treat each post-effective amendment as a new registration
statement relating to the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of Salt
Lake City, State of Utah on April 10, 1998.
FORTUNE FINANCIAL SYSTEMS, INC.
/s/ Roger C. Royce
By: _____________________________
Roger C. Royce, President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Roger C. Royce and such person true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities (including such persons' capacity as a director and/or
officer of Fortune Financial Systems, Inc. to sign any and all amendments
(including post-effective amendments pursuant to Rule 462(b) or otherwise) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
Chairman, President,
Chief Executive Officer,
/s/ Roger C. Royce and Director April 10, 1998
- ----------------------------
Roger C. Royce
<PAGE>
Executive Vice President
/s/Douglas S. Hackett and Director April 10, 1998
- -----------------------
Douglas S. Hackett
Vice President, Chief Financial
Officer, Secretary, Treasurer
/s/ Stephen H. Ross and Director April 10, 1998
- ----------------------------
Stephen H. Ross
/s/ Steve Comer Director April 10, 1998
- ----------------------------
Steve Comer
/s/ Steve G. Thorne Director April 10, 1998
- ----------------------------
Steve Thorne
SECRETARY of STATE )
) SS:
STATE of NEVADA )
CERTIFICATE OF EXISTENCE
WITH STATUS IN GOOD STANDING
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that I am, by the laws of said State, the custodian of the
records relating to filings by corporations, limited-liability companies,
limited partnerships, and limited-liability partnerships pursuant to Title 7 of
the Nevada Revised Statutes which are either presently in a status of good
standing or were in good standing for a time period subsequent of 1976 and am
the proper officer to execute this certificate.
I further certify that the records of the Nevada Secretary of State, at the date
of this certificate, evidence, FORTUNE FINANCIAL SYSTEMS, INC., as a
corporation, duly organized under the laws of Nevada and existing under and by
virtue of the laws of the State of Nevada since June 6, 1994, and is in good
standing in this state.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of
State, at my office, in Carson City, Nevada, on November 25, 1996.
/s/ Dean Heller
- ---------------
Secretary of State
/s/ Certification Clerk
- -----------------------
Certification Clerk
<PAGE>
SECRETARY of STATE )
) SS:
STATE of NEVADA )
CERTIFICATE OF NAME CHANGE
I, DEAN HELLER, the duly qualified and elected Nevada Secretary of State, do
hereby certify that on October 15, 1996, a Certificate of Amendment to its
Articles of Incorporation changing the name to FORTUNE FINANCIAL SYSTEMS, INC.,
was filed in this office by FORTUNE 21, INCORPORATED. Said change of name has
been made in accordance with the laws of the State of Nevada and that said
Certificate of Amendment is now on file and of record in this office.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of
State, at my office, in Carson City, Nevada, on JULY 8, 1997.
/s/ Dean Heller
- ---------------
Secretary of State
/s/ Certification Clerk
- -----------------------
Certification Clerk
<PAGE>
ARTICLES OF INCORPORATION
-------------------------
OF
--
U.S. MEDICAL SERVICES INC.
FIRST. The name of the corporation is: U.S. MEDICAL SERVICES INC.
SECOND. It's registered office in the State of Nevada is located at
2533 North Carson Street, Carson City, Nevada 89706 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage
in any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges, and powers as may be conferred
upon corporations by any existing law.
(B) May at any time exercise such rights, privileges, and powers when
not inconsistent with the purposes and objects for which this corporation is
organized.
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited , perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts
(F) Shall have power to hold, purchase, and convey real and personal
estate and to mortgage or lease any such real and personal estate with its
franchises. The power to hold real and personal estate shall include the power
to take the same by devise or bequest in the State of Nevada, or in any other
state, territory, or country.
(G) Shall have the power to appoint such officers and agents as the
affairs of the corporation shall require, and to allow them suitable
compensation.
(H) Shall have the power to make By-Laws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation, and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holdings of
meetings of its stockholders.
<PAGE>
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolve.
(J) Shall have the power to adopt and use a common seal or stamp, and
alter the same at pleasure. The use of a seal or stamp, if it desires, but such
use or non use shall not in any way affect the legality of the document.
(K) Shall have power to borrow money and contract debts when necessary
for the transaction of its corporate rights, privileges or franchises, or for
any other lawful purpose of its incorporation; to issue bonds, promissory notes,
bills of exchange, debentures, and other obligations and evidences of
indebtedness, payable at a specified time or times, or payable upon the
happening of a specified event or events, whether secured by mortgage, pledge or
otherwise, or unsecured, for money borrowed, or in payment for property
purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created by,
any other corporation or corporations of the State of Nevada, or any state in
government, and, while owners of such stock, bonds, securities, or evidences of
indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its
own capital stock, and use therefore its capital, capital surplus, surplus, or
other property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase, mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and other
countries.
(O) Shall have power to do all and everything necessary and proper for
the accomplishment of the objects in its certificates or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporations, and, in general, to carry on any
lawful business necessary or incidental to the attainment of the objects of the
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation, or any amendment
thereof.
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter partnerships, general or limited, or
joint ventures, in connection with any lawful activities.
FOURTH. That the total number of voting common stock authorized that
may be issued by the Corporation is TWENTY-FIVE MILLION (25,000,000) shares of
<PAGE>
stock at $.001 par value and no other class of stock shall be authorized. Said
shares with a par value of $.001 may be issued from time to time by the Board of
Directors.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may be from time to time be increased or
decreased in such a manner as shall be provided by the By-laws of this
corporation, providing that he number of directors shall not be reduced to fewer
than one (1).
The name and post office address of the first Board of Directors shall
be (1) in number and listed as follows:
NAME POST OFFICE AND ADDRESS
---- -----------------------
Betty J. Elpern 2533 North Carson Street
Carson City, Nevada 89706
SIXTH. The capital stock, after the amount of the subscription price,
or pay the debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing
the Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Betty J Elpern 2533 North Carson Street
Carson City, Nevada 89706
EIGHTH. The resident agent for this corporation shall be:
LAUGHLIN ASSOCIATES, INC.
The address of said agent, and, the registered or stationary address of this
corporation in the State of Nevada, shall be:
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to By-Laws of the Corporation, if any, adopted by the
stockholders, to make, alter or amend the By-Laws of the Corporation..
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one
<PAGE>
(1) or more committees, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
or in the By-Laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of business and affairs of the
Corporation. Such committee, or committees, shall have such name, or names, as
may be stated in the By-laws of the Corporation, or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders
holding stock entitling them to exercise at least a majority of the voting power
given at a Stockholders meeting called for that purpose, or when authorized by
the written consent of the holders of at least a majority of the voting stock
issued and outstanding, the Board of Directors shall have power and authority at
any meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its Board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer, provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or knowing violation of
the law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statues. Any repeal or modification of the Article by the
stockholders of the Corporation for acts or omissions prior to such repeal or
modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change
or repeal any provision contained in the Articles of Incorporation, in the
manner now or hereafter prescribed by statue, or by the Articles of
Incorporation, and all rights conferred upon Stockholders herein are granted
subject to this reservation.
<PAGE>
I, THE UNDERSIGNED, being the Incorporator named for the purpose of
forming a Corporation pursuant to the General Corporation law of the State of
Nevada, do make and file these Articles of Incorporation, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 3rd day of June, 1994.
/s/ Betty J. Elpern
- -------------------
Betty J, Elpern
STATE OF NEVADA )
) SS:
CARSON CITY )
On this 3rd day of June, 1994, in Carson City, Nevada, before me, the
undersigned, a Notary Public in and for Carson City, State of Nevada, personally
appeared:
Betty J. Elpern
Known to me to be the person whose name is subscribed to the foregoing document
and acknowledged to me that he executed the same.
/s/ Beverly Thompson
- --------------------
Notary Public
I, Laughlin Associated, Inc. hereby accept as resident Agent for the previously
named Corporation.
6/3/94
/s/ Betty J. Elpern
- -------------------
Service Coordinator
U.S. MEDICAL SERVICES INC.
--------------------------
BY-LAWS
ARTICLE I MEETINGS OF STOCKHOLDERS
- ------------------------------------
1. Stockholders' Meetings shall be held in the office of the
corporation, at Carson City, NV, or at such other place or places as the
Directors shall from time to time determine.
2. The annual meeting of the stockholders of this corporation shall be
held at 11:00 a.m., on the 6th day of June of each year beginning in 1995, at
which time there shall be elected by the stockholders of the corporation a Board
of Directors for the ensuing year, and the stockholders shall transact such
other business as shall properly come before them.
3. A notice signed by any officer of the corporation or by any person
designated by the Board of Directors, which sets forth the place of the annual
meeting, shall be personally delivered to each of the stockholders of record, or
mailed postage prepaid, at the address as appears on the stock book of the
company, or if no such address appears in the stock book of the company, to his
last known address, at least ten (10) days prior to the annual meeting.
Whenever any notice whatever is required to be given under any article
of these ByLaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time of the meeting of the
stockholders, shall be deemed equivalent to proper notice.
4. If a quorum is not present at the annual meeting, the stockholders
present, in person or by proxy, may adjourn to such future time as shall be
agreed upon by them, and notice of such adjournment shall be mailed, postage
prepaid, to each stockholder of record at least ten (10) days before such date
to which the meeting was adjourned; but if a quorum is present, they may adjourn
from day to day as they see fit, and no notice of such adjournment need be
given.
5. Special meetings of the stockholders may be called at anytime by the
President; by all of the directors provided there are no more than three, or if
more than three, by any three Directors; or by the holder of a majority share of
the capital stock of the corporation. The Secretary shall send a notice of such
called meeting to each stockholder of record at least ten (10) days before such
meeting, and such notice shall state the time and place of the meeting, and the
object thereof. No business shall be transacted at a special meeting except as
stated in the notice to the stockholders, unless by unanimous consent of all
stockholders present, either in person or by proxy, all such stock being
represented at the meeting.
6. A majority of the stock issued and outstanding, either in person or
by proxy, shall constitute a quorum for the transaction of business at any
meeting of the stockholders.
<PAGE>
7. Each stockholder shall be entitled to one vote for each share of
stock in his own name on the books of the company, whether represented in person
or by proxy.
8. All proxies shall be in writing and signed.
9. The following order of business shall be observed at all meetings of
the stockholders so far as is practicable:
a. Call the roll;
b. Reading, correcting and approving of the minutes of
the previous meeting;
c. Reports of officers;
d. Reports of Committees;
e. Election of Directors;
f. Unfinished business; and
g. New business.
ARTICLE II STOCK
- -----------------
1. Certificates of stock shall be in a form adopted by the Board of
Directors and shall be signed by the President and Secretary of the Corporation.
2. All certificates shall be consecutively numbered; the name of the
person owning the shares represented thereby, with the number of such shares and
the date of issue shall be entered on the company's books.
3. All certificates of stock transferred by endorsement thereon shall
be surrendered by cancellation and new certificates issued to the purchaser or
assignee.
ARTICLE III DIRECTORS
1. A Board of Directors, consisting of at least one (1) person shall be
chosen annually by the stockholders at their meeting to manage the affairs of
the company. The Directors' term of office shall be one (1) year, and Directors
may be re-elected for successive annual terms.
2. Vacancies on the board of Directors by reason of death, resignation
<PAGE>
or other causes shall be filled by the remaining Director or Directors choosing
a Director or Directors to fill the unexpired term.
3. Regular meetings of the Board of Directors shall be held at 1:00 p.
m., on the 6th day of June of each year beginning in 1995 at the office of the
company at Carson City, NV, or at such other time or place as the Board of
Directors shall by resolution appoint; special meetings may be called by the
President or any Director giving ten (10) days notice to each Director. Special
meetings may also be called by execution of the appropriate waiver of notice and
call when executed by a majority of the Directors of the company. A majority of
the Directors shall constitute a quorum.
4. The Directors shall have the general management and control of the
business and affairs of the company and shall exercise all the powers that may
be exercised or performed by the corporation, under the statutes, the
certificates of incorporation, and the ByLaws. Such management will be by equal
vote of each member of the Board of Directors with each Board member having an
equal vote.
5. A resolution, in writing, signed by all or a majority of the members
of the Board of Directors, shall constitute action by the Board of Directors to
effect therein expressed, with the same force and effect as though such
resolution had been passed at a duly convened meeting; and it shall be the duty
of the Secretary to record every such resolution in the Minute Book of the
corporation under its proper date.
ARTICLE IV OFFICERS
- --------------------
1. The officers of this company shall consist of: a President, one or
more Vice Presidents, Secretary, Treasurer, and such other officers as shall,
from time to time, be elected or appointed by the Board of Directors.
2. The PRESIDENT shall preside at all meetings of the Directors and the
Stockholders and shall have general charge and control over the affairs of the
corporation subject to the Board of Directors. He shall sign or countersign all
certificates, contracts and other instruments of the corporation as authorized
by the Board of Directors and shall perform all such other duties as are
incident to his office or are required by him by the Board of Directors.
<PAGE>
3. The VICE PRESIDENT shall exercise the functions of the President
during the absence or disability of the President and shall have such powers and
such duties as may be assigned to him from time to time by the Board of
Directors.
4. The SECRETARY shall issue notices for all meetings as required by
the ByLaws, shall keep a record of the minutes of the proceedings of the
meetings of the Stockholders and Directors, shall have charge of the corporate
books, and shall make such reports and perform such other duties as are incident
to his office, or properly required of him by the Board of Directors. He shall
be responsible that the corporation complies with Section 78.105 of the Nevada
Corporation Laws and supplies to the Nevada Resident Agent or Registered Office
in Nevada, any and all amendments to the Corporation's Articles of Incorporation
and any and all amendments or changes to the By-Laws of the Corporation. In
compliance with Section 78.105, he will also supply to the Nevada Resident Agent
or Registered Office in Nevada, and maintain, a current statement setting out
the name of the custodian of the stock ledger or duplicate stock ledger, and the
present and complete Post Office address, including street and number, if any,
where such stock ledger or duplicate stock ledger specified in the section is
kept.
5. The TREASURER shall have the custody of all monies and securities of
the corporation and shall keep regular books of account. He shall disburse the
funds of the corporation in payment of the just demands against the corporation,
or as may be ordered by the Board of Directors, making proper vouchers for such
disbursements and shall render to the Board of Directors, from time to time, as
may be required of him, an account of all his transactions as Treasurer and of
the financial condition ot the corporation. He shall perform all duties incident
to his office or which are properly required of him by the Board of Directors.
6. The RESIDENT AGENT shall be in charge of the corporation's
registered office in the State of Nevada, upon whom process against the
corporation may be served and shall perform all duties required of him by
statute.
7. The salaries of all officers shall be fixed by the Board of
Directors and may be changed from time to time by a majority vote of the Board.
8. Each of such officers shall se ve for a term of one (1) year or
until their successors are chosen and qualified. Officers may be reelected or
appointed for successive annual terms.
9. The Board of Directors may appoint such other officers and agents,
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
<PAGE>
ARTICLE V INDEMNIFICATION OF OFFICERS AND DIRECTORS
- -----------------------------------------------------
1. The corporation shall indemnify any and all of its Directors and
Officers, and its former Directors and Officers, or any person who may have
served at the Corporations request as a Director or Officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
Director(s) or Officer(s) of the corporation, or of such other corporation,
except, in relation to matters as to which any such Director or Officer or
former Director or Officer or person shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of
ditty. Such indemnification shall not be deemed exclusive of any other rights to
which those indemnified may be entitled, under By-Law, agreement, vote of
stockholders or otherwise.
ARTICLE VI AMENDMENTS
- -----------------------
1. Any of these By-Laws may be amended by a majority vote of the
stockholders at any annual meeting or at any special meeting called for that
purpose.
2. The Board of Directors may amend the By-Laws or adopt additional
ByLaws, but shall not alter or repeal any By-Laws adopted by the stockholders of
the company.
CERTIFIED TO BE THE BY-LAWS OF:
U.S. MEDICAL SERVICES INC.
By: /s/ Jan Knott
-------------
Secretary
- --------------------------------------------------------------------------------
FORTUNE FINANCIAL SYSTEMS, INC.
Incorporated under the laws of the state of Nevada
25,000,000 common stock authorized, $.001 par value
This
certifies
that
CUSIP 34965A 10 9
SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
FORTUNE FINANCIAL SYSTEMS, INC.
Transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
This certificate and the shares represented hereby are subject
to the laws of the State of Nevada, and to the
Certificate of Incorporation and Bylaws of the Corporation,
as now or hereafter amended.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the signature of its
duly authorized officers.
DATED
PRESIDENT SECRETARY
Fortune Financial Systems, Inc.
Corporate Seal
Nevada
- --------------------------------------------------------------------------------
EXCHANGE AGREEMENT
This Exchange Agreement is made this 25th day of June, 1994 by and between:
VANCOUVER TAX SHELTER AND INVESTMENT SEMINARS INC., a company formed under the
laws of the British Columbia, Canada, hereafter ("VTS), its assignee, designee,
or nominee and the shareholders of the said VTS ("VTS SHAREHOLDERS").
WHEREAS, VTS desires to exchange (the "EXCHANGE") the shares VTS owns
in its wholly owned subsidiary U.S. MEDICAL SERVICES, INC., ("USM") a Nevada
corporation, with the shares currently held by VTS SHAREHOLDERS in VTS, on a
share for share basis in accordance with the terms and conditions of this
Agreement: and
WHEREAS, the VTS SHAREHOLDERS desire the said EXCHANGE in accordance
with the terms and conditions of this Agreement: and
WHEREAS, VTS and VTS SHAREHOLDERS desire to facilitate the EXCHANGE
provided for herein.
NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements of the parties contained herein, the parties, intending to be legally
bound hereby, agree as follows:
1. EXCHANGE OF SHARES. VTS shall deliver to the VTS SHAREHOLDERS,
ONE MILLION NINE HUNDRED AND THREE THOUSAND, TWO HUNDRED AND
THREE (1,903,203) SHARES of VTS, in EXCHANGE for ONE MILLION
NINE HUNDRED AND THREE THOUSAND TWO HUNDRED AND THREE
(1,903,203) SHARES of VTS, for the cancellation and the
winding-up of VTS.
2. CLOSING DATE. This transaction shall be closed pursuant to the
terms and conditions herein on the date of execution of this
Agreement at midnight on June 25, 1994 at Vancouver, British
<PAGE>
Columbia. The Date of Execution of this transaction is herein
called the "Closing Date". The actions outlined in Section 3,
which are to take place within seven (7) days of the closing
date are as follows.
3. CLOSING. At Closing, the parties shall take the following
actions:
3.1. Transfer of Shares. VTS shall deliver to the VTS
SHAREHOLDERS the VTS SHARES, upon the terms and
subject to the conditions set forth in this
Agreement. VTS shall deliver to the VTS SHAREHOLDERS
the VTS SHARES free and clear of all claims and
encumbrances, and any restrictive legends. The VTS
SHARES will be registered in the name of each
individual VTS SHAREHOLDER.
3.2 Transfer Agent Instructions. VTS will instruct its
Transfer Agent to issue the said VTS share
certificates in exchange for the VTS SHARES without
restrictive legend in the name of each individual VTS
SHAREHOLDERS pursuant to this Agreement.
4. SECURITIES ACT OF 1933 AND RESTRICTIONS. VTS covenants and
agrees to the VTS SHAREHOLDERS as follows:
a) VTS understands that the SHARES acquired pursuant to
this Agreement do not require to be restricted under
the 1933 Act with the Securities and Exchange
Commission in reliance upon the exemption from such
restriction requirements afforded by the
reorganization provisions of the 1933 Act, governing
the replacement of shares of an original offering:
(the 1991 offering).
b) VTS hereby represents and warrants that it is a
company duly formed under the laws of the British
Columbia with principal executive and administrative
<PAGE>
offices located outside the U.S.
c) VTS represents and warrants that USM, is a
corporation duly formed under the laws of the State
of Nevada, U.S.A., on June 6, 1994 and that it is a
wholly owned subsidiary of VTS.
5. CONDITIONS OF BOTH PARTIES OBLIGATIONS TO CLOSE. For the
purposes of paragraph 5 through 15 only of this Agreement:
(i) "VTS" SHALL INCLUDE BOTH VTS AND ITS WHOLLY
OWNED SUBSIDIARY USM, and
(ii) the following shall be the conditions of VTS
and VTS SHAREHOLDERS ("BOTH PARTIES")
obligations to close hereunder:
5.1 Representations and Warranties of Both Parties.
Representations and Warranties made by BOTH PARTIES
to this Agreement shall be true and correct as of the
Closing Date.
5.2 No Default - Covenants and Agreement. BOTH PARTIES
shall not be in material default with respect to any
obligation under this Agreement and both shall have
performed or complied with all covenants, agreements,
and conditions to be performed or complied with prior
to, or at, the Closing.
6. REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES.
BOTH PARTIES represent and warrant to the other that the
statements contained in Sections 6.1 through 6.9 are true and
correct on the date hereof.
6.1 Corporate Standing. VTS is a corporation duly
organized, validly existing, and in good standing
under the laws of British Columbia, and it has full
power and authority to enter into this Agreement and
<PAGE>
to carry out the transactions contemplated hereby.
The execution and delivery of this Agreement by VTS
does not, and the consummation of the transactions
contemplated hereby will not, violate or result in a
breach of any provisions of VTS'S Charter of Bylaws.
6.2 Capital Stock. The authorized capital stock of the
VTS consists of Two Million Five Hundred Thousand
(2,500,000) shares of Common Stock without par value
of which the amount nine hundred and ONE MILLION NINE
HUNDRED AND THREE THOUSAND TWO HUNDRED AND THREE
THOUSAND (1,903,203) SHARES of Common Stock have been
validly issued and are outstanding, fully paid and
nonassessable as of June 25, 1994.
6.3 Authority. VTS has full power and authority to enter
into this Agreement and has taken all action or will
use its best efforts to take all action, corporate
and otherwise, necessary to authorize the execution,
delivery and performance of this Agreement, the
completion of the transactions contemplated hereby
and the execution and delivery on behalf of VTS, of
any and all instruments necessary or appropriate in
order to effectuate fully the terms and conditions of
this Agreement. Upon delivery of the shares and
payment of the purchase price, good title to the VTS
SHARES will pass, free and clear of all restrictions
on transfer, liens, encumbrances, security interest
and claims whatsoever, to the VTS SHAREHOLDERS. Other
than as may be required under the laws of any country
other than the United States of America, or Canada,
no consent or approval of any court, governmental
<PAGE>
agency or other public authority, or of any other
person, corporation or entity with any actual or
alleged interest in VTS is required as a condition to
(a) the validity or enforceability of this Agreement
or any other instruments to be executed by VTS to
effectuate this Agreement, or (b) the completion or
validity of any of the transactions contemplated by
this Agreement. This Agreement has been properly
executed and delivered by the duly authorized officer
of VTS, and constitutes the valid and legally binding
agreement of VTS and is enforceable against VTS in
accordance with its terms.
6.4 Financial Condition. VTS furnished, or made available
to the VTS SHAREHOLDERS, the financial statements
(the "Financial Statements") contained in the VTS'S
records and all 15C2-11 reports filed to date
(collectively, hereafter, the "Reports"). There has
been no material adverse change in, material loss or
destruction of, or material amount of damage to, the
financial condition or business of VTS since the
filing of the most recent Report arising from
transactions whether or not in the ordinary course of
business. The regular books of account of VTS fairly
and accurately reflect all transactions since the
filing of the most recent Report are true, correct
and complete, and are maintained and kept in
accordance with generally accepted accounting
principles consistently applied. VTS has no
liabilities or obligations, whether accrued,
absolute, contingent or otherwise, which would
materially and adversely affect the condition
(financial and otherwise) of VTS, except and to the
extent reflected or reserved against in the balance
sheets included in the Financial Statements or
<PAGE>
otherwise disclosed in the Reports. No dividends are
due or unpaid by VTS.
6.5 Lawsuits and Proceedings. Except as disclosed in the
Financial Statements and Reports, there are no
material actions at law or in equity, governmental
proceedings or investigations pending or to the
knowledge of VTS threatened against the VTS or
against or with respect to the business or assets of
the VTS, and VTS is not in material default with
respect to any decree, injunction or the order of any
court or government authority. Except as disclosed in
the Financial Statements or Reports, VTS is in
substantial compliance with and has not received any
notice of any claimed violation of, any material
federal, state, county or municipal laws, ordinances,
and regulation, and there is no action at law or in
equity, arbitration proceeding, governmental
proceeding or investigation, or motion or request to
any court, pending or to the knowledge of VTS
threatened, against or with respect to VTS with
respect to this Agreement or any of the transactions
contemplated hereby.
6.6 Taxes. VTS knows of no outstanding claims against VTS
for taxes which constitute a lien on the shares being
sold hereunder.
6.7 Extraordinary Transactions. Since the filing of the
VTS's most recent Report, VTS has not:
(i) mortgaged, pledged or subjected to lien,
charge or any other encumbrance any of its
assets;
(ii) except in the ordinary course of business,
sold or transferred any of its assets;
(iii) made any management decisions involving any
<PAGE>
material change in itspolicies with regard
to the provision of services, sales,
purchasing or the business, financial,
accounting (including reserves and the
amounts thereof) or tax policies or
practices; or
(iv) declared or paid any dividends on, or made
any distributions in respect of any
outstanding shares of capital stock of VTS.
6.8. Adverse Circumstances. Except as disclosed in the
Reports or described herein, to the best knowledge of
VTS, there are o facts, developments or
circumstances, existing or threatened, of a special
or unusual nature that may be materially adverse to
the assets, business, financial condition or future
prospects of VTS.
7. COVENANTS AND AGREEMENTS OF VTS SHAREHOLDERS. The VTS
SHAREHOLDERS hereby Covenants and agrees as follows:
7.1 Action. As of the execution of this Agreement by the
VTS SHAREHOLDERS the VTS SHAREHOLDERS shall take all
action necessary or appropriate to authorize the
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
7.2 Impairment - Representation and Warranties. VTS
SHAREHOLDERS shall not take any action or fail to
take any action without prior written approval of VTS
which might cause any representation or warranty of
VTS SHAREHOLDERS made herein not to be true on the
Closing Date, or impair VTS SHAREHOLDER'S ability to
carry out its obligations under this Agreement.
7.3 Due Diligence. VTS SHAREHOLDERS or their agents, have
<PAGE>
had a full opportunity to conduct their due diligence
of VTS in connection with this Agreement to their
complete satisfaction. The VTS SHAREHOLDERS are
familiar with VTS in connection with this Agreement
to its complete satisfaction. The VTS SHAREHOLDERS
are familiar with VTS, its financial condition,
business and prospects, has been provided with the
Reports and with such other information concerning
VTS'S financial and other affairs as VTS SHAREHOLDERS
deem necessary to enter into and perform this
Agreement, has had sufficient opportunity to review
such material and to ask questions and receive
answers to verify the accuracy of such information,
and is not in any way relying upon any information,
representation or warranty (without implying that the
supplying of any such information or the making of
any such representation or warranty has occurred)
that VTS or its officers, directors, employees,
agents and attorneys have provided, or have failed to
provide, to the VTS SHAREHOLDERS in entering into or
performing this Agreement.
8. DELIVERY OF DOCUMENTS BY VTS. At the Closing, and in addition
to all other documents and instruments which VTS is required
to deliver pursuant to this Agreement, VTS shall deliver to
the VTS SHAREHOLDERS the following documents duly executed by
VTS or the directors, officers, or employees of, or counsel to
VTS or appropriate governmental officials, in form and
substance satisfactory to the VTS SHAREHOLDERS and their
counsel.
8.1. Good Standing. A Certificate of good standing from
the Secretary of State of the State of Nevada for
USM.
8.2. Other Documents. Such other documents, certificates
<PAGE>
and instruments relating to the transactions
contemplated by this Agreement as the VTS
SHAREHOLDERS or its counsel may reasonable request or
deem necessary.
9. INDEMNIFICATION. VTS and the VTS SHAREHOLDERS mutually agree
to indemnify and to hold the other harmless from and against
all material damages, losses, costs, liabilities, expenses and
deficiencies, including, without limitation, additional taxes,
and reasonable interest, attorney, accountant and expert
witness fees and expenses (collectively "Material Damages")
that result from or arise out of any misrepresentation, breach
of warranty, or nonfulfillment of any agreement, covenant or
obligation of the other under this Agreement. Each party
agrees to give the other prompt written notice of any event or
assertion of which it has knowledge concerning any Material
Damage to which it may request indemnification hereunder. Each
party will cooperate with the other in determining the
validity of any such claim or assertion. The indemnifying
party hereunder shall have the right to defend with counsel
reasonably satisfactory to the indemnified party any claims
for Material Damages for which the indemnified party has
requested indemnification hereunder, and after notice from the
indemnifying party regarding its assumption of the defense
thereof, the indemnifying party regarding its assumption of
the defense thereof, the indemnifying party shall not be
liable to the indemnified party for any legal or other
expenses subsequently incurred by the reasonable costs of
investigation. Each party agrees not to settle or compromise
any claims for Material damages without the prior written
consent of the other. The obligation of each party to
indemnify the other under this Section, shall terminate on the
anniversary of the Closing Date, except as to matters to which
such party had made a claim for indemnification or given
<PAGE>
written notice of a possible claim for indemnification on or
prior to such date.
10. BROKERAGE FEES. No broker, finder or intermediary is entitled
to receive any brokerage or similar type of commission, fee,
or payment arising out of this transaction, and VTS
SHAREHOLDERS will hold VTS harmless against any claim for such
commission fee or similar type of payment.
11. TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated by the VTS SHAREHOLDERS
without liability of any kind to VTS by written instrument,
signed by the VTS SHAREHOLDERS and delivered at any time on or
prior to the Closing Date, giving notice of termination, if;
(a) There has been a material misrepresentation
or material breach of warranty on the part
of VTS in the representations and warranties
set forth herein or in any Exhibit hereto or
in any share certificate delivered pursuant
hereto or in any share certificate delivered
pursuant hereto, or VTS shall have failed to
perform or comply with, in any material
respect, any covenant, agreement or
condition to be performed or complied with
prior tom or at the Closing.
(b) In the reasonable judgment of the VTS
SHAREHOLDERS the transactions contemplated
by this Agreement have become inadvisable or
impracticable by reasons of: (i) the
announcement or the institution by federal,
state or local authorities of an
investigation of or litigation or
proceedings against VTS which may have a
material and adverse effect on VTS, or the
transactions contemplated hereby; or (ii)
<PAGE>
the commencement since the date of this
Agreement by any other person, corporation
or entity of litigation or proceedings
against or in regard to VTS, which may have
a material and adverse effect upon the
authority or ability of VTS to consummate
the transactions contemplated hereby; or,
(c) the business, assets, results of operations,
financial condition or future prospects of
VTS have been significantly and adversely
affected by reason of changes or
developments in operations, other than in
the ordinary course of business, since the
filing of VTS'S most recent Report as
provided to VTS SHAREHOLDERS.
12. AFFECT AFTER TERMINATION. In the event that this Agreement
shall be terminated in accordance with the provisions of this
Agreement, then all further obligations of each party to the
other under this Agreement shall terminate without further
liability.
13. EXPENSES. All legal, accounting and other costs and fees
incurred by BOTH PARTIES, in connection with the transactions
contemplated by this Agreement shall be borne and paid for by
the party incurring the same.
14. MISCELLANEOUS PROVISIONS.
14.1 Survival of Representations, Warranties and
Covenants. The respective representations,
warranties, covenants and agreements made in this
Agreement by the BOTH PARTIES shall survive Closing
for a period of one (1) year.
14.2. Assignment. This Agreement and all rights and
<PAGE>
obligations hereunder may be assigned by BOTH
PARTIES, in whole or in part, without prior knowledge
and/or written consent of the other party.
14.3 Notices. Any notice, request, instruction or other
document or communication required or permitted to be
delivered in person or by deposit in the mail,
postage prepaid, for mailing by certified or
registered mail, will be made as follows:
If to VTS delivered and mailed to:
Lindsey Kenney
Barristers and Solicitors
110 - 5769 201 A Street
Langley, British Columbia
Canada, V3A 8H9
If to VTS SHAREHOLDERS, delivered and mailed to:
Davis & Co.
Barristers and Solicitors
2800 Park Place
666 Burrard Street
Vancouver, British Columbia
Canada, V6C 2Z7
14.4 Section Headings. Section headings are for the
convenience only and shall not limit or otherwise
affect any provision of this Agreement.
14.5 Entire Agreement. This Agreement and any Exhibits
hereto; constitute the entire agreement and
understanding of the parties hereto with respect to
the matters herein set forth, and all prior
negotiations, writings and understandings relating to
the subject matter of this Agreement are merged
herein and are superseded and canceled by this
Agreement.
14.6. Waivers - Amendments. Any of the terms or conditions
<PAGE>
of this Agreement may be waived, but only in writing
by the party which is entitled to the benefit
thereof, and this Agreement may e amended or
modified, in whole or in part, only by Agreement in
writing, executed by all parties to this Agreement.
14.7. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of British
Columbia, Canada, without regard to conflict of law.
14.8 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed
original as well as by facsimile, but all of which
together shall constitute one and the same
instrument.
THIS AGREEMENT IS HEREBY EXECUTED at the date first mentioned above in
Vancouver, British Columbia.
<PAGE>
VANCOUVER TAX SHELTER AND INVESTMENT SEMINARS, INC.
/s/ Ian Knott June 25, 1994
- -------------
By: Ian Knott, President
U.S. MEDICAL SERVICES, INC.
/s/ Ian Knott June 25, 1994
- -------------
By: Ian Knott, President
SHAREHOLDERS OF
VANCOUVER TAX SHELTER AND INVESTMENT SEMINARS, INC.
/s/ Joshua Jones June 25, 1994
- ----------------
By: Joshua Jones, Spokesperson
SHAREHOLDERS OF VANCOUVER TAX SHELTER
AND INVESTMENT SEMINARS, INC.
EXCHANGE AGREEMENT
------------------
THIS Exchange Agreement is made this 10th day of September, 1996 by and between:
U.S. MEDICAL SERVICES, INC.
A Nevada Corporation
1350 East Flamingo, Ste. 342
Las Vegas, Nev.
(hereinafter "USMS")
and
FORTUNE 21, INC. (Hereinafter "FORTUNE 21")
1200 w. State Road 434
Ste. 112
Longwood, Fla. 32750
WHEREAS, USMS desires to enter the financial and business education and
services business, by exchanging (the "EXCHANGE") new common shares in USMS, in
exchange for all the issued shares in FORTUNE 21, INC. In accordance with the
terms and conditions of this Agreement.
AND WHEREAS, FORTUNE 21 is involved in the financial and business
education and services business, and the shareholders in FORTUNE 21, INC. desire
to invest in USMS and desire the said EXCHANGE in accordance with the terms and
conditions of this Agreement.
AND WHEREAS, USMS and FORTUNE 21, INC., desire to facilitate the
EXCHANGE provided for herein.
<PAGE>
NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements of the parties contained herein, the parties, intending to be legally
bound hereby, agree as follows:
1. EXCHANGE OF SHARES. USMS shall deliver to the FORTUNE 21
shareholders, six million twenty five thousand shares
(6,025,000) common shares of USMS ("USMS SHARES") in EXCHANGE
for six million twenty five thousand shares (6,025,000) common
shares of FORTUNE 21, INC. ("FORTUNE 21 SHARES") as at closing
date as outlined in Section 2. This exchange shall be a tax
free exchange pursuant to Section 368 of the Internal Revenue
Code.
2. CLOSING DATE. This transaction shall be closed pursuant to the
terms and conditions herein on the date of execution of this
Agreement at Orlando, Florida. The date of execution of this
transaction is herein called the "Closing Date". The actions
outlined in Section 3, which are to take place within ten (10)
days of the closing date are as follows.
3. CLOSING. At closing, the parties shall take the following
actions:
3.1 Transfer of Shares. Upon receipt of FORTUNE 21 SHARES
by USMS, USMS will effect the delivery to the FORTUNE
21 shareholders the USMS SHARES, as outlined herein
in Section 3.2, along with an updated shareholder
list which is certified by the transfer agent to be
true and correct.
3.2 Transfer Agent Instructions. USMS will instruct its
Transfer Agent to issue the said USMS share
certificates, with restrictive legend, in exchange
for the FORTUNE 21 SHARES received in the name of
each individual FORTUNE 21 shareholder or their
assigns or nominees pursuant to this Agreement.
<PAGE>
3.3 Delivery of Books. USMS will deliver all of the
original corporate books and records of USMS to the
corporate offices of FORTUNE 21 immediately following
the closing of this Agreement and the filing of the
15c2-11 with the NASD. USMS shall assist in the
preparation and filing of the 15c2-11.
3.4 Delivery of Legal Opinion. USMS will deliver an
opinion of its legal counsel certifying to the
accuracy of the affirmations set forth herein and an
opinion as to the free trade ability of all
outstanding stock held by the current shareholders of
USMS.
4. SECURITIES ACT OF 1933. USMS covenants and agrees to the
FORTUNE 21 shareholders, who understand that the SHARES
acquired pursuant to this Agreement do require to be
restricted under Section 144 of the Securities Act of 1933 and
may not be sold or otherwise transferred unless in compliance
with the provisions thereof.
5. CONDITIONS OF BOTH PARTIES OBLIGATIONS TO CLOSE. For the
purposes of paragraph 5 through 13 only of this Agreement: (i)
the following shall be the conditions of USMS and FORTUNE 21
("BOTH PARTIES") obligations to close hereunder:
5.1 Representations and Warranties of Both Parties.
Representations and Warranties made by BOTH PARTIES
to this Agreement shall be true and correct as of the
Closing Date.
5.2 No Default - Covenants and Agreements. BOTH PARTIES
shall not be in material default with respect to any
obligation under this Agreement and both shall have
performed or complied with all covenants, agreements,
and conditions to be performed or complied with prior
to, or at, the Closing.
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF USMS. USMS represents and
warrants to AUTOMOTIVE ONE that the statements contained in
Section 6.1 through 6.6 are true and correct on the date of
this Agreement.
6.1 Corporate Standing. USMS is a corporation duly
organized, validly existing, and in good standing
under the laws of Nevada, and it has full power and
authority to enter into this Agreement and to carry
out the transactions contemplated hereby. The
execution and delivery of this Agreement by USMS does
not, and the consummation of the transactions
contemplated hereby will not violate or result in a
breach of any provisions of USMS's Charter of Bylaws.
6.2 Capital Stock. The authorized capital stock of USMS
consists of twenty five million (25,000,000) shares
of Common Stock without par value of which amount one
million nine hundred three thousand two hundred and
three (1,903,203) shares of Common Stock have been
validly issued and are outstanding, fully paid and
nonassessable as of the date of this Agreement. The
outstanding shares are held by more than four hundred
(400) shareholders and are freely tradeable under the
governing security laws.
6.3 Authority. USMS has full power and authority to enter
into this Agreement and has taken all action or will
use its best efforts to take all action, corporate
and otherwise, necessary to authorize the execution,
delivery and performance of this Agreement, the
completion of the transactions contemplated hereby.
<PAGE>
6.4 Lawsuits and Proceedings. There are no material
actions at law or in equity, governmental proceedings
or investigations pending or to the knowledge of
USMS, and USMS is not in material default with
respect to any decree, injunction or the order of any
court or government authority.
6.5 Taxes. USMS knows of no outstanding claims against
USMS for taxes which constitute a lien on the shares
being sold hereunder. USMS has filed all required
Federal and State tax returns, and has paid any taxes
due thereon.
6.6 Adverse Circumstances. Except as disclosed herein, to
the best knowledge of USMS, there are no facts,
developments or circumstances, existing or
threatened, of a special or unusual nature that may
be materially adverse to the assets, business,
financial condition or future prospects of USMS.
6.7 Publicly Held Company. USMS represents that it is a
publicly held company and has filed any documents
necessary to maintain such status with the regulatory
authorities.
7. REPRESENTATIONS AND WARRANTIES OF FORTUNE 21
FORTUNE 21 represents and warrants to USMS that the statements
contained in Sections 7.1 through 7.6 are true and correct on
the date of this Agreement.
7.1 Corporate Standing. FORTUNE 21 is a corporation duly
organized, validly existing, and in good standing
under the laws of Florida, and it has full power and
authority to enter into this Agreement and to carry
out the transactions contemplated hereby. The
execution and delivery of this Agreement by FORTUNE
21 does not, and the consummation of the transactions
<PAGE>
contemplated hereby will not, violate or result in a
breach of any provisions of FORTUNE 21's Charter or
Bylaws.
7.2 Capital Stock. The authorized capital stock of
FORTUNE 21 of twenty five million (25,000,000) shares
of Common Stock without par value of which six
million twenty five thousand (6,025,000) shares of
Common Stock have been validly issued and are
outstanding, fully paid and nonassessable as of the
date of this Agreement.
7.3 Authority. FORTUNE 21 has full power and authority to
enter into this Agreement and has taken all action or
will use its best efforts to take all action,
corporate and otherwise, necessary to authorize the
execution, delivery and performance of this
Agreement, the completion of the transactions
contemplated hereby.
7.4 Lawsuits and Proceedings. Except as disclosed herein
there are no material actions at law or in equity,
government proceedings or investigations pending or
to the knowledge of FORTUNE 21 threatened against
FORTUNE 21 or against or with respect to the business
or assets of FORTUNE 21, and FORTUNE 21 is not in
material default with respect to any decree,
injunction or the order of any court or government
authority.
7.5 Taxes. FORTUNE 21 knows of no outstanding claims
against FORTUNE 21 for taxes which constitute a lien
on the shares being sold hereunder.
7.6 Adverse Circumstances. Except as disclosed herein, to
the best knowledge of FORTUNE 21, there are no facts,
<PAGE>
developments or circumstances, existing or
threatened, of a special or unusual nature that may
be materially adverse to the assets, business,
financial condition or future prospects of FORTUNE
21.
8. INDEMNIFICATION. USMS and FORTUNE 21 mutually agree to
indemnify and to hld the other harmless from and against all
material damages, losses, costs, liabilities, expenses and
deficiencies, including, without limitation, additional taxes,
and reasonable interest, attorney, accountant and expert
witness fees and expenses (collectively "Material Damages")
that result from or arise out of any misrepresentation, breach
of warranty, or nonfulfillment of any agreement, covenant or
obligation of the other under this Agreement. Each party
agrees to give the other prompt written notice of any event or
assertion of which it has knowledge concerning any Material
Damages to which it may request indemnification hereunder.
Each party will cooperate with the other in determining the
validity of any such claim or assertion. The indemnifying
party hereunder shall have the right to defend with counsel
reasonably satisfactory to the indemnified party any claims
Material Damages for which the indemnified party has requested
indemnification hereunder, and after notice from the
indemnifying party regarding its assumption of the defense
thereof, the indemnifying party shall not be liable to the
indemnified party for any legal or other expenses subsequently
incurred by the reasonable costs of investigation. Each party
agrees not to settle or compromise any claims for Material
Damages without the prior written consent of the other. The
obligation of each party to indemnify the other under this
section, shall terminate on the anniversary of the Closing
Date, except as to matters to which such party had made a
claim for indemnification or given written notice of a
possible claim for indemnification on or prior to such date.
<PAGE>
9. BROKERAGE FEES. No broker, finder or intermediary is entitled
to receive any brokerage or similar type of commission, fee,
or payment arising out of this transaction.
10. TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated by either party to this
Agreement without liability of any kind to the other party
hereto by written instrument, signed by either party and
delivered at any time on or prior to the Closing Date, giving
notice of termination, if:
(a) There has been a material misrepresentation or
material breach of warranty on the part of either
party in the representations and warranties set forth
herein, or either party shall have failed to perform
or comply with, in any material respect, any
covenant, agreement or condition to be performed or
complied with prior to, or at the closing.
(b) In the reasonable judgment of either party the
transactions contemplated by this Agreement have
become inadvisable or impracticable by reasons of:
(i) the announcement or the institution by federal,
state or local authorities of any investigation of or
litigation or proceedings against either party which
may have a material and adverse effect on either
party, or the transactions contemplated hereby; or
(ii) the commencement since the date of this
Agreement by any other person, corporation or entity
of litigation or proceedings against or in regard to
either party, which may have a material and adverse
effect upon the authority or ability of either party,
which may have a material and adverse effect upon the
<PAGE>
authority or ability of either party to consummate
the transactions contemplated hereby.
11. AFFECT AFTER TERMINATION. In the event that this Agreement
shall be terminated in accordance with the provisions of this
Agreement, then all further obligations of each party to the
other under this Agreement shall terminate without further
liability.
12. EXPENSES. All legal, accounting and other costs and fees
incurred by BOTH PARTIES, in connection with the transactions
contemplated by this Agreement shall be borne and paid for by
the party incurring the same.
13. MISCELLANEOUS PROVISIONS.
13.1 Survival of Representations, Warranties and
Covenants. The respective representations,
warranties, covenants and agreements made in this
Agreement by BOTH PARTIES shall survive Closing for a
period of one (1) year.
13.2 Assignment. This Agreement and all rights and
obligations hereunder may be assigned by BOTH
PARTIES, in whole or in part, without prior knowledge
and/or written consent of the other party.
13.3 Notices. Any notice, request, instruction or other
document or communication required or permitted to be
delivered in person or by deposit in the mail,
postage prepaid, for mailing by certified or
registered mail, will be made as follows:
U.S. Medical Services, Inc.
1350 East Flamingo, Ste. 342
Las Vegas, Nev. 89119
If to the FORTUNE 21 shareholders, delivered and mailed to:
<PAGE>
FORTUNE 21, INC.
1200 W. S.R. 434, Ste. 112
Longwood, Fla. 32750
13.4 Section Headings. Section headings are for the
convenience only and shall not limit or otherwise
affect any provisions of this Agreement.
13.5 Entire Agreement. This Agreement and any Exhibits
hereto, constitute the entire agreement and
understanding of the parties hereto with respect to
the matters herein set forth, and all prior
negotiations, writings and understandings related to
the subject matter of this Agreement are merged
herein and are superseded and canceled by this
Agreement.
13.6 Waivers - Amendments. Any of the terms or conditions
of this Agreement may be waived, but only in writing
by the party which is entitled to the benefit
thereof, and this Agreement may be amended or
modified, in whole or in part, only by agreement in
writing, executed by all parties to this Agreement.
13.7 Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of Florida,
without regard to conflict of law.
13.8 Counterparts. This Agreement may be executed in two
or more counter parts, each of which shall be deemed
original as well as by facsimile, but all of which
together shall constitute one and the same
instrument.
This Agreement is hereby executed on the date first mentioned above in
Orlando, FL.
U.S. MEDICAL SERVICES, INC. FORTUNE 21, INC.
/s/ Ian Knott /s/ James S. Byrd
- ------------- -----------------
<PAGE>
By: IAN KNOTT By: JAMES S. BYRD
Its: PRESIDENT Its: PRESIDENT
CONTRIBUTION AND OPERATING AGREEMENT
Contribution and Operating Agreement, dated as of February 7, 1997, by
and among Peter Morris ("Morris"), Success Holdings Company LLC, an Illinois
limited liability company ("Success Holdings') and Fortune Financial Systems,
Inc., a Nevada corporation (the "Company"), James S. Byrd, Jr. J ("Byrd") and
Douglas Hackett ("Hackett").
PRELIMINARY STATEMENT
1. The authorized capital stock of the Company is 25,000,000 shares of
common stock, per value $.001 per share (the "Common Stock") of which
approximately 10,100,000 shares of Common Stock (subject to adjustment as set
forth on Schedule 5.1.1) are issued and outstanding as of the date hereof.
2. Fortune 21, Inc., a Florida corporation ("Fortune 21 "), is a wholly
owned subsidiary of the Company.
3. Fortune 21 is a financial and business training, coaching,
consulting company which provides educational, training, coaching and consulting
services to individuals and small businesses who want to start or expand a small
business, buy, sell or invest in real estate, or create or build wealth, and in
connection therewith, conduct seminars, conferences and workshops, sell business
opportunities and sell collateral materials such as audio and videotapes and
software in the United States. The clients and customers of Fortune 21 are
introduced to the Fortune 21 programs through a variety of marketing methods,
most notably through the conducting of free seminars, through direct mail,
direct response media, or through telemarketing. The activities listed above
will be referred to herein as the "Fortune Core Business".
4 Success Holdings is an established international multi-media provider
of information, entertainment, services and entertainment for entrepreneurs
which owns as its primary asset the nationally known magazine SUCCESS. Success
Holdings is involved in a variety of enterprises, including those described in
the Agenda for the Success Strategy Meeting of November 14, 1996 or in Success'
Confidential Private Placement Memorandum (drafted 4122196), and including, but
not limited to, the development and fostering of entrepreneurism worldwide, is
specifically involved in publishing the magazine, and its associated properties,
but is also involved in the global provision of entrepreneurial services. The
categories of enterprises and activities described above will be referred to
herein as the " Success Core Business. "
5. Morris has extensive experience in business, management,
entrepreneurial, and particularly real estate matters. Morris has agreed to make
available his time, contacts and experience to the Company. The Company, Byrd
and Hackett acknowledge that Morris' business, financial and real estate
expertise and knowledge will be of great value to the Company and that Morris'
experience and willingness to contribute his time to the Company was a major
factor in the Company's decision to enter into this agreement and the other
agreements contemplated by this Agreement.
6. Morris desires to acquire 3,100,000 shares of the Company's Common
1
<PAGE>
Stock in consideration of the following contributions to the Company which are
more fully described in Article 2 below: (i) Morris will contribute amounts in
cash equal to, at a minimum, $500,000, (ii) Morris will arrange for a $250,000
line of credit to be established for use by Fortune 21 and will become the
primary obligor under such line of credit, and (iii) Morris will guarantee,
jointly and severally with Byrd and Hackett, media accounts not to exceed
$500,000 at any one time.
7. Success desires to acquire 3,100,000 shares of the Company's Common
Stock in consideration of the License and Success's agreement to provide Fortune
21 with $3,000,000 of advertising in "Success(R)" Magazine and other media.
8. Pursuant to a License Agreement, dated as of the date hereof by and
among Success Holdings and Fortune 21 (the "License Agreement"), Success
Holdings granted to Fortune 21 a limited license in the United States to use of
the trade name "Success(R)" along with the right to certain intellectual
property, services and activities associated with the license (collectively, the
"License").
9. The 6,200,000 shares of Common Stock that Success Holdings and
Morris will receive hereunder will constitute 47% of the shares of Common Stock
held, in the aggregate, by Success Holdings, Morris, Byrd and Hackett.
10. The parties hereto desire to provide the issuance of 6,200,000
shares of Common Stock to Morris and Success Holdings, to provide for the
conduct of the business of the Company and Fortune 21, and to confirm certain
other agreements among them.
NOW, THEREFORE, in furtherance of the foregoing and in consideration of
the mutual premises set forth herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms
have the meanings specified to or referred to in this Article 1.
(a) "Business Plan" shall have the meaning set forth in
Section 4.1 of this Agreement.
(b) "Byrd" shall have the meaning set forth in the Preamble to
this agreement;
(c) "Closing" shall have the meaning set forth in Section 3.1
of this Agreement; Agreement;
(d) "Closing Date" shall have the meaning, set forth in
Section 3.1 of this Agreement;
(e) "Common Stock" shall have the meaning set forth in the
Preliminary Statement to this Agreement;
2
<PAGE>
(f) "Company" should have the meaning set forth in the
Preamble to this Agreement; (g) "Collateral Documents" shall mean the License,
Stockholders and Employment Agreements;
(h) "Disclosure Statement" shall have the meaning set forth in
Section 5.1.3 of this Agreement;
(i)"Employment Agreements" mean the Employment Agreements,
dated as of the date hereof between the Company and each of Byrd and Hackett and
the Consulting Agreement, dated as of the date hereof, between the Company and
Morris;
(j) "Escrow Agreement' means the Escrow Agreement, dated as of
the date hereof, by and among Success Holdings, the Company and Battle Fowler
LLP
(k) "Financial Statements" means the Company's financial
statements included in the Disclosure Statement;
(l) "Fortune Core Business" shall have the meaning set forth
in the Preliminary Statement to this Agreement;
(m) "Fortune 21 " shall have the meaning set forth in the
Preliminary Statement to this Agreement;
(n) "Hackett" shall have the meaning set forth in the Preamble
to this Agreement;
(o) "License" shall have the meaning set forth in the
Preliminary Statement to this Agreement;
(p) "License Agreement" shall have the meaning set forth in
the Preliminary Statement to this Agreement;
(q) "Line of Credit" shall have the meaning set forth in
Section 2.2.2 of this Agreement;
(r) "Morris" shall have the meaning set forth in the Preamble
to this Agreement;
(s) "Permitted Conference" shall have the meaning set forth in
Section 4.2.1 of this Agreement.
(t) "Stockholders Agreement" shall mean the Stockholders
3
<PAGE>
Agreement, dated as of the date hereof, by and among the Company, Success
Holdings, Morris, Byrd and Hackett;
(u) "Success Core Business" shall have the meaning set forth
in the Preliminary Statement to this Agreement; and
(v) "Success Holdings" shall have the meaning set forth in the
Preamble to this Agreement.
ARTICLE 2
SUBSCRIPTION; CONSIDERATION
2.1 Subscriptions. Upon the terms and subject to the conditions of this
Agreement, each of Success Holdings and Morris hereby subscribes for, and the
Company hereby issues to each of Success Holdings and Morris 3,1 00,000 shares
of the Company's Common Stock, in consideration of the contributions to the
Company made by Success Holdings and Morris as described in Section 2.2 below.
2.2 Consideration.
2.2.1 Cash Payments. Morris hereby agrees to pay to the
Company the following (i) $200,000 in cash at the Closing; (ii) $100,000 in cash
on or before May 15, 1997; and (iii) $200,000 in cash on or before July 15,
1997; provided, however, that the payment of such amounts in July may be
deferred at the option of Morris, until (a) December 31, 1997 if the total
payment due on such date is increased to $300,000, (b) until June 30, 1998 if
the total payment due on such date is increased to $400,000, or (c) until
January 10, 1999 if the total payment due on such date is increased to $500,000.
Upon the request of the Company's auditors, Morris shall deliver to the Company
a promissory note evidencing such deferred payments, which note shall contain
terms reasonably acceptable to the Company.
2.2.2 Line of Credit. Morris hereby agreed to arrange to have
a $250,000 line of credit (the "Line of Credit") with a term of three years
established for use by the Company at such bank and upon such terms and
conditions as shall be reasonably acceptable to the Company. Morris shall be the
primary obligor and the Company shall be the secondary obligor under the Line of
Credit. Morris shall provide the issuing bank with any collateral requested by
such bank in order to secure his obligations under the Line of Credit. Morris
shall establish such Line of Credit no later than April 15, 1997 and such Line
of Credit shall terminate on April 15, 2000.
2.2.3 License; Grant of Media Credits. Success Holdings hereby
(i) executes and delivers the License Agreement, and (ii) grants to Fortune 21,
$3,000,000 of media credits of which 50% of such credits shall consist of 37.5
full 4-color bleed pages (valued at $40,000 per full page equivalents), of
advertising in SUCCESS magazine over a period of 42 months and 50% of such
credits shall consist of net barter credits with other media (valued at a cost
4
<PAGE>
per thousand agreed by the parties hereto to be between $85 to $95) over a
period of 30 months. In the event that the parties mutually agree that the
Company shall pay for any production costs incurred in connection with any
advertising provided under such media credits, the amount of such media credits
will be increased in an amount mutually agreed to by the parties to reflect the
payment by the Company of such costs.
2.2.4 Guarantee of Media Accounts. In addition to the
advertising Fortune 21 will obtain pursuant to the media credits described in
Section 2.2.2, Fortune 21 intends to obtain advertising from additional media
sources. Morris, Byrd and Hackett shall, jointly and severally, guarantee
Fortune 21's obligations with respect to such advertising, and such guarantee
shall be provided to the relevant media sources. In connection with such
guarantee, Morris, Byrd and Hackett shall execute and deliver all such other
agreements, certificates, instruments and other documents as such media sources
may reasonably request. Such guarantee shall be limited to media accounts in an
amount of $500,000 outstanding at any one time.
2.3 License Guarantee. Morris and Success Holdings shall, jointly and
severally, guarantee that Success Holdings will honor its agreements and
obligations of the License under the terms of the License Agreement. Morris and
Success Holdings shall indemnify the Company and Fortune 21 for any and all
losses or costs and expenses incurred by the Company and Fortune 21 if Fortune
21's rights under the License Agreement are terminated or lost through no fault
or act or omission to act on the part of Fortune 2 1.
2.4 Escrow. All of the shares of Common Stock granted to Morris shall
be held in escrow, pursuant to the Escrow Agreement until the cash payments of
Morris under Section 2.2.1 have been satisfied in full and the Line of Credit
has been established. The parties acknowledge that the provisions of this
Section do not affect the right of Morris under the Stockholders Agreement, or
the rights of the Company and Fortune 21 under this Agreement and the License
Agreement, including, without limitation, Fortune 21's right to use the License
as provided in the License Agreement.
ARTICLE 3
CLOSING
3.1 Closing. The closing of this Agreement (the "Closing") shall take
place at the offices of Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022 on February 7, 1997 or as soon thereafter as the conditions to
Closing may be satisfied or waived by the parties (the "Closing Date").
3.2 Closing Deliveries.
(A) On or prior to the Closing Date, the Company, Byrd and
Hackett, as appropriate, shall deliver or cause to be delivered to Success
Holdings and Morris the documents listed below, in form and substance reasonably
satisfactory to the Success Holdings and Morris;
5
<PAGE>
(i) the License Agreement, executed by Fortune 21;
(ii) the Stockholders Agreement, executed by the
Company, Byrd and Hackett;
(iii) the Employment Agreements, executed by the
Company, Byrd and Hackett;
(iv) the Escrow Agreement;
(v) a letter from the Company to Morris providing for
issuance within 10 days of the Closing Date by the Company of a stock
certificate in the name of Morris for 3,1 00,000 shares of Common Stock for
delivery to the escrow agent to hold under the terms of the Escrow Agreement;
and
(vi) a letter between the Company and Success
Holdings providing for the issuance within 10 days of the Closing Date by the
Company of a stock certificate in the name of Success Holdings for 3,100,000
shares of Common Stock.
(B) On or prior to the Closing Date, Morris and Success
Holdings, as appropriate, shall deliver or cause to be delivered to the Company,
Byrd and Hackett, the documents listed below, in form and substance reasonably
satisfactory to the Company, Byrd and Hackett, as appropriate:
(i) the License Agreement, executed by Success
Holdings;
(ii) the Stockholders Agreement executed by Morris
and Success Holdings;
(iii) the Employment Agreement between the Company
and Morris, executed by Morris;
(iv) $200,000 in cash from Morris payable to the
Company;
(v) evidence of payment of the finder's fee by
Success Holdings and Morris pursuant to Section 7.13 hereof; and
(vi) the Escrow Agreement
ARTICLE 4
NON-COMPETITION PROVISIONS;
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SHARED EMPLOYEES; LICENSE PAYMENTS
4.1 Non-Competition - General. The Company, Byrd and Hackett hereby
agree that they will not engage in any business and will not serve as a partner,
officer, director, consultant, employee or in any other capacity to any company
or business organization which is competitive with the Success Core Business
unless such parties obtain the prior approval of Success Holdings and Morris and
provide Success Holdings and Morris with full disclosure of the proposed
activities. Success Holdings and Morris hereby agree that they will not engage
in any business and will not serve as a partner, officer, director, consultant,
employee or in any other capacity to any company or business organization which
is competitive with the Fortune Core Business, including, without limitation,
those products and services listed on Schedule 4.1, unless such parties obtain
the prior approval of the Company, Byrd and Hackett and provide the Company,
Byrd and Hackett with full disclosure of the proposed activities.
Notwithstanding the foregoing, (a) the Company shall be permitted to engage in
activities to the extent that such activities are reflected in the Company's
executive summary as attached to this Agreement, and (b) any party may own up to
2% of the outstanding common stock of any class of common equity which is traded
on a national securities exchange or in the over-the-counter market.
4.2 Permitted Conferences.
4.2.1 Success Holdings and its affiliates shall be permitted
to continue to conduct (i) one annual national seminar and conference, (ii) one
annual seminar and conference in each of four regions of the United States and
(iii) a reasonable number of retreats for chief executive officers
(collectively, the "Permitted Conferences"). The Company shall have the right to
participate in each Permitted Conference and serve in the capacities described
in Section 4.2.2 below. In addition to the Permitted Conferences, Success
Holdings shall also be permitted to conduct industry specific and interest group
specific seminars and conferences, provided, however, that such industry
specific and interest group specific conferences and seminars and the retreats
for chief executive officers are not substantially similar to any activities
included in the Fortune Core Business.
4.2.2 For each Permitted Conference, the Company shall have
the right to serve, at its election, as either a co-sponsor of such Permitted
Conference, as an administrator or manager of such Permitted Conference, or the
Company may provide Success Holdings with its customer data base which shall be
used by Success Holdings only with respect to such conference. Success Holdings
shall provide the Company with notice of the date and location and certain other
relevant information with respect to each Permitted Conference and such notice
shall be provided 90 days prior to the scheduled date of such conference. Within
60 days of the scheduled date of a Permitted Conference, the Company shall
notify Success Holdings of what capacity, if any, the Company will serve with
respect to such Permitted Conference. The Company shall have the right to market
its products and services to attendees of the Permitted Conferences, provided,
however, that such products are reasonable and appropriate for the type of
attendees at such conferences.
4.2.3 (A) In the event the Company elects to serve as a
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co-sponsor of a Permitted Conference, the Company shall pay for 50% of the costs
and expenses incurred in connection with such Permitted Conference and the
Company shall receive 50% of the profits from such Permitted Conference.
(B) In the event the Company elects to administer or
manage a Permitted Conference, the Company shall provide such administrative
services to Success Holdings as Success Holdings and the Company shall mutually
agree and the Company shall also provide Success Holdings with use of certain of
its employees. In consideration for such services, the Company shall receive 30%
of the profits from such Permitted Conference and shall bear 20% of any losses
suffered in connection with such conference. In addition, if the Company elects
to allow Success Holdings to use its customer database then the Company will
receive an additional 10% of the profits from such conference.
(C) If the Company elects only to allow Success
Holdings to use its customer database then the Company will receive 1 0% of the
profits from such conference.
4.2.4 Each of Success Holdings and the Company shall make
their respective customer lists and databases available to each other; provided,
however that neither shall disclose or otherwise sell or transfer such customer
lists or databases to any third party. The parties hereto acknowledge that each
of Success Holdings and the Company shall retain the full ownership of their
respective customer lists and databases. Success Holdings shall be entitled to
(i) market magazine subscription to all active customers of the Company, and
(ii) market magazine subscriptions and other products of Success Holdings to all
inactive customers of the Company; provided, however, that such products are not
competitive with the Fortune products and services and that the Company shall
review such products prior to any such marketing activity. The Company shall be
entitled to market its products and services in accordance with this Agreement.
4.3 Shared Employees. Success Holdings and its affiliates, shall
provide the Company with reasonable assistance in marketing and research in
order to facilitate the Company's use of the License
4.4 Consent to Certain Activities. The parties hereto acknowledge and
agree that there may be instances in the future where it will be beneficial for
all parties to allow a party to engage in activities which would otherwise
violate the License Agreement or the non-competition provisions of this Article.
In such event, the parties hereto agree to use their best efforts to negotiate
in good faith with a view to accommodating a party's reasonable and appropriate
business needs to engage in such activities. Notwithstanding the foregoing, if
the parties cannot reach agreement, the party desiring to take such prohibited
action shall not be permitted to take any action prohibited under this Agreement
or the License Agreement.
4.5 License Payments. Success Holdings shall be entitled to receive, as
an additional payment under the License Agreement as set forth below. If the
Company's net earnings before taxes as reflected in the Company's regularly
prepared audited financial statements, but before deducting any bonuses under
this or other executive employment or consulting agreement ("Pre-tax Profits")
exceed $5 million for any fiscal year, then as an additional payment under the
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License Agreement, Success Holdings shall be entitled to receive an amount in
the form of a combination of cash and stock options having net value as follows:
if Pre-tax Profits exceed $5 million but are less than $6 million, $250,000; if
Pre-tax profits exceed $6 million but are less than $7 million, $350,000; and if
Pre-tax Profits exceed $7 million, $500,000, as further described below. The
Board of Directors shall determine, in its sole discretion, the combination of
cash and stock options Success Holdings shall receive. To the extent that
Success Holdings is granted options as described above to purchase shares of the
Company's Common Stock, such stock options (x) shall have an exercise price per
share to be determined by the Board of Directors, provided, that such exercise
price is equal to not more than 50% of the Fair Value of the share on the date
of grant, and (y) shall be granted in accordance with a stock option agreement,
the form of which will be mutually acceptable to Success Holdings and the
Company, and which agreement will provide that the options shall be fully vested
upon the date of grant and that one-third of the options shall be exercisable on
each of the date of grant and the first and second anniversaries of the date of
grant. The "net value" of any stock options granted to Success Holdings under
this Section for purposes of calculation the $500,000 valuation above shall be
the Fair Value per share on the date of grant under such option multiplied by
the number of shares subject to such option. The term "Fair Value" of a share of
the Company's Common Stock shall mean (i) if the common stock is traded on a
national securities exchange, the closing price for such stock on the day
immediately preceding the date of determination or if there is no closing price
on such date, the last preceding closing price, (ii) if the common stock is not
traded on a national securities exchange, the mean of the high bid and ask
quotes of such stock as reported in the NASDAQ/NMS reports or the National
Quotation Bureau Inc.'s pink sheets or in the NASD Bulletin, Board on the day
immediately preceding the date of determination or if there were no high bid and
ask quotes on such date, the last preceding day that there were, and 4.5.1 if
neither (i) or (ii) are applicable, as determined in good faith by the Board of
Directors.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
BYRD AND HACKETT.
5.1 The Company, Byrd and Hackett hereby represent and warrant,
severally and not jointly, as follows:
5.1.1 The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Nevada. As of the
date hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock. The Company has full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate proceedings on the part of the
Company and this Agreement constitutes the. valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms,
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except as such enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other laws affecting creditors' rights generally
and (ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. As of the Closing Date and after taking into
account the transactions contemplated by this Agreement, the Company's total
issued and outstanding shares of Common Stock will consist of approximately
16,300,000 shares of Common Stock (subject to adjustment as set forth in
Schedule 5.1.1). As of the Closing Date and after giving effect to the
transactions contemplated by this Agreement, all of the issued and outstanding
shares of Common Stock of the Company shall be duly and validly authorized and
issued and are fully paid and non-assessable. As of the Closing Date other than
as contemplated by this Agreement and the Collateral Documents (a) there are no
outstanding warrants, options or other rights to purchase or acquire any shares
of the Company's Common Stock, nor any outstanding securities convertible into
such shares or outstanding warrants, options or other rights to acquire any such
convertible securities; (b) there are no preemptive rights with respect to the
issuance or sale of the Company's Common Stock; and (c) as of the Closing Date
there will be no restrictions on the transfer of the Company's Common Stock
other than those arising from federal and state securities laws or the
Stockholders Agreement.
5.1.2 The execution and delivery of this Agreement by the
Company does not (i) violate, or result with notice or the passage of time in a
violation of, or, result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
material obligation under, any mortgage, lien, lease, agreement, license, loan
agreement, indenture or other instrument or document to which the Company is a
party or by which the Company is bound; (ii) violate any provision of the
certificate of incorporation or by-laws of the Company; (iii) result in the
creation of any claim, security interest, lien or encumbrance whatsoever on the
Shares except as contemplated by this Agreement; or (iv) violate or conflict
with any law, order, rule, regulation, judgment or decree or other restriction
of any kind or character to or by which the Company is subject or bound.
5.1.3 The Disclosure Statement filed with NASDAQ pursuant to
Rule 1 5c2-1 1 (the "Disclosure Statement") is true and correct in all material
respects, does not contain any untrue statement of a material fact and does not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
5.1.4 The Corporation has good and marketable title to its
assets used in conducting its business, free and clear of all liens,
restrictions or encumbrances except as otherwise disclosed in the Financial
Statements.
5.1.5 Except as set forth in Schedule 5.1.5 hereto, there is
no litigation or governmental proceeding or investigation pending or, to the
best knowledge of the Company, threatened against the Company affecting any of
its properties or assets, or which has a reasonable possibility of calling into
question the validity, or materially hindering the enforceability or
performance, of this Agreement, or any action taken or to be taken pursuant
hereto; nor, to the best knowledge of the Company, has there occurred any event
or does there exist any condition on the basis of which any litigation,
proceeding or investigation might properly be instituted with any substantial
chance of a recovery which could be materially adverse to the Company.
5.1.6 Except for Fortune 21, the Company has no subsidiaries
and does not own of record or beneficially any capital stock or equity interest
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or investment in any corporation, association, partnership, joint venture or
business entity.
5.1.7 To the best of the Company's knowledge and belief after
due inquiry, no employee of the Company is, or is now expected to be, in
violation of any term of any employment contract, patent disclosure agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant or any other common law obligation to a former employer relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted or to be conducted by the Company or to the use of
trade secrets or proprietary information of others, and to the best of the
Company's knowledge and belief, the employment of the Company's employees does
not subject the Company or Success Holdings or Morris to any liability. There is
neither pending nor, to the Company's knowledge and belief, threatened any
actions, suits, proceedings or claims, or to its knowledge any basis therefor or
threat thereof with respect to any contract, agreement, covenant or obligation
referred to in the preceding sentence. Copies of all employment, non-disclosure,
confidentiality or non-competition agreements with any employees of the Company
or its subsidiaries and any collective bargaining agreement covering any Company
or subsidiary employees have been made available to Success Holdings and Morris.
5.1.8 The Company does not have any currently existing
contract, obligation, agreement, plan, arrangement, commitment or the like
(written or oral) which is material to the Company and its business which have
not been made available to Success Holdings and Morris. The Company has complied
in all material respects with the provisions of all said contracts, obligations,
agreements, plans, arrangements and commitments and is not in default
thereunder.
5.1.9 Upon the execution of the License Agreement, the Company
will have all franchises, permits, licenses and other similar authority
necessary for the conduct of its business as now being conducted by it and as
planned to be conducted, the lack of which could materially and adversely affect
the prospects, operations or condition, financial or otherwise, of the Company,
and it is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority. Upon the execution of the License
Agreement, the Company will possess all technology, technology rights, patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, trade secrets, proprietary rights and processes known by the Company
to be necessary to conduct its business as now being conducted and as planned to
be conducted, without, to the knowledge of the Company after due inquiry,
conflict with or infringement upon any valid rights of and the lack of which
could materially and adversely affect the operations or condition, financial or
otherwise, of the Company, and has not received any notice of infringement upon
or conflict with the asserted rights others.
5.1.10 Since September 30, 1996, except to the extent
described in the Financial Statements, there has not been any event or condition
of any character which has adversely affected the Company's business or
prospects, including but not limited to:
(A) Any material adverse change in the condition,
assets, liabilities or business of the Company from that shown on the Company's
balance sheet dated September 30, 1996;
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(B) Any damage, destruction or loss of any of the
properties or assets of the Company (whether or not covered by insurance)
materially adversely affecting the business or plans of the Company;
(C) Any declaration, setting aside or payment or
other distribution in respect of any of the Company's capital stock, or any
direct or indirect redemption, purchase or other acquisition of any of such
shares by the Company; or
(D) Any labor trouble, or any event or condition of
any character, materially adversely affecting the business or plans of the
Company.
5.1.11 Each of the Company and its subsidiaries has filed all
Federal income tax returns, domestic and foreign, required to be filed by it and
has paid all Federal taxes and assessments shown to be due on such returns and
all other material taxes and assessments, domestic and foreign, in each case
payable by it which have become due, other than those not yet delinquent and
except those contested in good faith and for which adequate reserves have been
provided in accordance with generally accepted accounting principles.
5.1.12 Aside from the payments to Michael Lucas described in
Section 7.13, the Company does not have nor will have any obligation to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby which has not been satisfied in full and
disclosed to Morris and Success Holdings.
5.1.13 No representations or warranties by the Company in this
Agreement, nor any document, exhibit, statement, certificate or schedule
furnished or to be furnished to Success Holdings and Morris pursuant hereto, or
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact necessary to make the statements or facts contained therein
not misleading. The Company has disclosed all events, conditions and facts
materially affecting (i) the business or the condition (financial or otherwise),
properties, liabilities, reserves, working capital, earnings, prospects or
relations with customers, suppliers, distributors or employees of the Company
and (ii) the right or ability of the Company to consummate the transactions
contemplated hereby.
5.1.14 The Company has delivered to Success Holdings and
Morris the Financial Statements, all of which statements fairly present the
financial position and results of operations of the Company at the dates and for
the periods to which they relate, and have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved and prior periods.
5.1.15 The Company's gross revenues for the fiscal quarter
ended December 31, 1996 were not less than $300,000 and for the month ended
January 31, 1997 were not less than $1,000,000.
5.1.16 The projections included in the Company executive
summary attached hereto as Schedule 5.1.5 was based upon the good faith
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assumptions and beliefs of the Company and its management which the Company,
Byrd and Hackett believe to be reasonable.
5.2 Each of Byrd and Hackett, individually and not jointly and
severally, hereby represents and warrants as follows:
5.2.1 This Agreement has been duly executed and delivered by
such individual and this Agreement constitutes the legal, valid and binding
obligation of such individual enforceable in accordance with its terms, except
as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law. Such individual has all requisite power and authority and has
taken all action necessary to perform all of his obligations under this
Agreement and to consummate the transactions contemplated hereby.
5.2.2 The execution and delivery of this Agreement by such
individual does not (i) violate, or result with notice or the passage of time in
a violation of, any material provisions of, or, result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice or lapse of
time or both) any material obligation under, any mortgage, lien, lease,
agreement, license, loan agreement, indenture or other instrument or document to
which such Individual is a party or by which such individual is bound; (ii)
result in the creation of any claim, security, interest, lien or encumbrance
whatsoever on any shares of Common Stock; or (iii) violate or conflict with any
law, order, rule, regulation, judgment or decree or other restriction of any
kind or character to or by which such Individual is subject or bound.
5.2.3 No representation and warranties by such individual in
this Agreement, nor any document, exhibit, statement, certificate or schedule
furnished or to be furnished to Success Holdings and Morris pursuant hereto, or
in connection with the transaction contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material necessary to make the statements or facts contained therein not
misleading.
5.2.4 The Disclosure Statement is true and correct in all
material respects, does not contain any untrue statement of a material fact and
does not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SUCCESS HOLDINGS AND MORRIS
6.1 Success Holdings hereby represents and warrants that:
6.1.1 Success Holdings is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Illinois. Peter Morris is the holder of a majority of the membership interests
of Success Holdings. Success Holdings has full limited liability company power
and authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Success
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Holdings and the consummation by Success Holdings of the transactions
contemplated hereby have been duly authorized by all necessary limited liability
company proceedings on the part of Success Holdings and this Agreement
constitutes the valid and legally binding obligation of Success Holdings
enforceable against Success Holdings in accordance with its terms, except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
6.1.2 The execution and delivery of this Agreement by Success
Holdings does not (i) violate, or result with notice or the passage of time in a
violation of, or, result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
material obligation under, any mortgage, lien, lease, agreement, license, loan
agreement, indenture or other instrument or document to which Success Holdings
is a party or by which Success Holdings is bound; (ii) violate any provision of
the articles of organization or by-laws of Success Holdings; (iii) result in the
creation of any claim, security interest, lien or encumbrance whatsoever on any
shares of Common Stock; or (iv) violate or conflict with any law, order, rule,
regulation, judgment or decree or other restriction of any kind or character to
or by which Success Holdings is subject or bound.
6.1.3 No representations or warranties by Success Holdings in
this Agreement, nor any document, exhibit, statement, certificate or schedule
furnished or to be furnished to the Company, Byrd and Hackett pursuant hereto,
or in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact necessary to make the statements or facts contained therein
not misleading.
6.1.4 Success owns the "Licensed Trademark", as such term is
defined in the License Agreement.
6.2 Morris hereby represents and warrants that:
6.2.1 This Agreement has been duly executed and delivered by
Morris and this Agreement constitutes the legal, valid and binding obligation of
Morris enforceable in accordance with its terms, except as such enforceability
may be limited by (i) bankruptcy, insolvency, moratorium, reorganization and
other laws affecting creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law.
Morris has all requisite power and authority to perform all of his obligations
under this Agreement and to consummate the transactions contemplated hereby.
6.2.2 The execution and delivery of this Agreement by Morris
does not (i) violate, or result with notice or the passage of time in a
violation of, any material provisions of, or, result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice or lapse of
time or both) any material obligation under, any mortgage, lien, lease,
agreement, license, loan agreement, indenture or other instrument or document to
which Morris is a party or by which Morris is bound; (ii) result in the creation
of any claim, security, interest, lien or encumbrance whatsoever on the shares
of Common Stock; or (iii) violate or conflict with any law, order, rule,
regulation, judgment or decree or other restriction of any kind or character to
or by which Morris is subject or bound.
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6.2.3 No representation and warranties by Morris in this
Agreement, nor any document, exhibit, statement, certificate, or schedule
furnished or to be furnished to the Company, Byrd and Hackett pursuant hereto,
or in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact necessary to make the statements or facts contained therein
not misleading.
ARTICLE 7
MISCELLANEOUS
7.l Survival of Representations and Warranties. The representations and
warranties contain in Articles 5 and 6 shall survive the Closing and shall
terminate on the first anniversary of the Closing.
7.2 Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
7.3 Governing This Agreement and the rights and obligations of the
accordance with, parties hereunder shall be governed by, and construed and
interpreted in the laws of the State of Florida without giving effect to the
choice of law principles thereof.
7.4 Modifications; Amendments. The terms and provisions of this
Agreement may not be modified or amended, or any of the provisions hereof
waived, temporarily or permanently, except pursuant to a writing executed by all
the parties. The waiver by any party of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
7.5 Binding Effect. This Agreement shall inure to the benefit of the
Parties hereto and shall be binding upon the parties hereto and their respective
legal representatives (including the executor of the estate of a party),
successors and assigns.
7.6 Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
7.7 Notice. Any notices or communications required or permitted
hereunder shall be sufficient if in writing and delivered by hand or sent by
telecopy, or sent postage prepaid by U.S. Post Office express-mail, or by
recognized overnight or courier service and shall be deemed given when so
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delivered by hand, or telecopied, as if mailed or sent by overnight courier
service, on the scheduled delivery date, to the parties at the address listed
below their signatures or to such other address as the addressee may have
specified in a notice duly given to the sender as provided herein.
7.8 Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience only and shall not control or affect the
meaning or construction of any provision hereof. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and all of which together shall constitute one and the same instrument.
7.9 Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, oral and written, among
the parties hereto with respect to the subject matter hereof.
7.10 Specific Performance. Each of the parties acknowledges that the
subject matter of this Agreement is of a special, unique and extraordinary
character, and that any violation of this Agreement by any party to this
Agreement would be likely to be highly injurious to other parties. Each of the
parties agrees that if any party defaults in the performance of his, its or
their obligations under this Agreement, the other parties shall be entitled, in
addition to any other remedies that they may have, to enforce this Agreement by
a decree of specific performance in a court of competent jurisdiction requiring
such party or parties to perform their obligations tinder this Agreement.
7.11 Arbitration. Any dispute or controversy arising under or in
connection with this Agreement and related to the License or the License
Agreement shall be settled by arbitration to be held in the City of New York,
except that either party may seek preliminary injunctive relief from the United
States District Court or state court in that city. Any dispute or controversy
arising under or in connection with this Agreement which is not related to the
License or the License Agreement shall be settled by arbitration to be held in
the State of Florida, except that either party may seek preliminary injunctive
relief from the United States District Court or state court in that city, except
that any such preliminary injunctive relief may, upon the request of Morris, be
sought in Miami. Upon the occurrence of any such dispute or controversy, (i)
Morris and Success Holdings shall select one Arbitrator, (ii) the Company, Byrd
and Hackett shall select one Arbitrator, and (iii) the third Arbitrator shall be
selected by the other two Arbitrators. Each Arbitrator shall be an individual
who has no prior professional or personal relationship with any party and each
party shall furnish to the Arbitrators written notice (each, a "Party
Determination") of such party's desired outcome or resolution for such dispute
or controversy. Upon receipt of a Party Determination, the Arbitrators shall
notify the other parties in writing (a "Determination Notice") that it has
received such Party Determination and the Arbitrators shall not disclose the
contents thereof until the earlier of the Arbitrators' receipt of Party
Determinations from all parties and 20 days after delivery of the Determination
Notice. If the other parties fail to deliver their Party Determinations within
20 days after delivery of the Determination Notice, the first Party
Determinations shall be the resolution of the dispute or controversy. If more
than one Party Determination is delivered to the Arbitrators within 20 days
after the delivery of the Determination Notice, the Arbitrators shall determine
the resolution of the dispute or controversy, provided, however, that in
determining the resolution of the dispute or controversy, the Arbitrators'
discretion shall be limited to selecting one of the proposed resolutions set
forth in the Party Determination delivered to the Arbitration within 20 days
after the delivery of the Determination Notice. All fees and expenses of the
Arbitrators incurred in connection with its determination of such dispute or
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controversy shall be borne by the parties that submitted Party Determinations
not chosen by the Arbitrators. All decisions of the Arbitrators shall be final
and binding on each of the parties and enforceable at law or in equity.
7.12 Indemnification. Each of the parties hereto shall indemnify and
hold harmless each of the other parties ('indemnified party") from and against
any and all loss, damage, claim, injury, liability, cost and expense (including
reasonable attorney's fees and count costs) arising out of any misrepresentation
or any breach of warranty by such party in this Agreement (provided, however,
that notice of such breach is given within one year of the date hereof). Upon a
party's receipt of notice of a claim with respect to which indemnity is to be
sought under this Section, such party shall give the relevant indemnifying party
written notice in reasonable detail. The indemnifying party may, within a
reasonable time thereafter, elect, by written notice to the indemnified party,
to assume and control the defense or resolution of the claim with counsel of
such indemnifying party's choosing reasonably satisfactory to the indemnified
party. If such notice is given, the indemnifying party shall not be liable for
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense of the claim, and the indemnifying party shall be
entitled to settle the claim on such terms as it deems appropriate with the
indemnified party's consent, which shall not be unreasonably withheld.
7.13 Finder's Fee. At the Closing, Success Holdings and Morris shall
pay to Michael Lucas a finder's fee equal to $20,000. The Company shall pay Mr.
Lucas an additional payment of $20,000 in cash or stock prior to December 31,
1997, which payment shall be made out of, but only to the extent of, the
Company's operating cash flow.
7.14 License Agreement. The parties hereto acknowledge and agree that
notwithstanding any provision of this Agreement, this Agreement shall in no
respect limit or otherwise modify the rights of the licenser under the License
Agreement to take the actions permitted under such agreement to protect his
interests under the License. To the extent that any provisions of this Agreement
conflicts with any provisions in the License Agreement, the provisions of the
License Agreement shall control.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
FORTUNE FINANCIAL SYSTEMS, INC.
By: /s/ James S. Byrd
James S. Byrd, Jr.
Title - President
1200 West State Road 34, Suite 112
Longwood, FL 32750
SUCCESS HOLDINGS CO., LLC
By: /s/ James S. Byrd
James S. Byrd, Jr.
President
1200 West State Road 34, Suite 112
Longwood, FL 32750
By: /s/James S. Byrd
[Title]
733 3rd Avenue 10~ Floor
New York, New York 10017
By: /s/ Douglas S. Hackett
Douglas Hackett
[Title]
1200 West State Road 34, Suite 112
Longwood, FL 32750
<PAGE>
Schedule 4.1
1. Real Estate training
2. Business training
3. Financial training
4. Real Estate Connection - Books, Audio, Video
5. Business Connection - Books, Audio, Video
6. Real Estate Starter Kit
7. Business Starter Kit
8. Entrepreneur Association and Related Services
9. Discount Mortgage
10. Mortgage Curtailment
11. Computer Software - Business Management, Real Estate Management,
Discount Mortgage, Mortgage Reduction, Mortgage Curtailment, Financial
management and planning
12. Coaching Programs - various by product and program related
13. Executive Mentor Programs - various by product and program related
14. Internet - Educational
15. Net Presence - Web Sites, Biz opportunity, consulting
16. IDI Net Preserver - Web Links
17. Tax Institute and Services
18. Hotline Services - Real Estate, Business, Real Estate, Financial
19. Newsletter Services - Business, Finance, Tax, Real Estate, Business
Opportunities.
20. HB Merchandise - Distressed/Reduced Merchandise
21. Discount Mortgage
22. Phone Cards, Communication Services, and Long Distance Services
23. Internet and On Line Services
24. Travel Agent Programs
25. Vending Products
26. Grocery Couponing
27. Auction Product and Programs
28. Financial Connection - Books, Audio, Video
29. Mutual Fund Manager - Books and Audio
30. 25 Steps to Successful Real Estate Investing
31. 30 Day Business Quickstart
32. Action Plus Software - Business Management
33. Direct Response Infomercial Products and Programs
34. 1-Day Seminars, Workshops and Training
35. 3-Day Seminars, Workshops and Training
36. Financial Services - Brokerage, Money Management, Insurance Services
and Related Products
<PAGE>
Schedule 5.1.5
1. Letter of Inquiry from Arizona
2. Letter of Inquiry from Texas
3. Threatened lawsuit from Delmer
LICENSE AGREEMENT
This Agreement is made and effective on February 7, 1997, by and
between Success Holdings Co., LLC, a limited liability company of the State of
Illinois, having a place of business at 733 Third Avenue, New York, New York
10017 (hereinafter "Success"), and Fortune 21, Inc., a corporation of the State
of Florida, having a place of business at 1200 W.S.R. 434, Ste. 112. 112,
Longwood, Florida 32750 (hereinafter "Fortune 21").
A. Success is the owner of the registered trademark SUCCESS for
magazines, Reg. Nos. 1,221,662 and 1,334,275, and Success is
the owner of the trademark SUCCESS for conducting seminars,
conferences and training courses, relating to entrepreneurship
and associated logos, trade dress and other related rights
(hereinafter "Licensed Trademark").
B. Fortune 21 desires to obtain, and Success is willing to grant,
the sole and exclusive right to use the mark SUCCESS in
connection with providing educational, training, coaching and
consulting services to individuals and small businesses who
want to start or expand a small business, buy, sell or invest
in real estate, or create or build wealth, and in connection
therewith, conduct seminars, conferences and workshops, sell
business opportunities and sell collateral materials such as
audio and videotapes and software (hereinafter "Licensed
Products:) in the United States (hereinafter "Territory").
NOW, THEREFORE, in consideration of the receipt of shares of common
stock of the parent of Fortune 21 and other mutual promises and undertakings set
1
<PAGE>
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
1. LICENSE
-------
A. Subject to the terms and conditions of this
Agreement, Success hereby grants to Fortune
21 the sole and exclusive right to use the
Licensed Trademark on and in connection with
the Licensed Products in the Territory. All
use of the Licensed Trademark by Fortune 21
shall inure to the benefit of Success.
B. It is expressly understood that Fortune 21
is not permitted hereunder (i) to use the
designation FORTUNE alone, that is, without
the numeral 21, in association with the
Licensed Trademark, or (ii) to use the
Licensed Trademark without also using
another mark of Fortune 21, or (iii) to use
the Licensed Trademark in combination with
any trademark or designation of Fortune 21
so that in combination they appear to be a
unitary trademark or designation. Such
restriction, however, does not preclude
Fortune 21, subject to the prior approval of
Success, from using the Licensed Trademark
in juxtaposition with such trademark or
designation of Fortune 21. By way of example
but not by way of limitation, the use of
FORTUNE 21(sm) SUCCESS(sm) is not permitted
whereas the use of
FORTUNE 21(sm) ------------------------
FORTUNE 21 SUCCESS(sm)
------------------------
____________ or
SUCCESS(sm)
2
<PAGE>
would be permitted hereunder.
C. All rights not expressly granted to Fortune
21 herein shall be reserved to Success,
except as otherwise provided in other
written agreements between the parties.
D. Success also hereby grants to Fortune 21 a
non-exclusive right to use the Licensed
Trademark on and in connection with the
Licensed Products in other countries,
subject to any other rights granted to
others previously or in the future.
2. APPROVAL/QUALITY CONTROL
------------------------
Fortune 21 agrees that the nature, quality, style, appearance and
performance of the Licensed Products and the promotional, advertising and
instructional materials therefor, as well as any and all trademarks, trade
names, designs and logos (whether included in the Licensed Trademark or not)
used in connection with the Licensed Products, shall be subject to Success'
approval. Such approval shall be in Success' sole discretion. It shall be deemed
that all presently used materials and programs are approved. Fortune 21 shall
not render new services or provide or sell any materially different materials
which have not been approved by Success or which are, at any time, disapproved
by Success in accordance with provisions hereinbelow. Before rendering any
materially new services or providing or selling any materially different
materials hereunder, Fortune 21 shall submit to Success, for its examination and
approval, the curriculum or curricula for the services and samples of any
instructional materials or tapes relating thereto together with any and all
written materials to be used in connection with promoting or advertising of the
3
<PAGE>
services and related materials. Success shall notify Fortune 21 of its approval
or disapproval within fifteen (15) business days of its receipt of such written
materials. If Fortune 21 is not notified within that time, approval by Success
of the samples will be assumed. At the reasonable request of Success, Fortune 21
shall from time to time submit current written materials and tapes in order that
Success may assure itself of the maintenance of quality standards hereunder.
Approval by Success of any written materials and tapes shall not be construed to
mean that Success has determined that such written materials and tapes comply
with applicable laws or regulations, such determinations being the
responsibility of Fortune 21. Fortune 21 agrees the services rendered hereunder
shall not differ materially from curriculum or curricula approved by Success.
3. TERM
----
The term of this License Agreement will commence on the date of the
signing of this Agreement and shall continue for ten (10) years. The License
Agreement may be renewed for a second ten (10) year term, provided that Fortune
21 is in good standing, has substantially complied with its business plan and
its revenues are substantially consistent with its current business plan, and
the Licensed Products are of good and acceptable quality.
4. TRADEMARKS
----------
A. Fortune 21 shall cause to be affixed to or printed
upon each printed material or tape for use in
connection with the services, the appropriate
trademark notice, legibly printed which shall be
designated in advance by Success. Fortune 21 agrees
to deliver to Success free of cost samples of such
printed materials or tapes for approval hereunder,
which will not be unreasonably withheld. Success
shall notify Fortune 21 of its approval or
4
<PAGE>
disapproval within fifteen (15) business days of its
receipt of such material or tape. If Fortune 21 is
not notified within that time, approval by Success of
the material or tape will be assumed.
B. Fortune 21 agrees that it will not, during the terms
of this Agreement or thereafter, file any application
for trademark registration or otherwise obtain or
attempt to obtain ownership of any name, design,
logo, or trademark or trade name within the Territory
or in any other country of the world which includes
or is confusingly similar to the Licensed Trademark,
or which is intended to make reference to the
Licensed Trademark.
C. Fortune 21 agrees that it will not, directly or
indirectly challenge or contest Success' ownership of
and rights in the Licensed Trademark, whether for the
Licensed Products or otherwise, or the validity of
this Agreement.
D. All use of the Licensed Trademark by Fortune 21 shall
inure to the benefit of Success, and Fortune 21 shall
acquire no rights therein adverse to Success. Fortune
21 shall, at any time when requested by Success to do
so, whether during the term of this Agreement or
thereafter, at its own expense, execute such
documents or applications as requested by Success in
order to confirm Success' ownership of all such
rights or to maintain the validity of the Licensed
Trademark or obtain or maintain registrations thereof
for the class or classes applicable to the Licensed
Products herein.
E. Fortune 21 shall notify Success in writing of any
infringement or limitations by others of the Licensed
Trademarks on services or articles similar to the
5
<PAGE>
Licensed Products if and when such become known to
Fortune 21. Success shall have the sole right to
determine whether or not any action shall be taken on
account of such infringements or limitations without
the prior written consent of Success to do so.
F. If, at the request of Fortune 21, Success brings any
legal action(s) against third parties for
infringement or imitation of the Licensed Trademark
relating to the Licensed Products, then Fortune 21
shall bear the cost of such litigation and such legal
action(s) shall be jointly controlled.
G. Fortune 21, at its own expense, will fully cooperate
with Success, or its designee or representative in
the prosecution of any trademark application that
success may determine to file, in connection with
implementing the objectives of this Agreement.
H. Success will take necessary and appropriate actions
to protect the Licensed Trademark and to maintain any
registrations at its expense.
5. DEFAULT
-------
A. Either party may terminate this Agreement on thirty
(30) days written notice to the other in the event of
any material breach, if the defaulting party has not
cured such breach or complied with such obligations
within such notice period. Termination of this
Agreement under the provisions of this paragraph
shall be without prejudice to any rights either party
may have against the other. A material breach shall
include, but is not limited to the following:
(i) If Fortune 21 uses the Licensed Trademark in
6
<PAGE>
a manner materially inconsistent with this
License Agreement or its approved business
plan;
(ii) If the activities of Fortune 21 bring
Success or its Licensed Trademark into
disrepute or otherwise adversely affect the
distinctive nature of the Licensed Trademark
or cause confusion in the marketplace or
cause dilution or destructive competition;
or
(iii) If Fortune 21 consistently fails to maintain
quality services and products and quality
customer treatment.
In the event that such breach cannot be cured, Fortune 21 will use its
best efforts to mitigate the breach and will cease from any repetition in the
future.
B. Success shall have the right to terminate this
Agreement upon ten (10) days prior notice without the
right to cure upon the occurrence of any of the
following events:
(i) If Fortune 21 shall be adjudged to be
insolvent or shall make an assignment for
the benefit of creditors or become involved
in receivership, bankruptcy or other
insolvency or debtor relief proceedings, or
any similar proceedings, or in proceedings,
voluntary or force whereby it is limited in
the free and unrestrained exercise of its
own judgment as to the carrying out of the
terms of this Agreement;
(ii) If Fortune 21 shall cease to do business; or
7
<PAGE>
(iii) If Fortune 21 shall attempt to assign any of
its rights under this License Agreement
without prior approval.
C. Failure to terminate this Agreement pursuant to this
paragraph 6 shall not affect or constitute a waiver
of any remedies the non-defaulting party would have
been entitled to demand in the absence of this
section, whether by way of damages, termination or
otherwise. Termination of this Agreement shall be
without prejudice to the rights and liabilities of
either party to the other in respect to any matter
arising under this Agreement.
6. TERMINATION
-----------
From and after the termination of this Agreement all of the
rights of Fortune 21 to the use of the Licensed Trademark
shall cease absolutely, and Fortune 21 shall not thereafter
advertise, promote or render any service or sell any product
whatsoever in connection with the Licensed Trademark. It is
further agreed that following expiration of the Agreement,
Fortune 21 shall not advertise, promote or render any service
or sell any product whatsoever in connection with the use of
any name, figure, design, logo, trademark or trade name
similar to or suggestive of the Licensed Trademark except as
otherwise licensed by Success to Fortune 21.
7. WAIVER
------
The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions set forth
herein shall not be construed as a continuing waiver or relinquishment thereof
and each may at any time demand strict and complete performance by the other of
said terms, covenants and conditions.
8
<PAGE>
8. ASSIGNMENT
----------
This Agreement shall bind and inure to the benefit of Success,
and the successors and assigns of Success. The rights granted Fortune 21
hereunder shall be exclusive to it and shall not, without the prior written
consent of Success, be transferred or assigned to any other, except that the
rights may be transferred or assigned to another subsidiary of Fortune Financial
Systems, Inc. In the event of the merger or consolidation of Fortune 21 with any
other entity which materially adversely affects the rights granted or reserved
by this Agreement, Success shall have the right to terminate this Agreement by
notifying Fortune 21 in writing on or before sixty (60) days after Success has
received notice of such merger or consolidation.
9. SIGNIFICANCE OF HEADINGS
------------------------
Section headings contained herein are solely for the purpose of aiding
in speedy location of subject matter and are not in any sense to be given weight
in the construction of this Agreement. Accordingly, in case of any question with
respect to the construction of this Agreement, it is to be construed as though
such section headings had been omitted.
10. ENTIRE AGREEMENT
----------------
This writing constitutes the entire Agreement between the parties
relating to the subject matter and may not be changed or modified except by a
writing signed by the party or parties to be charge thereby.
11. GOVERNING LAW
-------------
This Agreement shall be governed by and construed according to the law
of the State of New York. If and to the extent that any provisions of this
Agreement are prohibited or unenforceable under any applicable law, such
9
<PAGE>
provisions shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of any other provision hereof.
12. NOTICE
------
All written notices required or provided for in this Agreement shall be
in writing and shall be given by Certified Mail, prepaid and properly addressed
to the last know address of the party to be served herewith, with a copy by
facsimile, and shall be deemed to have been given on the date upon which said
notice was received. Any notices sent to Success shall be addressed to:
Success Holdings Co., LLC
733 Third Avenue
New York, New York 10017
Attn: Mr. Peter Morris
Any notices sent to Fortune 21 shall be addressed to:
Fortune 2, Inc.
1200 W.S.R. 434, Ste. 112
Longwood, Florida 32750
Attn: Mr. James Byrd
13. ARBITRATION
-----------
Any dispute or controversy arising under on in connection with
this Agreement and related to the license or the license agreement shall be
settled by arbitration to be held in the City of New York except that either
party may seek preliminary injunctive relief from the United States District
Court or state court in that City. Upon the occurrence of any such dispute or
controversy, (i) Success shall select one Arbitrator; (ii) Fortune 21 shall
select one Arbitrator; and (iii) the third Arbitrator shall be selected by the
other two Arbitrators. Each Arbitrator shall be an individual who has no prior
professional or personal relationship with any party and each party shall
furnish to the Arbitrators written notice (each, a "Party Determination") of
10
<PAGE>
such party's desired outcome or resolution for such dispute or controversy. Upon
receipt of a Party Determination, the Arbitrators shall notify the other parties
in writing (a "Determination Notice") that it has received such Party
Determination and the Arbitrators shall not disclose the contents thereof until
the earlier of the Arbitrators receipt of Party Determinations from all parties
and twenty (20) days after delivery of the Determination Notice. If the other
parties fail to deliver their Party Determinations within twenty (20) days after
delivery of the Determination Notice, the first Party Determinations shall be
the resolution of the dispute or controversy. If more than one Party
Determination is delivered to the Arbitrators within twenty (20) days after the
delivery of the Determination Notice, the Arbitrators shall determine the
resolution of the dispute or controversy, provided, however, that in determining
the resolution of the dispute or controversy, the Arbitrators discretion shall
be limited to selecting one of the proposed resolutions set forth in the Party
Determination delivered to the Arbitrators within twenty (20) days after the
delivery of the Determination Notice. All fees and expenses of the Arbitrators
incurred in connection with their determination of such dispute or controversy
shall be borne by the parties that submitted Party Determinations not chosen by
the Arbitrators. All decisions of the Arbitrators shall be final and binding on
each of the parties and enforceable in law or at equity.
14. NO AGENCY OR LIABILITY
----------------------
Neither party shall be liable for the acts or omissions of the other
party, and neither party shall be deemed an agent of the other party.
15. CONFIDENTIALITY
---------------
Both parties agree to hold all information received from the other
party hereto including the terms of this License Agreement in confidence.
Notwithstanding the foregoing, this confidentiality shall not apply to
information received from other sources or in the public domain.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
SUCCESS HOLDINGS CO., LLC FORTUNE 21, INC.
By: /s/ Peter R. Morris By: /s/ James S. Byrd
----------------------- ---------------------
Peter Morris James S. Byrd, Jr.
12
AMENDED AND RESTATED AGREEMENT
and
PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANI ZATION,
effective the 22nd day of March, 1997 (the "Effective Date"), by and between
Messrs. Robert Stahura ("Mr. Stahura") and Steven Thorne ("Mr. Thorne") (each, a
"Shareholder" and collectively, the "Shareholders"), and FORTUNE FINANCIAL
SYSTEMS, INC., a Delaware corporation ("FFS"),
WITNESSETH:
WHEREAS each of the Shareholders owns the number of shares of common
stock of Professional Marketing, Inc. (the "Company") set forth opposite his
name in Schedule 1 to this Agreement, which collectively constitute more than
80% of the issued and outstanding shares of the Company (collectively, the
"Company Shares"); and
WHEREAS FFS holds at least one million (1,00,000) shares of common
voting stock of FFS, which shares will constitute approximately five and
one-half percent (5.5%) of the issued and outstanding voting shares of FFS after
consummation of the transaction described herein; and
WHEREAS FFS wishes to acquire, and the Shareholders wish to transfer to
FFS, all of the issued and outstanding Company Shares in exchange for One
Million (1,000,000) shares of common voting stock of FFS (the "FFS Shares") in a
transaction intended to qualify as a reorganization within the meaning of
Internal Revenue Code Section 368(a)(1)(B), as amended;
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Closing" means the consummation of the transactions contemplated
herein, as described herein. The Closing shall be deemed to have occurred March
22, 1997.
"Material Adverse Effect" means a material adverse effect on the
business (including the continued conduct or the operation thereof in
substantially the manner currently conducted), assets, liabilities, financial
condition or results of operations.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 1
<PAGE>
"Party" means each of FFS and each of the Shareholders.
ARTICLE 2
TRANSFER AND ASSIGNMENT OF SHARES
2.1 Statement of Intent. Effective March 22, 1997, the Parties entered
into that certain agreement between and among them (the "March 22 Agreement"),
pursuant to which the Shareholders agreed to transfer and assign to FFS all of
the Company Shares, and FFS agreed to transfer and assign to the Shareholders
all of the FFS Shares. It is the intention of the Parties, under the terms of
this Agreement, to amend and re-state the general agreements set forth in the
March 22 Agreement and consummate the transaction described therein, effective
March 22, 1997. To the extent that any of the terms of this Agreement are
inconsistent with the terms of the March 22 Agreement, the terms of this
Agreement shall govern.
2.2 Assignment and Transfer of Company Shares. Subject to the terms of
this Agree ment, the Shareholders agree to transfer and assign the Company
Shares to FFS. The Shareholders shall deliver to FFS a certificate or
certificates evidencing the Company Shares owned by the Shareholders, in a form
ready for transfer and duly endorsed to FFS. From time to time, FFS and each of
the Shareholders shall execute and deliver such other documents and instruments,
and take such other actions, as the other Parties may reasonably request, in
order more fully to vest in each of the Parties and perfect its title to all
right, title and interest in and to the Company Shares, in the case of FFS and
the FFS Shares, in the case of each of the Shareholders.
2.3 Assignment and Transfer of FFS Shares. Subject to the following
conditions and in accordance with the following schedule, FFS agrees to transfer
and assign to the Shareholders, One Million Thousand (1,000,000) FFS Shares in
the aggregate, which shall be duly assigned and transferred to the Shareholders
as follows:
(a) As of the Effective Date, FFS shall (i) deliver to the Shareholders
two stock certificates, each such certificate representing Two Hundred Fifty
Thousand (250,000) shares of FFS's common stock and issued in the name of each
of the Shareholders, respectively (which shares, together with other shares to
be transferred and delivered to other shareholders contemporaneously with such
delivery to the Shareholders, constitute more than fifty percent of the FFS
Shares to be transferred and delivered by FFS in connection with the
reorganization contemplated in this Agreement); and (ii) deliver to a mutually
acceptable escrow agent two additional stock certificates, each representing Two
Hundred Fifty Thousand (250,000) shares of FFS's common stock ("Escrow Shares"),
for the benefit of the Shareholders.
(b) On the first day on which the Company achieves aggregate gross
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 2
<PAGE>
sales during any consecutive fifteen months during the period beginning March
22, 1997 to and including December 31, 1998, equal to or more than Fifteen
Million Dollars ($15,000,000), then FFS shall cause the escrow agent to deliver
to each of the Shareholders one stock certificate, representing Two Hundred
Fifty Thousand (250,000) shares of FFS's common stock and issued in the name of
such Shareholder. If aggregate gross sales during any such fifteen-month period
do not equal or exceed Fifteen Million Dollars, then FFS shall cause the escrow
agent to instruct the transfer agent for FFS to (i) deliver to each of the
Shareholders a stock certificate representing a number of FFS Shares bearing the
same proportion to 250,000 that the highest gross sales of the Company during
any such fifteen-month period bears to Fifteen Million Dollars, and (ii) return
the balance of the Escrow Shares to FFS.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 3
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As a material inducement to FFS to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Shareholders,
severally, represents and warrants to FFS as follows:
3.1 Ownership of the Company Shares. He is the true and lawful owner of
his Company Shares, has good title to and is the beneficial and record owner of
his Company Shares, and has the absolute right to assign and transfer his
Company Shares to FFS. His Company Shares will be conveyed to FFS free and clear
of all Liens, claims, restrictions, covenants, conditions, pledges, options,
encumbrances and rights of any Persons, other than pursuant to restrictions
under applicable federal and state securities laws. He has not entered into any
other agreement to sell or otherwise transfer his Company Shares, or entered
into any agreement limiting the ability to vote or transfer his Company Shares.
All of the Company Shares are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding options, warrants, agreements, rights,
conversion privileges or other agreements of any kind to acquire any share of
capital stock in the Company, nor any outstanding rights or privileges to
acquire any such interest. No share of capital stock of the Company has been
registered under the Securities Act of 1933, as amended, nor under the
securities laws of any state in which they were or may be offered for sale. The
Company Shares constitute one hundred percent (100%) of the issued and
outstanding capital stock of the Company.
3.2 Organization of the Company. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State in
which it was incorporated, (ii) has all requisite corporate power and authority
to own all of its properties and assets and to carry on its business as it is
now being conducted, (iii) is duly qualified to do business and is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing or to be duly licensed, authorized
or qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, and (iv) has all federal, state
and local government licenses, permits, approvals and other authorizations
necessary to own its properties and assets and carry on its business as it is
now being conducted, except where the failure to have such governmental
licenses, permits, approvals or other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
3.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of Shareholders. This Agreement is a legal, valid and binding
obligation of the Shareholders, enforceable against each of the Shareholders in
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 4
<PAGE>
accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws or decisions
relating to or affecting creditors' rights generally, by equitable limitations
on its enforceability, and by other laws or decisions of general application
relating to general principles of equity.
3.4 No Conflict. The execution, delivery and performance of this
Agreement by the Shareholders do not, and the consummation by the Shareholders
of the transactions contemplated hereby and thereby will not, violate any
provision of the Company's Articles of Incorporation or By-laws.
3.5 Brokers. The Shareholders have not employed any investment banker,
broker or finder in connection with the transactions contemplated hereby who
might be entitled to a fee or other remuneration from the Shareholders, the
Company or FFS. FFS acknowledges a claim by Dalmar, Inc. and agrees to indemnify
the Company for all amounts in excess of Twenty-five Thousand Dollars in
connection with the settlement or resolution of such claim.
3.6 Litigation. To the Shareholders' best knowledge, except as set
forth in Exhibit 3.6, there is no litigation, investigation or proceeding of or
before any arbitrator, court, agency or governmental authority pending or
threatened by or against the Company or affecting the Company Shares.
3.7 Compliance with Laws. To the best knowledge of the Shareholders,
the Company is in compliance with all laws, rules, regulations, orders, writs,
injunctions and decrees to which it or any of its assets are subject, except
where the failure would not have a Material Adverse Effect on the Company.
3.8 No Undisclosed Liability. To the best knowledge of the
Shareholders, there is no liability or obligation of any kind, whether accrued,
absolute, fixed or contingent, of the Company that is not disclosed, reflected
or reserved against in the Company's financial statements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FFS
As a material inducement to the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, FFS represents
and warrants to the Shareholders as follows:
4.1 Ownership of the FFS Shares. FFS is the true and lawful owner of
the FFS Shares, has good title to and is the beneficial and record owner of the
FFS Shares, and has the absolute right to assign and transfer the FFS Shares to
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 5
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the Shareholders. The FFS Shares are owned by FFS and will be conveyed to The
Shareholders free and clear of all Liens, claims, restrictions (except as
required under Rule 144 of the Securities and Exchange Commission), covenants,
conditions, pledges, options, encumbrances and rights of any Persons, other than
pursuant to restrictions under applicable federal and state securities laws. The
FFS Shares are common voting stock of FFS, eligible to vote in the election of
corporate directors of FFS. The FFS Shares constitute approximately five and
one-half percent (5.5%) of the issued and outstanding capital stock of FFS. FFS
has not entered into any other agreement to sell or otherwise transfer the FFS
Shares, nor has FFS entered into any agreement limiting the ability to vote or
transfer the FFS Shares. All FFS Shares transferred pursuant to this Agreement
are duly authorized, validly issued, fully paid and non-assessable, and are not
subject to dilution except in the same proportion as all other shares of FFS, in
connection with new issues for public distribution or for the purpose of
facilitating an acquisition or merger.
4.2 Organization of FFS. FFS (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State in which it
was incorporated, (ii) has all requisite corporate power and authority to own
all of its properties and assets and to carry on its business as it is now being
conducted, (iii) is duly qualified to do business and is in good standing, and
is duly licensed, authorized or qualified to transact business in each
jurisdiction in which the ownership or lease of real property or the conduct of
its business requires it to be so qualified, except where the failure to be so
qualified or to be in good standing or to be duly licensed, authorized or
qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on FFS, and (iv) has all federal, state and local
government licenses, permits, approvals and other authorizations necessary to
own its properties and assets and carry on its business as it is now being
conducted, except where the failure to have such governmental licenses, permits,
approvals or other authorizations would not, individually or in the aggregate,
have a Material Adverse Effect on FFS.
4.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of FFS. This Agreement is a legal, valid and binding obligation of FFS,
enforceable against FFS in accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws or decisions relating to or affecting creditors' rights generally,
by equitable limitations on its enforceability, and by other laws or decisions
of general application relating to general principles of equity.
4.4 No Conflict. The execution, delivery and performance of this
Agreement by FFS do not, and the consummation by FFS of the transactions
contemplated hereby and thereby will not, violate any provision of FFS's
Articles of Incorporation or By-laws.
4.5 Brokers. FFS has not employed any investment banker, broker or
finder in connection with the transactions contemplated hereby who might be
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 6
<PAGE>
entitled to a fee or other remuneration from the Shareholder, the Company or The
Shareholders.
4.6 Disclosure. No representation or warranty of FFS contained in this
Agreement and no statement contained in any certificate, list, schedule, exhibit
or other instruments furnished or to be furnished to the Shareholders pursuant
hereto, or in any connection with the transaction contemplated hereby, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact which is necessary in order to make the statements
contained herein not misleading.
4.7 Litigation. To FFS's best knowledge, there is no litigation,
investigation or proceeding of or before any arbitrator, court, agency or
governmental authority pending or threatened by or against FFS or affecting the
FFS Shares.
4.8 Compliance with Laws. To the best knowledge of FFS, FFS is in
compliance with all laws, rules, regulations, orders, writs, injunctions and
decrees to which it or any of its assets are subject, except where the failure
would not have a Material Adverse Effect on FFS.
4.9 No Undisclosed Liability. To the best knowledge of FFS, there is no
liability or obligation of any kind, whether accrued, absolute, fixed or
contingent, of FFS that is not disclosed, reflected or reserved against in the
FFS financial statements.
ARTICLE 5
COVENANTS OF FFS AND SHAREHOLDERS
5.1 Mutual Cooperation. Following the execution of this Agreement, FFS
and Shareholders agree:
(a) If any event should occur, either within or without the knowledge
or control of FFS or Shareholders, which would prevent fulfillment of the
conditions to the obligations of any Party hereto, to use his or their
commercially reasonable efforts to cure the same as expeditiously as possible;
and
(b) To cooperate fully with each other in preparing, filing,
prosecuting and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement.
5.2 Additional Covenants of FFS. FFS agrees that upon execution of this
Agreement, it shall assume primary liability for the following obligations of
the Company: long-term indebtedness in the amount of $50,000, (ii) the
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 7
<PAGE>
obligation of the Company under that certain lease agreement relating to the
lease of the Company's premises at 261 South 1350 East, Lehi, Utah, and (iii)
the acquisition of a predictive dialer for use by the Company upon mutually
agreeable terms.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction on or prior to
the Effective Date of all of the following conditions, any of which may be
waived by the Shareholders.
6.1 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any Persons in connection with
the consummation of the transactions contemplated in this Agreement have been
filed, made or obtained and all applicable waiting periods shall have expired or
been terminated.
6.2 Deliveries by FFS. FFS shall have made delivery to the Shareholders
of the documents and items specified in Section 8.3.
6.3 Representations and Warranties of FFS. All representations and
warranties made by FFS in this Agreement shall be true and correct on and as of
the Effective Date, as if made by FFS on and as of that date.
6.4 Performance of Obligations of FFS. FFS shall have performed and
complied with the covenants, agreements, obligations and conditions required by
this Agreement to be performed or complied with by FFS at or prior to the
Effective Date.
6.5 Absence of Action Restraining or Affecting Transaction. No action
or proceeding by any Person or court shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF FFS
The obligations of FFS to consummate the transactions contemplated by
this Agreement are subject to the satisfaction on or prior to the Effective Date
of all of the following conditions, any of which may be waived by FFS:
7.1 Filings; Consents; Waiting Periods. All registrations, filings,
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 8
<PAGE>
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any Persons in connection with
the consummation of the transactions contemplated in this Agreement have been
filed, made or obtained and all applicable waiting periods shall have expired or
been terminated.
7.2 Deliveries by the Shareholders. The Shareholders shall have made
delivery to FFS of the documents and items specified in Section 8.2.
7.3 Representations and Warranties of the Shareholders. All
representations and warranties made by the Shareholders in this Agreement shall
be true and correct on and as of the Effective Date, as if made by the
Shareholders on and as of that date.
7.4 Performance of Obligations of the Shareholders. The Shareholders
shall have performed and complied with all the covenants, agreements,
obligations and conditions required by this Agreement to be performed or
complied with by the Shareholders at or prior to the Effective Date.
7.5 Absence of Action Restraining or Affecting Transaction. No action
or proceeding by any Person or court shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
ARTICLE 8
TERMINATION
8.1 Events of Termination. Notwithstanding any provision to the
contrary herein, this Agreement may be terminated at any time on or prior to the
Effective Date:
(a) By mutual written consent of the Shareholders and FFS;
(b) By either the Shareholders or FFS in the event any federal or
state agency having jurisdiction over the approval of the transactions
contemplated hereby disapproves of any part of such transactions.
ARTICLE 9
MANAGEMENT OF THE COMPANY
9.1 Management. FFS will appoint either Mr. Stahura or Mr. Thorne to
the Board of Directors of FFS, upon assurance of appropriate corporate
indemnities, insurance and protection for directors. Mr. Stahura and Mr. Thorne
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 9
<PAGE>
will retain their existing positions as officers of the Company, and shall have
full authority to continue to operate the Company under the supervision of the
Board of Directors and in accordance with the Articles of Incorporation and the
By-laws of the Company. FFS agrees to appoint a three-person Board of Directors
for the Company, consisting of two Directors nominated by the Shareholders, and
one person nominated by FFS. In accordance with an employment agreement to be
executed between the Company and each of Mr. Stahura and Mr. Thorne, Mr. Stahura
and Mr. Thorne will be entitled to retain their existing positions as officers
of the Company for a period of at least five years, and they shall not be
removed from their positions for any reason other than for gross malfeasance.
They shall have full authority to continue to operate the Company under the
supervision of the Board of Directors, and in accordance with the Articles of
Incorporation and the By-laws, of the Company and this Agreement. The
headquarters of the Company shall remain in Utah. FFS agrees to permit the
Company to budget at least 3% of its annual gross revenues for the purpose of
financing capital improvements and expansion, based on an annual budget to be
approved by the Board of Directors of the Company from time to time.
9.2 Financial Management. FFS agrees that it will permit the Company to
operate autonomously so long as the Board of Directors of the Company meets its
obligation to exercise good business judgment and to fulfill its obligations to
shareholders as set forth in the By-laws of the Company. FFS agrees not to adopt
a dividend policy for the Company inconsistent with the provisions of this
Agreement.
9.3 Compensation Policy. The Company shall enter into employment
agreements with Mr. Stahura and Mr. Thorne, and other key employees, providing
for compensation consistent with the provisions of Exhibit 9.3.
9.4 Actions Requiring Unanimous Consent. Notwithstanding any other
requirement set forth herein or the Articles of Incorporation of the Company,
the Parties expressly agree that a unanimous vote of all of the directors of the
Company who form a quorum of Directors convened to discuss such issues, after
due notice, shall be obtained before any of the following actions shall be taken
by the Company: (a) the appointment of any new or replacement Directors of the
Company; (b) the issuance of any shares, or of any warrants or debentures,
options or rights in or to shares of the common or other capital stock of the
Company; (c) any pledge, mortgage, sale, lease or other transfer, except in
normal course of business or as part of a complete dissolution or winding up, or
any material portion of its business; (d) any merger, consolidation or
amalgamation with or into another company or corporation; (e) any change to, or
the conduct of any business outside, the general business of the Company; (f)
the incurring of any indebtedness to any third person or entity for borrowed
funds or for the deferred purchase price of purchased goods, or any other
indebtedness of any kind, except as otherwise permitted herein; (g) the
extension of credit to any one debtor in an amount exceeding US$250,000 or its
equivalent in another currency; (h) the agreement of the Company to waive or not
enforce any rights it may have under any agreements, or in respect of
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 10
<PAGE>
transactions to which it may be a party; (i) the adoption of any dividend policy
calling for the payment of dividends greater than the amounts required to meet
the objectives of this Agreement, or any departure from the dividend policies
set forth herein or in any of the Articles of Incorporation; provided, however,
that the Board of Directors of the Company may establish the initial dividend
policy consistent with the terms of this Agreement; or (j) any change in the
outside auditors of the Company.
9.5 Competition; Corporate Opportunity. Mr. Stahura and Mr. Thorne
agree they will provide adequate time, good faith and best efforts in managing
the operations of the Company in accordance with a business plan to be adopted
by the Company (as amended from time to time, the "Company Business Plan"), and
consistent with the overall business plan of FFS (the "FFS Business Plan") (the
Company Business Plan and the FFS Business Plans being referred to collectively
as the "Business Plans"). With respect to any business or investment opportunity
falling within the scope of the Business Plans, Mr. Stahura and Mr. Thorne agree
to present such opportunity to the board of directors of the Company or of FFS,
as the case may be. Such investment or business opportunity shall be undertaken
by the Company or by FFS only upon approval of a majority of the disinterested
directors. If FFS or the Company elect not to undertake such opportunity, then
Mr. Stahura and Mr. Thorne shall be free to undertake any such investment upon
the following terms: Mr. Stahura and Mr. Thorne agree to provide to the Company
and to FFS a right to invest in such proposed business venture with Mr. Stahura
and Mr. Thorne, on a basis to be determined by the circumstance of such proposed
venture but in no case less favorable to the Company or to FFS, as the case may
be, than the opportunity available to Mr. Stahura and Mr. Thorne. Such notice
shall be written and shall set forth sufficient information, and shall allow a
reasonable time under the circumstances, to permit adequate deliberation. FFS
shall have a right, at any time before, or up to sixty days after, the date of
such investment, to invest in up to a 50% participation in any such opportunity
by contributing up to 50% of the overall capital investment, in the same or
equivalent type of cash, goods or services and upon the same terms and
conditions of the participation by Mr. Stahura and Mr. Thorne. In any such case,
whether or not FFS elects to participate in such business opportunity, (i) Mr.
Stahura and Mr. Thorne shall not, without the approval of FFS, utilize
employees, assets (including lists of prospective customers, good will and
intellectual property) of the Company or its affiliates, and (ii) the proposed
venture shall be conducted in a manner that does not devalue FFS or its
affiliates or deprive them of business opportunities within their scope.
ARTICLE 10
MISCELLANEOUS
10.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Party.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 11
<PAGE>
10.2 Governing Law; Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah without reference
to the choice of law principles thereof. Any controversy or claim arising out of
or in connection with this Agreement shall be finally settled in accordance with
the Commercial Arbitration Rules and supplementary procedures for commercial
arbitrations of the American Arbitration Association (the "AAA") then in force,
by submitting such dispute for binding arbitration before a jointly-designated
arbitrator. If the Parties are unable to agree on a single arbitrator, then such
binding arbitration shall be conducted before a panel of three arbitrators that
shall be chosen as follows: each Party shall designate one arbitrator and such
arbitrators shall designate a third arbitrator. This arbitration provision shall
be deemed to be self-executing, and in the event that either Party fails to
appear at any properly noticed arbitration proceeding award may be entered
against such Party notwithstanding such failure to appear. Any award granted by
such arbitral panel shall be self-executing, to the greatest extent permitted by
applicable law, and in any case shall be eligible for entry of judgment and for
enforcement by a court of appropriate and competent jurisdiction. The location
or site of such arbitration proceeding shall be (i) Salt Lake City, Utah, or
(ii) another location mutually accept able to the Parties, or (iii) if for any
reason it is or becomes impossible or impracticable for the Parties to conduct
arbitration proceedings in Salt Lake City, Utah and the Parties are unable to
agree on another location, then at a location determined by the American
Arbitration Association. Nothing in this Section shall be construed or deemed to
prevent either party from seeking injunctive relief pursuant to the terms hereof
in a court of appropriate jurisdiction.
10.3 Expenses. Except as set forth in this Agreement, FFS and the
Shareholders shall be responsible for their own legal and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
10.4 Notices. All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and (i) delivered personally, (ii) sent by
certified mail, postage prepaid, (iii) sent by overnight courier or (iv) sent by
facsimile transmission, to the appropriate address as set forth below. Notices
to the Shareholders shall be addressed to:
Steven G. Thorne
Robert Stahura
Professional Marketing, Inc.
261 South 1350 East
Lehi, Utah 84043
Telephone: (801) 768-8088
Facsimile: (801) 768-3250
or at such other address and to the attention of such other person as
Shareholders or the Company may designate by notice to FFS. Notices to FFS shall
be addressed to:
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 12
<PAGE>
Fortune Financial System, Inc.
1200 West State Road 434
Longwood, FL 32750
Attention: Mr. James Byrd
Telephone: (407) 331-1272
Facsimile: (407) 331-3327
or at such other address and to the attention of such other person as FFS may
designate by notice to Shareholders.
Any notice hereunder shall be deemed to have been served or given as of
(a) the date such notice is personally delivered, (b) three business days after
it is mailed certified U.S. mail, First Class postage prepaid, (c) one business
day after it is sent for overnight delivery by Federal Express or similar
next-day courier, or (d) the same day as it is sent by facsimile transmission
with confirmation of receipt.
10.5 Successors and Assigns. The rights and obligations of any Party to
this Agreement shall not be assignable by such Party without the prior written
consent of all other Parties. Notwithstanding the previous sentence, this
Agreement may be assigned by FFS to any Affiliate of FFS without the
Shareholders's prior written consent; provided, however, no such assignment
shall have the effect of releasing or reducing the obligations of FFS pursuant
to this Agreement, FFS Related Documents, or any other instruments, agreements
or covenants provided in or contemplated by this Agreement. This Agreement shall
inure to the benefit and shall be binding upon the respective successors and
permitted assigns of the Parties, including without limitation upon the Company
as the successor to FFS following its merger into the Company after the Closing
date. Nothing herein expressed or implied is intended to confer upon any person,
other than to the Parties or their respective heirs, personal representatives,
successors or permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.6 Headings. The headings contained in this Agreement are solely for
convenience of reference and shall not affect its interpretation.
10.7 Severability of Provisions. In the event that any of the
provisions contained herein would be held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason because of the scope, duration
or area of its applicability or for other reasons, unless narrowed by
construction, such provision shall for purposes of such jurisdiction only, be
construed as if such invalid, prohibited or unenforceable provision had been
more narrowly drawn so as not to be invalid, prohibited or unenforceable (or if
such language cannot be drawn narrowly enough, the court making any such
determination shall have the power to modify, to the extent necessary to make
such provision or provisions enforceable in such jurisdiction, such scope,
duration or area or all of them, and such provision shall then be applicable in
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 13
<PAGE>
such modified form). If, notwithstanding the foregoing, any such provision would
be held to be invalid, prohibited or unenforceable in any jurisdiction for any
reason, such provision, as to such jurisdiction only, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability, without
invalidating the remaining provisions. No narrowed construction,
court-modification or invalidation of any provision shall affect the
construction, validity or enforceability of such provision in any other
jurisdiction. Subject to the foregoing, in case any one or more of the
provisions contained in this Agreement or any other documents executed in
connection herewith should be invalid, illegal or unenforceable in any respect,
the validity, legality and unenforceability of the remaining provisions
contained herein and therein shall not be affected in any way thereby.
10.8 Gender. Whenever in this Agreement any masculine, feminine or
neuter pronoun is used, such pronouns shall also include the other genders
whenever required by the context.
10.9 Further Assurances. The Shareholders and FFS shall each execute
and deliver instruments and take such other actions as may be reasonably
required in order to carry out the intent of this Agreement.
10.10 Public Announcement. Neither FFS, Shareholders nor the Company
shall make any announcement or issue any press release relating to this
Agreement or the transactions contemplated hereby without the consent of the
other Parties.
10.11 Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of its terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by FFS and the Shareholders or, in the case of a waiver, by the Party
waiving compliance. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same. No waiver by any Party of any
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
10.12 Litigation. In the event litigation or arbitration is instituted
between or among any of the Parties with respect to all or any part of this
Agreement, the prevailing Party therein shall be entitled to recover, in
addition to all other relief obtained, its costs, expenses and fees, including
reasonable attorneys' fees incurred in such litigation.
IN WITNESS WHEREOF, this Amended and Restated Agreement and Plan of
Reorganization has been signed by or on behalf of the Parties as of the day and
year first above written.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 14
<PAGE>
Shareholders
/s/ Robert A. Stahura
- ---------------------
Robert Stahura
/s/ Steven G. Thorne
- --------------------
Steven Thorne
Fortune Financial Systems, Inc.
/s/ James S. Byrd
- -----------------
James S. Byrd, Jr.
President
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 15
<PAGE>
Schedule 1
Name: No. of Company Shares: Percentage of Issued and
Outstanding share of the
Company:
Robert A. Stahura _____________________ ______________________
Steven G. Thorne _____________________ ______________________
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 16
<PAGE>
Exhibit 3.6
Claims and Litigation
1. DALMAR ENTERPRISES, INC. v. FORTUNE 21, PROFESSIONAL MARKETING,
INC., ROBERT A. STAHURA, and STEVEN G. THORNE, Civil No. 970903709CVD,
Third District Court.
2. Home Business Technology. The Company processed approximately $2
million in sales of products and services sold by Home Business
Technology, a company affiliated with Mr. Ed Beckley ("HBT"). HBT has
come under investigation by the Iowa Attorney General's office. The
Company has received no notice that any of its activities in connection
with such sales are under investigation.
3. Joint inquiry from Utah Attorney General and the Federal Trade
Commission regarding complaint by Mr. Thomas Markland.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 17
<PAGE>
Exhibit 9.3
Employment Compensation Policy. For so long as Mr. Stahura or Mr.
Thorne remains employed by the Company,
1. Each of them remaining so employed shall be entitled to
receive compensation from the Company, as follows: Monthly
salary of $12,500, payable at the beginning of each calendar
month, plus an amount equal to 1.5% of gross sales for such
month, as determined within five days after the end of such
month; provided that the total of such compensation shall not,
unless otherwise approved by the Board of Directors of the
Company, exceed $400,000 each, in any fiscal year.
2. At least forty percent (40%) of net pre-tax profits shall be
available to the Company to provide bonus compensation to
employees of the Company, at least fifty percent of which
shall be designated for each of them remaining so employed.
Professional Marketing, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 18
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, effective the 1st day of April, 1997, by
and between DGS Defalco West, Inc, a California Corporation, (the "Purchaser")
and FORTUNE FINANCIAL SYSTEMS, INC., a Nevada Corporation ("FFS"),
WHEREAS, FFS owns all of the common stock of Fortune 21, Inc., a
Florida corporation, which constitute all of the issued and outstanding shares
of Fortune 21 (collectively, the "Shares");
WHEREAS, the Purchaser desires to purchase the Shares of Fortune 21 and
FFS is willing to sell the Shares to the Purchaser, upon the terms and
conditions of this Agreement;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with, such other
Person.
"Closing" means the sale and purchase of the Shares, as described
herein.
"Effective Date" means April 1, 1997.
"Material Adverse Effect" means a material adverse effect on the
business (including the continued conduct or the operation thereof in
substantially the manner currently conducted), assets, liabilities, financial
condition or results of operations.
"Parties" means each of the Purchaser and FFS.
"Person" means any individual, corporation, partnership, association,
trust or other entity or organization, including a governmental or political
subdivision or an agency or instrumentality thereof.
"Quarterly Date" means January 1, April 1, July 1, and October of each
year.
ARTICLE 2
PURCHASE AND SALE OF STOCK; PAYMENT TERMS
0.1 Assignment and Transfer of Shares. Subject to the terms of this
1
<PAGE>
Agreement, FFS agree to sell, transfer, and assign the Shares to the Purchaser.
At the Closing, FFS shall deliver to the Purchaser a certificate or certificates
evidencing the Shares owned by FFS, in a form ready for transfer and duly
endorsed to the Purchaser. At the Closing, and from time to time thereafter, the
Purchaser and FFS shall execute and deliver such other documents and
instruments, and take such other actions, as the other parties may reasonably
request, in order more fully to vest in the Purchaser and perfect his title to
all right, title and interest in and to the Shares.
0.2 The Purchase Price. Subject to the other provisions of this Article
2, the purchase price (the "Purchase Price") to be paid by the Purchaser to FFS
in exchange for the Shares shall be One Million Four Hundred Eighty-four
Thousand Nine Hundred Twelve Dollars ($1,484,912), payable in cash as follows:
(a At the Closing, FFS shall deliver to the Purchaser one or
more stock certificates, representing in the aggregate 100% of the Company=s
common stock and issued in the name of FFS, duly endorsed to the Purchaser as
the Purchaser may instruct.
(b The Purchaser shall pay the full amount of the Purchase
Price to FFS in twenty-eight quarterly installments in the amount of
Seventy-four Thousand Two Hundred Forty-six and 66/100 Dollars ($74,246.66)
each, beginning April 1, 1999 and continuing thereafter on each Quarterly Date
until the full amount has been paid in full.
(c The principal amount of the Purchase Price outstanding from
time to time shall bear interest at an annual rate of eight percent (8%) from
and including the Effective Date to and including the date of the final payment
of all interest, principal, and other amounts due from the Purchaser to FFS.
Interest shall be payable on each Quarterly Date beginning on January 2, 1998
and continuing thereafter until all amounts due from the Purchaser to FFS in
respect of the Purchase Price have been fully paid.
0.3 Success. The Purchaser agrees and consents to a transfer and
assignment from the Company to FFS of all of the Company's right, title and
interest in that certain agreement between Success Magazine and the Company
relating to a license of rights and a grant of media credits.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FFS
FFS hereby represents to the Purchaser as follows:
0.1 Ownership of the Shares. FFS is the true and lawful owner of the
Shares, has good title to and is the beneficial and record owner of the Shares,
and has the absolute right to sell, assign and transfer the Shares to the
Purchaser. The Shares are owned by FFS and will be conveyed to the Purchaser
free and clear of all liens, claims, restrictions, covenants, conditions,
pledges, options, encumbrances and rights of any Persons, other than pursuant to
restrictions under applicable federal and state securities laws. The Shares
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constitute one hundred percent (100%) of the issued and outstanding capital
stock of the Company. FFS has not entered into any other agreement to sell or
otherwise transfer the Shares, nor has FFS entered into any agreement limiting
the ability to vote or transfer the Shares. All Shares are duly authorized,
validly issued, fully paid and non-assessable. There are no outstanding options,
warrants, agreements, rights, conversion privileges or other agreements of any
kind to acquire any share of capital stock in the Company or in the Subsidiaries
nor any outstanding rights or privileges to acquire any such interest. No share
of capital stock of the Company has been registered under the Securities Act of
1933, as amended, nor under the securities laws of any state in which they were
or may be offered for sale.
0.2 Organization of the Company. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State in
which it was incorporated, (ii) has all requisite corporate power and authority
to own all of its properties and assets and to carry on its business as it is
now being conducted, (iii) is duly qualified to do business and is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing or to be duly licensed, authorized
or qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, and (iv) has all federal, state
and local government licenses, permits, approvals and other authorizations
necessary to own its properties and assets and carry on its business as it is
now being conducted, except where the failure to have such governmental
licenses, permits, approvals or other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
0.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of FFS. This Agreement is a legal, valid and binding obligation of FFS,
enforceable against FFS in accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws or decisions relating to or affecting creditors' rights generally,
by equitable limitations on its enforceability, and by other laws or decisions
of general application relating to general principles of equity.
0.4 No Conflict. The execution, delivery and performance of this
Agreement by FFS do not, and the consummation by FFS of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
Company's Articles of Incorporation or By-laws.
0.5 Brokers. FFS has not employed any investment banker, broker or
finder in connection with the transactions contemplated hereby who might be
entitled to a fee or other remuneration from FFS, the Company or the Purchaser.
0.6 Disclosure. No representation or warranty by FFS contained in this
Agreement and no statement contained in any certificate, list, schedule, exhibit
or other instruments furnished or to be furnished to the Purchaser pursuant
hereto, or in any connection with the transaction contemplated hereby, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact which is necessary in order to make the statements
contained herein not misleading.
3
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0.7 Litigation. To FFS's best knowledge, except as set forth in
Schedule 3.12, there is no litigation, investigation or proceeding of or before
any arbitrator, court, agency or governmental authority pending or threatened by
or against the Company or affecting the Shares.
0.8 Compliance with Laws. To the best knowledge of FFS, the Company is
in compliance with all laws, rules, regulations, orders, writs, injunctions and
decrees to which it or any of its assets are subject, except where the failure
would not have a Material Adverse Effect on the Company.
0.9 No Undisclosed Liability. To the best knowledge of FFS, there is no
liability or obligation of any kind, whether accrued, absolute, fixed or
contingent, of the Company that is not disclosed, reflected or reserved against
in the Company's financial statements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As a material inducement to FFS to enter into this Agreement and to
consummate the transactions contemplated hereby, the Purchaser represents and
warrants to FFS as follows:
0.1 Brokers. The Purchaser has not employed any investment banker,
broker or finder in connection with the transactions contemplated hereby who
might be entitled to a fee or other remuneration from FFS, the Company or FFS.
0.2 Disclosure. No representation or warranty of the Purchaser
contained in this Agreement and no statement contained in any certificate, list,
schedule, exhibit or other instruments furnished or to be furnished to FFS
pursuant hereto, or in any connection with the transaction contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact which is necessary in order to make the
statements contained herein not misleading.
0.3 Litigation. Except as set forth in Schedule 4.3, there is no
litigation, investigation or proceeding of or before any arbitrator, court,
agency or governmental authority pending or threatened by or against the
Purchaser or affecting the Shares or the right of the Purchaser to grant a
security interest in respect of the Shares.
0.4 Compliance with Laws. The Purchaser is in compliance with all laws,
rules, regulations, orders, writs, injunctions and decrees to which it or any of
its assets are subject, except where the failure would not have a Material
Adverse Effect on the Purchaser.
0.5 No Undisclosed Liability. There is no liability or obligation of
any kind, whether accrued, absolute, fixed or contingent, of the Purchaser that
is not disclosed, reflected or reserved against in the Purchaser's Financial
Statements.
4
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ARTICLE 5
COVENANTS OF THE PURCHASER AND FFS
0.1 Mutual Cooperation. Following the execution of this Agreement, the
Purchaser and FFS agree:
(a If any event should occur, either within or without the
knowledge or control of the Purchaser or FFS, which would prevent fulfillment of
the conditions to the obligations of any party hereto, to use his or their
commercially reasonable efforts to cure the same as expeditiously as possible;
and
(b To cooperate fully with each other in preparing, filing,
prosecuting and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT
The obligations of the Parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction on or prior to
the Closing Date of all of the following conditions, any of which may be waived
by FFS.
0.1 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any Persons in connection with
the consummation of the transactions contemplated in this Agreement have been
filed, made or obtained and all applicable waiting periods shall have expired or
been terminated.
0.2 Deliveries by the Purchaser. The Parties shall have made delivery
to FFS of the documents and items specified in this Agreement.
0.3 Representations and Warranties. All representations and warranties
made by the Parties hereto in this Agreement shall be true and correct on and as
of the Closing Date, as if made on and as of that date.
0.4 Performance of Obligations of the Purchaser. Each of the Parties
shall have performed and complied with the several covenants, agreements,
obligations and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing Date.
0.5 Absence of Action Restraining or Affecting Transaction. No action
or proceeding by any Person or court shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
5
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ARTICLE 7
THE CLOSING
0.1 Time and Place of Closing; Effective Date. The effective closing is
April 1, 1997 (the "Closing Date") at the offices of the Company, or at such
other place or time as the parties may agree upon in writing. The transactions
contemplated herein shall be effective at close of business on the Closing Date.
0.2 Deliveries by FFS. At or prior to the Closing, FFS shall deliver or
cause to be delivered to the Purchaser the following duly executed documents and
other items in a form satisfactory to the Purchaser:
(a A certified copy of the Articles of Incorporation and
all amendments of the Company.
(b The Company's minute book, including the Bylaws,
stock transfer record and other corporate records;
(c Certificates representing the Shares, duly endorsed,
or accompanied by stock powers duly endorsed, by FFS for transfer to the
Purchaser;
(d A Certificate of Good Standing from the appropriate
governmental agency for the Company dated as of the most recent practicable date
prior to the Closing;
ARTICLE 8
MISCELLANEOUS
0.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
0.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without reference to the choice
of law principles thereof.
0.3 Entire Agreement. This Agreement and the Schedules and Exhibits
attached hereto and made a part hereof contain the entire agreement between the
parties, and there are no agreements, understandings, representations or
warranties between the parties other than those set forth or referred to herein.
0.4 Expenses. Except as set forth in this Agreement, the Purchaser and
FFS shall be responsible for their own legal and other costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby.
6
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0.5 Notices. All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and (i) delivered personally, (ii) sent by
certified mail, postage prepaid, (iii) sent by overnight courier or (iv) sent by
facsimile transmission, to the appropriate address as set forth below.
Notices to FFS shall be addressed to:
Fortune Financial Systems, Inc.
1200 West State Road 34, Suite 112
Longwood, Florida 32750
or at such other address and to the attention of such other person as FFS or the
Company may designate by notice to the Purchaser. Notices to the Purchaser shall
be addressed to:
The Purchaser
DGS Defalco West, Inc.
1200 West State Road 34, Suite 110
Longwood, Florida 32750
or at such other address and to the attention of such other person as the
Purchaser may designate by notice to FFS.
Any notice hereunder shall be deemed to have been served or given as of
(a) the date such notice is personally delivered, (b) three business days after
it is mailed certified U.S. mail, First Class postage prepaid, (c) one business
day after it is sent for overnight delivery by Federal Express or similar
next-day courier, or (d) the same day as it is sent by facsimile transmission
with confirmation of receipt.
0.6 Successors and Assigns. The rights and obligations of any party to
this Agreement shall not be assignable by such party without the prior written
consent of all other parties to this Agreement. Notwithstanding the previous
sentence, this Agreement may be assigned by the Purchaser to any Affiliate of
the Purchaser without FFS's prior written consent; provided, however, no such
assignment shall have the effect of releasing or reducing the obligations of the
Purchaser pursuant to this Agreement, or any other instruments, agreements or
covenants provided in or contemplated by this Agreement. This Agreement shall
inure to the benefit and shall be binding upon the respective successors and
permitted assigns of the parties hereto. Nothing herein expressed or implied is
intended to confer upon any person, other than to the parties hereto or their
respective heirs, personal representatives, successors or permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
0.7 Headings. The headings contained in this Agreement are solely for
convenience of reference and shall not affect its interpretation.
0.8 Severability of Provisions. In the event that any of the provisions
contained herein would be held to be invalid, prohibited or unenforceable in any
7
<PAGE>
jurisdiction for any reason because of the scope, duration or area of its
applicability or for other reasons, unless narrowed by construction, such
provision shall for purposes of such jurisdiction only, be construed as if such
invalid, prohibited or unenforceable provision had been more narrowly drawn so
as not to be invalid, prohibited or unenforceable (or if such language cannot be
drawn narrowly enough, the court making any such determination shall have the
power to modify, to the extent necessary to make such provision or provisions
enforceable in such jurisdiction, such scope, duration or area or all of them,
and such provision shall then be applicable in such modified form). If,
notwithstanding the foregoing, any such provision would be held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, such provision,
as to such jurisdiction only, shall be ineffective to the extent of such
invalidity, prohibition or unenforceability, without invalidating the remaining
provisions. No narrowed construction, court-modification or invalidation of any
provision shall affect the construction, validity or enforceability of such
provision in any other jurisdiction. Subject to the foregoing, in case any one
or more of the provisions contained in this Agreement or any other documents
executed in connection herewith should be invalid, illegal or unenforceable in
any respect, the validity, legality and unenforceability of the remaining
provisions contained herein and therein shall not be affected in any way
thereby.
0.9 Gender. Whenever in this Agreement any masculine, feminine or
neuter pronoun is used, such pronouns shall also include the other genders
whenever required by the context.
0.10 Further Assurances. FFS and the Purchaser shall each execute and
deliver instruments and take such other actions as may be reasonably required in
order to carry out the intent of this Agreement.
0.11 Public Announcement. Neither the Purchaser, FFS nor the Company
shall make any announcement or issue any press release relating to this
Agreement or the transactions contemplated hereby without the consent of the
other parties to this Agreement.
0.12 Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of its terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the Purchaser and FFS or, in the case of a waiver, by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
0.13 Litigation. In the event litigation is instituted between or among
any of the parties hereto, with respect to all or any part of this Agreement,
the prevailing party therein shall be entitled to recover, in addition to all
other relief obtained, its costs, expenses and fees, including reasonable
attorneys' fees incurred in such litigation.
8
<PAGE>
IN WITNESS WHEREOF, this Stock Purchase Agreement has been signed by or on
behalf of the parties as of the day and year first above written.
DGS Defalco West, Inc.
/s/ James S. Byrd
- -----------------
James S. Byrd
Fortune Financial Systems, Inc.
/s/ Douglas S. Hackett
- ----------------------
Douglas S. Hackett
9
AMENDED AND RESTATED AGREEMENT
and
PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION,
effective the 2 day of May, 1997 (the "Effective Date"), by and between Messrs.
Brent Crabtree ("Mr. Crabtree") and Steven Comer ("Mr. Comer") (individually, a
"Shareholder" and collectively, the "Shareholders"), and FORTUNE FINANCIAL
SYSTEMS, INC., a Nevada corporation ("FFS"),
WITNESSETH:
WHEREAS each of the Shareholders owns 416,750 shares of common stock of
Internet Development, Inc. (the "Company"), which collectively constitute 83.35%
of the issued and outstanding shares of the Company (collectively, the "Company
Shares"); and
WHEREAS FFS holds at least one million (1,000,000) shares of common
voting stock of FFS, which shares constitute approximately five and one-half
percent (5.5%) of the issued and outstanding shares of FFS, which will
constitute approximately 5.5% of the common voting stock of FFS after
consummation of the transaction described herein and in related reorganization
agreements with other shareholders of the Company; and
WHEREAS FFS wishes to acquire, and the Shareholders wish to transfer to
FFS all of their issued and outstanding Company Shares in exchange for 916,750
shares of common voting stock of FFS (the "FFS Shares") in a transaction
intended to qualify as a reorganization within the meaning of Internal Revenue
Code Section 368(a)(1)(B), as amended;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Closing" means the consummation of the transactions contemplated
herein, as described herein. The Closing shall be deemed to have occurred May 2,
1997.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 1
<PAGE>
"Material Adverse Effect" means a material adverse effect on the
business (including the continued conduct or the operation thereof in
substantially the manner currently conducted), assets, liabilities, financial
condition or results of operations.
"Party" means each of FFS and each of the Shareholders.
ARTICLE 2
STATEMENT OF INTENT; TRANSFER AND ASSIGNMENT OF SHARES
2.1 Statement of Intent. Effective May 2, 1997, the Parties entered
into that certain agreement between and among them (the "May 2 Agreement"),
pursuant to which the Shareholders agreed to transfer and assign to FFS all of
the Company Shares, and FFS agreed to transfer and assign to the Shareholders
all of the FFS Shares. It is the intention of the Parties, under the terms of
this Agreement, to amend and re-state the general agreements and consummate the
transaction described therein, set forth in the May 2 Agreement, effective May
2, 1997. To the extent that any of the terms of this Agreement are inconsistent
with the terms of the May 2 Agreement, the terms of this Agreement shall govern.
2.2 Assignment and Transfer of Company Shares. Subject to the terms of
this Agree ment, the Shareholders agree to transfer and assign the Company
Shares to FFS. At the Closing, the Shareholders shall deliver to FFS a
certificate or certificates evidencing the Company Shares owned by the
Shareholders, in a form ready for transfer and duly endorsed to FFS. At the
Closing, and from time to time thereafter, FFS and each of the Shareholders
shall execute and deliver such other documents and instruments, and take such
other actions, as the other Parties may reasonably request, in order more fully
to vest in each of the Parties and perfect its title to all right, title and
interest in and to the Company Shares, in the case of FFS and the FFS Shares, in
the case of each of the Shareholders.
2.3 Assignment and Transfer of FFS Shares. Subject to the following
conditions and in accordance with the following schedule, FFS agrees to issue,
as of the effective date set forth above, Nine Hundred Sixteen Thousand Seven
Hundred Fifty (916,750) FFS Shares in the aggregate, and to transfer and assign
to the Shareholders FFS Shares, which shall be duly assigned and transferred to
the Shareholders as follows:
(a) At the Closing, FFS shall deliver to the Shareholders two stock
certificates, each such certificate representing Two Hundred Twenty-nine
Thousand One Hundred Eighty-seven and one-half) (229,187.5) shares of FFS's
common stock and issued in the name of each of the Shareholders, respectively.
(b) Four Hundred Fifty-eight Thousand Three Hundred Seventy-five
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 2
<PAGE>
(458,375) FFS Shares, half of which shall be duly endorsed to the order of each
of the Shareholders (the "Escrow Shares") shall be issued on the Effective Date,
and shall be placed into escrow with a mutually- acceptable escrow agent, in
trust for the Shareholders. If Net Profits (as defined herein) during any period
of twelve consecutive months during the period beginning May 2, 1997 and ending
December 31, 1998 equal or exceed (i) Two Million Dollars ($2,000,000), then
each of the Shareholders shall be entitled to receive 125,000 Escrow Shares, or
(ii) Three Million Five Hundred Thousand Dollars ($3,500,000), then each of the
Shareholders shall be entitled to receive 229,187.5 Escrow Shares. For purposes
of this paragraph, "Net Profits" means net pre-tax profits of the Company
(before calculation of profit-sharing under employee compensation plans) for the
period described, as calculated in accordance with generally accepted accounting
principles, consistently applied, excluding from such calculation net profits
derived from sales to leads provided by FFS ("FFS Leads") to the extent that net
profits derived from sales to FFS Leads exceed fifty-five percent of all Net
Profits. All Escrow Shares to be delivered to the Shareholders under this
paragraph shall be transferred and delivered by the escrow agent not later than
June 2, 1998, and all remaining Escrow Shares shall be returned by the escrow
agent to FFS on such date, to be canceled.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As a material inducement to FFS to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Shareholders,
severally, represents and warrants to FFS as follows:
3.1 Ownership of the Shares. He is the true and lawful owner of his
Shares, has good title to and is the beneficial and record owner of his Company
Shares, and has the absolute right to sell, assign and transfer his Company
Shares to FFS. His Company Shares will be conveyed to FFS free and clear of all
liens, claims, restrictions, covenants, conditions, pledges, options,
encumbrances and rights of any Persons, other than pursuant to restrictions
under applicable federal and state securities laws. He has not entered into any
other agreement to sell or otherwise transfer his Company Shares, or entered
into any agreement limiting the ability to vote or transfer his Company Shares.
All of the Company Shares are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding options, warrants, agreements, rights,
conversion privileges or other agreements of any kind to acquire any share of
capital stock in the Company, nor any outstanding rights or privileges to
acquire any such interest. No share of capital stock of the Company has been
registered under the Securities Act of 1933, as amended, nor under the
securities laws of any state in which they were or may be offered for sale. The
Company Shares constitute 83.35% of the issued and outstanding capital stock of
the Company.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 3
<PAGE>
3.2 Organization of the Company. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State in
which it was incorporated, (ii) has all requisite corporate power and authority
to own all of its properties and assets and to carry on its business as it is
now being conducted, (iii) is duly qualified to do business and is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing or to be duly licensed, authorized
or qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, and (iv) has all federal, state
and local government licenses, permits, approvals and other authorizations
necessary to own its properties and assets and carry on its business as it is
now being conducted, except where the failure to have such governmental
licenses, permits, approvals or other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
3.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of Shareholders. This Agreement is a legal, valid and binding
obligation of the Shareholders, enforceable against each of the Shareholders in
accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws or decisions
relating to or affecting creditors' rights generally, by equitable limitations
on its enforceability, and by other laws or decisions of general application
relating to general principles of equity.
3.4 No Conflict. The execution, delivery and performance of this
Agreement by the Shareholders do not, and the consummation by the Shareholders
of the transactions contemplated hereby and thereby will not, violate any
provision of the Company's Articles of Incorporation or By-laws.
3.5 Brokers. The Shareholders have not employed any investment banker,
broker or finder in connection with the transactions contemplated hereby who
might be entitled to a fee or other remuneration from the Shareholders, the
Company or FFS.
3.6 Litigation. To the Shareholders' best knowledge, except as set
forth in Exhibit 3.6, there is no litigation, investigation or proceeding of or
before any arbitrator, court, agency or governmental authority pending or
threatened by or against the Company or affecting the Company Shares.
3.7 Compliance with Laws. To the best knowledge of the Shareholders,
the Company is in compliance with all laws, rules, regulations, orders, writs,
injunctions and decrees to which it or any of its assets are subject, except
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 4
<PAGE>
where the failure would not have a Material Adverse Effect on the Company.
3.8 No Undisclosed Liability. To the best knowledge of the
Shareholders, there is no liability or obligation of any kind, whether accrued,
absolute, fixed or contingent, of the Company that is not disclosed, reflected
or reserved against in the Company's financial statements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FFS
As a material inducement to the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, FFS represents
and warrants to the Shareholders as follows:
4.1 Ownership of the Shares. FFS is the true and lawful owner of the
FFS Shares, has good title to and is the beneficial and record owner of the FFS
Shares, and has the absolute right to sell, assign and transfer the FFS Shares
to the Shareholders. The FFS Shares are owned by FFS and will be conveyed to the
Shareholders free and clear of all liens, claims, restrictions (except as
required under Rule 144 of the Securities and Exchange Commission), covenants,
conditions, pledges, options, encumbrances and rights of any Persons, other than
pursuant to restrictions under applicable federal and state securities laws. The
FFS Shares are common voting stock of FFS, eligible to vote in the election of
corporate directors of FFS. The FFS Shares constitute approximately five and
one-half percent (5.5%) of the issued and outstanding capital stock of FFS. FFS
has not entered into any other agreement to sell or otherwise transfer the FFS
Shares, nor has FFS entered into any agreement limiting the ability to vote or
transfer the FFS Shares. All FFS Shares transferred pursuant to this Agreement
are duly authorized, validly issued, fully paid and non-assessable, and are not
subject to dilution except in the same proportion as all other shares of FFS, in
connection with new issues for public distribution or for the purpose of
facilitating an acquisition or merger.
4.2 Organization of the Company. FFS (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State in
which it was incorporated, (ii) has all requisite corporate power and authority
to own all of its properties and assets and to carry on its business as it is
now being conducted, (iii) is duly qualified to do business and is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing or to be duly licensed, authorized
or qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on FFS, and (iv) has all federal, state and local
government licenses, permits, approvals and other authorizations necessary to
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 5
<PAGE>
own its properties and assets and carry on its business as it is now being
conducted, except where the failure to have such governmental licenses, permits,
approvals or other authorizations would not, individually or in the aggregate,
have a Material Adverse Effect on FFS.
4.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of FFS. This Agreement is a legal, valid and binding obligation of FFS,
enforceable against FFS in accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws or decisions relating to or affecting creditors' rights generally,
by equitable limitations on its enforceability, and by other laws or decisions
of general application relating to general principles of equity.
4.4 No Conflict. The execution, delivery and performance of this
Agreement by FFS do not, and the consummation by FFS of the transactions
contemplated hereby and thereby will not, violate any provision of FFS's
Articles of Incorporation or By-laws.
4.5 Brokers. FFS has not employed any investment banker, broker or
finder in connection with the transactions contemplated hereby who might be
entitled to a fee or other remuneration from the Shareholder, the Company or The
Shareholders.
4.6 Disclosure. No representation or warranty of FFS contained in this
Agreement and no statement contained in any certificate, list, schedule, exhibit
or other instruments furnished or to be furnished to the Shareholders pursuant
hereto, or in any connection with the transaction contemplated hereby, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact which is necessary in order to make the statements
contained herein not misleading.
4.7 Litigation. To FFS's best knowledge there is no litigation,
investigation or proceeding of or before any arbitrator, court, agency or
governmental authority pending or threatened by or against FFS or affecting the
FFS Shares.
4.8 Compliance with Laws. To the best knowledge of FFS, FFS is in
compliance with all laws, rules, regulations, orders, writs, injunctions and
decrees to which it or any of its assets are subject, except where the failure
would not have a Material Adverse Effect on FFS.
4.9 No Undisclosed Liability. To the best knowledge of FFS, there is no
liability or obligation of any kind, whether accrued, absolute, fixed or
contingent, of FFS that is not disclosed, reflected or reserved against in the
FFS financial statements.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 6
<PAGE>
ARTICLE 5
COVENANTS OF FFS AND SHAREHOLDERS
5.1 Mutual Cooperation. Following the execution of this Agreement, FFS
and
Shareholders agree:
(a) If any event should occur, either within or without the knowledge
or control of FFS or Shareholders, which would prevent fulfillment of the
conditions to the obligations of any party hereto, to use his or their
commercially reasonable efforts to cure the same as expeditiously as possible;
and
(b) To cooperate fully with each other in preparing, filing,
prosecuting and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions, any of which may be waived by the Shareholders.
6.1 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any Persons in connection with
the consummation of the transactions contemplated in this Agreement have been
filed, made or obtained and all applicable waiting periods shall have expired or
been terminated.
6.2 Deliveries by FFS. FFS shall have made delivery to the Shareholders
of the documents and items specified in Section 8.3.
6.3 Representations and Warranties of FFS. All representations and
warranties made by FFS in this Agreement shall be true and correct on and as of
the Effective Date, as if made by FFS on and as of that date.
6.4 Performance of Obligations of FFS. FFS shall have performed and
complied with the covenants, agreements, obligations and conditions required by
this Agreement to be performed or complied with by FFS at or prior to the
Effective Date.
6.5 Absence of Action Restraining or Affecting Transaction. No action
or proceeding by any Person or court shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 7
<PAGE>
ARTICLE 7
TERMINATION
7.1 Events of Termination. Notwithstanding any provision to the
contrary herein, this Agreement may be terminated at any time on or prior to the
Effective Date:
(a) By mutual written consent of the Shareholders and FFS;
(b) By either the Shareholders or FFS in the event any federal or
state agency having jurisdiction over the approval of the transactions
contemplated hereby disapproves of any part of such transactions;
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF FFS
The obligations of FFS to consummate the transactions contemplated by
this Agreement are subject to the satisfaction on or prior to the Effective Date
of all of the following conditions, any of which may be waived by FFS:
8.1 Filings; Consents; Waiting Periods. All registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications,
waivers and other actions of any kind required of any Persons in connection with
the consummation of the transactions contemplated in this Agreement have been
filed, made or obtained and all applicable waiting periods shall have expired or
been terminated.
8.2 Deliveries by the Shareholders. The Shareholders shall have made
delivery to FFS of the documents and items specified in Section 8.2.
8.3 Representations and Warranties of the Shareholders. All
representations and warranties made by the Shareholders in this Agreement shall
be true and correct on and as of the Effective Date, as if made by the
Shareholders on and as of that date.
8.4 Performance of Obligations of the Shareholders. The Shareholders
shall have performed and complied with all the covenants, agreements,
obligations and conditions required by this Agreement to be performed or
complied with by the Shareholders at or prior to the Effective Date.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 8
<PAGE>
8.5 Absence of Action Restraining or Affecting Transaction. No action
or proceeding by any Person or court shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 9
<PAGE>
ARTICLE 9
MANAGEMENT OF THE COMPANY
9.1 Management. FFS will appoint either Mr. Comer or Mr. Crabtree to
the Board of Directors of FFS, upon assurance of appropriate corporate
indemnities, insurance and protection for directors. In accordance with an
employment agreement to be executed between the Company and each of Mr. Comer
and Mr. Crabtree, Mr. Comer and Mr. Crabtree will retain their existing
positions as officers of the Company, and shall have full authority to continue
to operate the Company under the supervision of the Board of Directors and in
accordance with the Articles of Incorporation and the By-laws of the Company.
FFS agrees to appoint a three-person Board of Directors for the Company,
consisting of two Directors nominated by Mr. Comer and Mr. Crabtree, and one
person nominated by FFS. Mr. Comer and Mr. Crabtree will be entitled to retain
their existing positions as officers of the Company for a period of at least
five years, and they shall not be removed from their positions for any reason
other than for gross malfeasance. They shall have full authority to continue to
operate the Company under the supervision of the Board of Directors and in
accordance with the Articles of Incorporation and the By-laws of the Company,
and this Agreement. The headquarters of the Company shall remain in Utah. The
Company shall be the exclusive provider of Internet-related products, of the
type falling within the scope of the Company Business Plan, to FFS; provided
that such products shall be provided on a competitive basis in terms of quality
and price. FFS agrees to permit the Company to budget at least 35% of its annual
gross revenues for the purpose of financing capital improvements and expansion,
based on an annual budget to be approved by the Board of Directors of the
Company from time to time.
9.2 Financial Management. FFS agrees that it will permit the Company to
operate autonomously so long as the Board of Directors of the Company meets its
obligation to exercise good business judgment and to fulfill its obligations to
shareholders as set forth in the By-laws of the Company. FFS agrees not to adopt
a dividend policy for the Company inconsistent with the provisions of this
Agreement.
9.3 Compensation Policy. The Company shall enter into employment
agreements with Mr. Comer and Mr. Crabtree, and other key employees, providing
for compensation consistent with the provisions of Exhibit 9.3.
9.4 Actions Requiring Unanimous Consent. Notwithstanding any other
requirement set forth herein or the Articles of Incorporation of the Company,
the Parties expressly agree that a unanimous vote of all of the directors of the
Company who form a quorum of Directors convened to discuss such issues, after
due notice, shall be obtained before any of the following actions shall be taken
by the Company: (a) the appointment of any new or replacement Directors of the
Internet Development, Inc.
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and Plan of Reorganization
page 10
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Company; (b) the issuance of any shares, or of any warrants or debentures,
options or rights in or to shares of the common or other capital stock of the
Company; (c) any pledge, mortgage, sale, lease or other transfer, except in
normal course of business or as part of a complete dissolution or winding up, or
any material portion of its business; (d) any merger, consolidation or
amalgamation with or into another company or corporation; (e) any change to, or
the conduct of any business outside, the general business of the Company; (f)
the incurring of any indebtedness to any third person or entity for borrowed
funds or for the deferred purchase price of purchased goods, or any other
indebtedness of any kind, except as otherwise permitted herein; (g) the
extension of credit to any one debtor in an amount exceeding US$250,000 or its
equivalent in another currency; (h) the agreement of the Company to waive or not
enforce any rights it may have under any agreements, or in respect of
transactions to which it may be a party; (i) the adoption of any dividend policy
calling for the payment of dividends greater than the amounts required to meet
the objectives of this Agreement, or any departure from the dividend policies
set forth herein or in any of the Articles of Incorporation; provided, however,
that the Board of Directors may establish the initial dividend policy consistent
with the terms of this Agreement; or (j) any change in the outside auditors of
the Company.
9.5 Change of Control or Corporate Objectives. In the event that there
shall occur a sale of a majority of the capital stock of FFS, or a change of
control of FFS, or a failure of FFS to meet any of the objectives of FFS
described below on or before July 22, 1998, then the Shareholders shall have the
right (but not the obligation) to re-acquire all of the Company Shares from FFS
in exchange for all of the FFS Shares transferred and delivered to them under
the terms of this Agreement. For purposes of this clause, the objectives
described above are the following: (i) the production of at least three
infomercials, and (ii) the consummation or one or more financing transactions
resulting in an acquisition of capital investment in an amount at least
sufficient to meet stated corporate objectives as set forth in public disclosure
documents.
9.6 Competition; Corporate Opportunity. Mr. Comer and Mr. Crabtree
agree they will in good faith provide adequate management time, good faith and
best efforts in managing the operations of the Company in accordance with a
business plan to be adopted by the Company (as amended from time to time, the
"Company Business Plan"), and consistent with the overall business plan of FFS
(the "FFS Business Plan") (the Company Business Plan and the FFS Business Plans
being referred to collectively as the "Business Plans"). With respect to any
business or investment opportunity falling within the scope of the Business
Plans, Mr. Comer and Mr. Crabtree agree to present such opportunity to the board
of directors of the Company or of FFS, as the case may be. Such investment or
business opportunity shall be undertaken by the Company or by FFS only upon
approval of a majority of the disinterested directors. If FFS or the Company
elect not to undertake such opportunity, then Mr. Comer and Mr. Crabtree shall
be free to undertake any such investment upon the following terms: Mr. Comer and
Mr. Crabtree agree to provide to the Company and to FFS a right to invest in
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 11
<PAGE>
such proposed business venture with Mr. Comer and Mr. Crabtree, on a basis to be
determined by the circumstance of such proposed venture but in no case less
favorable to the Company or to FFS, as the case may be, than the opportunity
available to Mr. Comer and Mr. Crabtree. Such notice shall be written and shall
set forth sufficient information, and shall allow a reasonable time under the
circumstances, to permit adequate deliberation. FFS shall have a right, at any
time before, or up to sixty days after, the date of such investment, to
participate in any such opportunity by contributing up to 50% of the overall
initial investment, in the same or equivalent type of cash, goods or services
and upon the same terms and conditions of the participation by Mr. Comer and Mr.
Crabtree. In any such case, whether or not FFS elects to participate in such
business opportunity, (i) Mr. Comer and Mr. Crabtree shall not, without the
approval of FFS, utilize employees, assets (including lists of prospective
customers, good will and intellectual property) of the Company or its
affiliates, and (ii) the proposed venture shall be conducted in a manner that
does not devalue FFS or its affiliates or deprive them of business opportunities
within their scope.
It is understood and acknowledged that Mr. Comer and Mr. Crabtree have
established, previous to the beginning of any talks or negotiations between IDI
and Fortune, (i) a company known as Nautica Achievement Systems, which provides
non-competitive corporate coaching programs to businesses and consulting and
coaching support to certain distributors of IDI products and services, and (ii)
Pinnacle Management Corporation ("Pinnacle"), which provides research and
development services and receives royalties from the Company for Company
products. The parties agree that FFS shall acquire all of the capital stock of
Pinnacle under the terms of a separate plan of reorganization.
ARTICLE 10
MISCELLANEOUS
10.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to each other Party.
10.2 Governing Law; Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah without reference
to the choice of law principles thereof. Any controversy or claim arising out of
or in connection with this Agreement shall be finally settled in accordance with
the Commercial Arbitration Rules and supplementary procedures for commercial
arbitrations of the American Arbitration Association (the "AAA") then in force,
by submitting such dispute for binding arbitration before a jointly-designated
arbitrator. If the Parties are unable to agree on a single arbitrator, then such
binding arbitration shall be conducted before a panel of three arbitrators that
shall be chosen as follows: each Party shall designate one arbitrator and such
arbitrators shall designate a third arbitrator. This arbitration provision shall
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 12
<PAGE>
be deemed to be self-executing, and in the event that either Party fails to
appear at any properly noticed arbitration proceeding award may be entered
against such Party notwithstanding such failure to appear. Any award granted by
such arbitral panel shall be self-executing, to the greatest extent permitted by
applicable law, and in any case shall be eligible for entry of judgment and for
enforcement by a court of appropriate and competent jurisdiction. The location
or site of such arbitration proceeding shall be (i) Salt Lake City, Utah, or
(ii) another location mutually accept able to the Parties, or (iii) if for any
reason it is or becomes impossible or impracticable for the Parties to conduct
arbitration proceedings in Salt Lake City, Utah and the Parties are unable to
agree on another location, then at a location determined by the American
Arbitration Association. Nothing in this Section shall be construed or deemed to
prevent either party from seeking injunctive relief pursuant to the terms hereof
in a court of appropriate jurisdiction.
10.3 Entire Agreement. This Agreement and the Exhibits attached hereto
and made a part hereof contain the entire agreement between the Parties, and
there are no agreements, understandings, representations or warranties between
the Parties other than those set forth or referred to herein.
10.4 Expenses. Except as set forth in this Agreement, FFS and the
Shareholders shall be responsible for their own legal and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
10.5 Notices. All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and (i) delivered personally, (ii) sent by
certified mail, postage prepaid, (iii) sent by overnight courier or (iv) sent by
facsimile transmission, to the appropriate address as set forth below. Notices
to the Shareholders shall be addressed to:
Mr. Steven Comer
Mr. Brent Crabtree
c/o Internet Development, Inc.
443 South Commerce Road
Orem, Utah 84058
Telephone: (801) 224-4444
Facsimile: (801) 224-4457
or at such other address and to the attention of such other person as
Shareholders or the Company may designate by notice to FFS. Notices to FFS shall
be addressed to:
Fortune Financial System, Inc.
1200 West State Road 434
Longwood, FL 32750
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 13
<PAGE>
Attention: Mr. James Byrd
Telephone: (407) 331-1272
Facsimile: (407) 331-3327
or at such other address and to the attention of such other person as FFS may
designate by notice to Shareholders.
Any notice hereunder shall be deemed to have been served or given as of
(a) the date such notice is personally delivered, (b) three business days after
it is mailed certified U.S. mail, First Class postage prepaid, (c) one business
day after it is sent for overnight delivery by Federal Express or similar
next-day courier, or (d) the same day as it is sent by facsimile transmission
with confirmation of receipt.
10.6 Successors and Assigns. The rights and obligations of any party to
this Agreement shall not be assignable by such party without the prior written
consent of all other Parties. Notwithstanding the previous sentence, this
Agreement may be assigned by FFS to any Affiliate of FFS without the
Shareholders's prior written consent; provided, however, no such assignment
shall have the effect of releasing or reducing the obligations of FFS pursuant
to this Agreement, or any other instruments, agreements or covenants provided in
or contemplated by this Agreement. This Agreement shall inure to the benefit and
shall be binding upon the respective successors and permitted assigns of the
Parties. Nothing herein expressed or implied is intended to confer upon any
person, other than to the Parties or their respective heirs, personal
representatives, successors or permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.7 Headings. The headings contained in this Agreement are solely for
convenience of reference and shall not affect its interpretation.
10.8 Severability of Provisions. In the event that any of the
provisions contained herein would be held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason because of the scope, duration
or area of its applicability or for other reasons, unless narrowed by
construction, such provision shall for purposes of such jurisdiction only, be
construed as if such invalid, prohibited or unenforceable provision had been
more narrowly drawn so as not to be invalid, prohibited or unenforceable (or if
such language cannot be drawn narrowly enough, the court making any such
determination shall have the power to modify, to the extent necessary to make
such provision or provisions enforceable in such jurisdiction, such scope,
duration or area or all of them, and such provision shall then be applicable in
such modified form). If, notwithstanding the foregoing, any such provision would
be held to be invalid, prohibited or unenforceable in any jurisdiction for any
reason, such provision, as to such jurisdiction only, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability, without
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 14
<PAGE>
invalidating the remaining provisions. No narrowed construction,
court-modification or invalidation of any provision shall affect the
construction, validity or enforceability of such provision in any other
jurisdiction. Subject to the foregoing, in case any one or more of the
provisions contained in this Agreement or any other documents executed in
connection herewith should be invalid, illegal or unenforceable in any respect,
the validity, legality and unenforceability of the remaining provisions
contained herein and therein shall not be affected in any way thereby.
10.9 Gender. Whenever in this Agreement any masculine, feminine or
neuter pronoun is used, such pronouns shall also include the other genders
whenever required by the context.
10.10 Further Assurances. The Shareholders and FFS shall each execute
and deliver instruments and take such other actions as may be reasonably
required in order to carry out the intent of this Agreement.
10.11 Public Announcement. Neither FFS, Shareholders nor the Company
shall make any announcement or issue any press release relating to this
Agreement or the transactions contemplated hereby without the consent of the
other Parties.
10.12 Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of its terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by FFS and the Shareholders or, in the case of a waiver, by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
10.13 Costs. In the event litigation is instituted between or among any
of the Parties, with respect to all or any part of this Agreement, the
prevailing party therein shall be entitled to recover, in addition to all other
relief obtained, its costs, expenses and fees, including reasonable attorneys'
fees incurred in such litigation.
IN WITNESS WHEREOF, this Amended and Restated Agreement and Plan of
Reorganization has been signed by or on behalf of the Parties as of the day and
year first above written.
Shareholders
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 15
<PAGE>
/s/ R. Brent Crabtree
Brent Crabtree
/s/ Steven Comer
Steven Comer
Fortune Financial Systems, Inc.
By: /s/ Douglas S. Hackett
Name: Douglas S. Hackett
Title: Vice President
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 16
<PAGE>
Exhibit 9.3
Compensation Policy. For a period of five years after the date of this
Agreement,
1. Each of Mr. Comer and Mr. Crabtree shall be entitled to receive
compensation from the Company, as follows: Monthly salary of $10,000, payable at
the beginning of each calendar month, plus (i) a reasonable automobile allowance
and reimbursement of ordinary and necessary business expenses incurred on behalf
of the Company, and (ii) a cash bonus equal to twenty-five percent (25%) of the
Company's net profit for each fiscal quarter, as calculated in accordance with
generally accepted accounting principles and payable within ten days after the
end of such fiscal quarter; provided, however, that each such quarterly cash
bonus shall not exceed $40,000.
2. Each of Mr. Comer and Mr. Crabtree shall be entitled to receive,
within thirty days after the end of each fiscal year, an option to purchase
additional FFS Shares having a net value, after deduction of the option purchase
price, equal to ten percent of annual net profits of the Company, as calculated
in accordance with generally accepted accounting principles, for such fiscal
year; provided, however, that the net value of such annual option (that is, the
option price subtracted from the market price for FFS Shares on the date of the
grant of such option) for each of Mr. Comer and Mr. Crabtree shall not exceed
$320,000 with respect to the first fiscal year after the date of this Agreement,
or $320,000 compounded annually at a rate of 3% with respect to each subsequent
fiscal year.
3. The Company will maintain its current compensation policy for
non-officer employees, unless amended by action of the Board of Directors.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 17
<PAGE>
Exhibit 3.6
Claims and Litigation
1. The Company provided approximately $170,000 of product in connection with
products and services sold by Home Business Technology, a company affiliated
with Mr. Ed Beckley ("HBT"). HBT has come under investigation by the Iowa
Attorney General's office. The Company has received no notice that any of its
activities in connection with such sales are under investigation.
2. The Company provided approximately $200,000 of products to Financial Freedom
Report, Inc., a company that is the subject of an enforcement action by the
Federal Trade Commission. The Company has received no notice of any related
complaint against it.
Internet Development, Inc.
Amended and Restated Agreement
and Plan of Reorganization
page 18
AGREEMENT
and
PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, effective the 28th day of
July 1997 (the "Effective Date"), by and between Mr. Roger Royce ("Mr. Royce")
and FORTUNE FINANCIAL SYSTEMS, INC., a Nevada corporation ("FFS"),
WITNESSETH:
WHEREAS Mr. Royce owns 10,000 shares of common stock of Gateway
Management International, Inc. (the "Company"), which constitute 100 % of the
issued and outstanding shares of the Company (collectively, the "Company
Shares"); and
WHEREAS FFS wishes to acquire, and the Shareholder wishes to transfer
to FFS, all of his issued and outstanding Company Shares in exchange for one
million (1,000,000) shares of common voting stock of FFS (the "FFS Shares") in a
transaction intended to qualify as a reorganization within the meaning of
Internal Revenue Code Section 368(a)(1)(B), as amended;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Closing" means the consummation of the transactions contemplated
herein, as described herein. The Closing shall be deemed to have occurred July
28, 1997.
"Material Adverse Effect" means a material adverse effect on the
business (including the continued conduct or the operation thereof in
substantially the manner currently conducted), assets, liabilities, financial
condition or results of operations.
"Party" means each of FFS and the Shareholder.
ARTICLE 2
TRANSFER AND ASSIGNMENT OF SHARES
2.1 Ownership of the Shares. He is the true and lawful owner of his
Company Shares, has good title to and is the beneficial and record owner of his
Company Shares, and has the absolute right to sell, assign and transfer his
Company Shares to FFS. His Company Shares will be conveyed to FFS free and clear
of all liens, claims, restrictions, covenants, conditions, pledges, options,
<PAGE>
encumbrances and rights of any Persons, other than pursuant to restrictions
under applicable federal and state securities laws. He has not entered into any
other agreement to sell or otherwise transfer his Company Shares, or entered
into any agreement limiting the ability to vote or transfer his Company Shares.
All of the Company Shares are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding options, warrants, agreements, rights,
conversion privileges or other agreements of any kind to acquire any share of
capital stock in the Company, nor any outstanding rights or privileges to
acquire any such interest. No share of capital stock of the Company has been
registered under the Securities Act of 1933, as amended, nor under the
securities laws of any state in which they were or may be offered for sale. The
Company Shares constitute 100% of the issued and outstanding capital stock of
the Company.
2.2 Organization of the Company. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State in
which it was incorporated, (ii) has all requisite corporate power and authority
to own all of its properties and assets and to carry on its business as it is
now being conducted, (iii) is duly qualified to do business and is in good
standing, and is duly licensed, authorized or qualified to transact business in
each jurisdiction in which the ownership or lease of real property or the
conduct of its business requires it to be so qualified, except where the failure
to be so qualified or to be in good standing or to be duly licensed, authorized
or qualified to transact business, would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, and (iv) has all federal, state
and local government licenses, permits, approvals and other authorizations
necessary to own its properties and assets and carry on its business as it is
now being conducted, except where the failure to have such governmental
licenses, permits, approvals or other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
2.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of Shareholder. This Agreement is a legal, valid and binding obligation
of the Shareholder, enforceable against the Shareholder in accordance with its
terms, except to the extent limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws or decisions relating to or
affecting creditors' rights generally, by equitable limitations on its enforce
ability, and by other laws or decisions of general application relating to
general principles of equity.
2.4 No Conflict. The execution, delivery and performance of this
Agreement by the Shareholder do not, and the consummation by the Shareholder of
the transactions contemplated hereby and thereby will not, violate any provision
of the Company's Articles of Incorporation or By-laws.
2.5 Brokers. The Shareholder has not employed any investment banker,
broker or finder in connection with the transactions contemplated hereby who
might be entitled to a fee or other remuneration from the Shareholder, the
Company or FFS.
2.6 Litigation. To the Shareholder's best knowledge, except as set
forth in Exhibit 3.6, there is no litigation, investigation or proceeding of or
before any arbitrator, court, agency or governmental authority pending or
threatened by or against the Company or affecting the Company Shares.
<PAGE>
2.7 Compliance with Laws. To the best knowledge of the Shareholder, the
Company is in compliance with all laws, rules, regulations, orders, writs,
injunctions and decrees to which it or any of its assets are subject, except
where the failure would not have a Material Adverse Effect on the Company.
2.8 No Undisclosed Liability. To the best knowledge of the Shareholder,
there is no liability or obligation of any kind, whether accrued, absolute,
fixed or contingent, of the Company that is not disclosed, reflected or reserved
against in the Company's financial statements.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FFS
As a material inducement to the Shareholder to enter into this
Agreement and to consummate the transactions contemplated hereby, FFS represents
and warrants to the Shareholder as follows:
3.1 Ownership of the Shares. FFS is the true and lawful owner of the
FFS Shares, has good title to and is the beneficial and record owner of the FFS
<PAGE>
Shares, and has the absolute right to sell, assign and transfer the FFS Shares
to the Shareholder. The FFS Shares are owned by FFS and will be conveyed to the
Shareholder free and clear of all liens, claims, restrictions (except as
required under Rule 144 of the Securities and Exchange Commission), covenants,
conditions, pledges, options, encumbrances and rights of any Persons, other than
pursuant to restrictions under applicable federal and state securities laws. The
FFS Shares are common voting stock of FFS, eligible to vote in the election of
corporate directors of FFS. The FFS Shares constitute approximately five and
one-half percent (51/2%) of the issued and outstanding capital stock of FFS. FFS
has not entered into any other agreement to sell or otherwise transfer the FFS
Shares, nor has FFS entered into any agreement limiting the ability to vote or
transfer the FFS Shares. All FFS Shares transferred pursuant to this Agreement
are duly authorized, validly issued, fully paid and non-assessable, and are not
subject to dilution except in the same proportion as all other shares of FFS, in
connection with new issues for public distribution or for the purpose of
facilitating an acquisition or merger.
3.2 Organization of the Company. FFS(i)is a corporation duly organized,
validly existing and in good standing under the laws of the State in which it
was has all requisite incorporated, (ii) has all requisite corporate power and
authority to own all of its properties and assets and to carry on its business
as it is now being conducted, (iii) is duly qualified to do business and is in
good standing, and is duly licensed, authorized or qualified to transact
business in each jurisdiction in which the ownership or lease of real property
or the conduct of its business requires it to be so qualified, except where the
failure to be so qualified or to be in good standing or to be duly licensed,
authorized or qualified to transact business, would not, individually or in the
aggregate, have a Material Adverse Effect on FFS, and (iv) has all federal,
state and local government licenses, permits, approvals and other authorizations
necessary to own its properties and assets and carry on its business as it is
now being conducted, except where the failure to have such governmental
licenses, permits, approvals or other authorizations would not, individually or
in the aggregate, have a Material Adverse Effect on FFS.
3.3 Authority and Approval. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of FFS. This Agreement is a legal, valid and binding obligation of FFS,
enforceable against FFS in accordance with its terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws or decisions relating to or affecting creditors' rights generally,
by equitable limitations on its enforce ability, and by other laws or decisions
of general application relating to general principles of equity.
<PAGE>
3.4 No Conflict. The execution, delivery and performance of this
Agreement by FFS do not, and the consummation by FFS of the transactions
contemplated hereby and thereby will not, violate any provision of FFS's
Articles of Incorporation or By-laws.
3.5 Brokers. FFS has not employed any investment banker, broker or
finder in connection with the transactions contemplated hereby who might be
entitled to a fee or other remuneration from the Shareholder, the Company or The
Shareholder.
3.6 Disclosure. No representation or warranty of FFS contained in this
Agreement and no statement contained in any certificate, list, schedule, exhibit
or other instruments furnished or to be furnished to the Shareholder pursuant
hereto, or in any connection with the transaction contemplated hereby, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material fact which is necessary in order to make the statements
contained herein not misleading.
3.7 Litigation. To FFS's best knowledge there is no litigation,
investigation or proceeding of or before any arbitrator, court, agency or
governmental authority pending or threatened by or against FFS or affecting the
FFS Shares.
3.8 Compliance with Laws. To the best knowledge of FFS, FFS is in
compliance with all laws, rules, regulations, orders, writs, injunctions and
decrees to which it or any of its assets are subject, except where the failure
would not have a Material Adverse Effect on FFS.
3.9 No Undisclosed Liability. To the best knowledge of FFS, there is no
liability or obligation of any kind, whether accrued, absolute, fixed or
contingent, of FFS that is not disclosed, reflected or reserved against in the
FFS financial statements.
ARTICLE 4
COVENANTS OF FFS AND SHAREHOLDER
4.1 Mutual Cooperation. Following the execution of this Agreement, FFS
and the Shareholder agree:
(a) If any event should occur, either within or without the knowledge
or control of FFS or the Shareholder, which would prevent fulfillment of the
conditions to the obligations of any party hereto, to use his or their
commercially reasonable efforts to cure the same as expeditiously as possible;
and
<PAGE>
(b) To cooperate fully with each other in preparing, filing,
prosecuting and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS OF FFS AND SHAREHOLDER
5.1 Mutual Cooperation. Following the execution of this
Agreement, FFS and the -Shareholder agree:
(a) If any event should occur, either within or
without the knowledge or control of FFS or the Shareholder, which would prevent
fulfillment of the conditions to the obligations of any party hereto, to use his
or their commercially reasonable efforts to cure the same as expeditiously as
possible; and
(b) To cooperate fully with each other in
preparing, filing, prosecuting and taking any other actions which are or may be
reasonable and necessary to obtain the consent of any governmental
instrumentality or any third party, to accomplish the transactions contemplated
by this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
SHAREHOLDER
The obligations of the Parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions, any of which may be waived by the Shareholder.
6.1 Filings; Consents; Waiting Periods. All registrations,
filings, applications, notices, transfers, consents, approvals, orders,
qualifications, waivers and other actions of any kind required of any Persons in
connection with the consummation of the transactions contemplated in this
Agreement have been filed, made or obtained and all applicable waiting periods
shall have expired or been terminated.
6.2 Deliveries by FFS. FFS shall have made delivery to the
Shareholder of the documents and items specified in Section 8.3.
6.3 Representations and Warranties of FFS. All representations
and warranties made by FFS in this Agreement shall be true and correct on and as
of the Effective Date, as if made by FFS on and as of that date.
6.4 Performance of Obligations of FFS. FFS shall have
<PAGE>
performed and complied with the covenants, agreements, obligations and
conditions required by this Agreement to be performed or complied with by FFS at
or prior to the Effective Date.
6.5 Absence of Action Restraining or Affecting Transaction. No
action or proceeding by any Person or court shall have been instituted or
threatened to restrain or prohibit the consummation of the transactions
contemplated by this Agreement.
ARTICLE 7
TERMINATION
7.1 Events of Termination. Notwithstanding any provision to
the contrary herein, this Agreement may be terminated at any time on or prior to
the Effective Date:
(a) By mutual written consent of the Shareholder
and FFS;
(b) By either the Shareholder or FFS in the
event any federal or state agency having jurisdiction over the approval of the
transactions contemplated hereby disapproves of any part of such transactions;
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF FFS
The obligations of FFS to consummate the transactions
contemplated by this Agreement are subject to the satisfaction on or prior to
the Effective Date of all of the following conditions, any of which may be
waived by FFS:
8.1 Filings.- Consents; Waiting Periods. All registrations,
filings, applications, notices, transfers, consents, approvals, orders,
qualifications, waivers and other actions of any kind required of any Persons in
connection with the consummation of the transactions contemplated in this
Agreement have been filed, made or obtained and all applicable waiting periods
shall have expired or been terminated.
8.2 Deliveries by the Shareholder. The Shareholder shall have
made delivery to FFS of the documents and items specified in Section 8.2.
8.3 Representations and Warranties of the Shareholder. All
representations and warranties made by the Shareholder in this Agreement shall
be true and correct on and as of the Effective Date, as if made by the
Shareholder on and as of that date.
8.4 Performance of Obligations of the Shareholder. The
Shareholder shall have performed and complied with all the covenants,
agreements, obligations and conditions required by this Agreement to be
<PAGE>
performed or complied with by the Shareholder at or prior to the Effective Date.
8.5 Absence of Action Restraining or Affecting Transaction. No
action or proceeding by any Person or court shall have been instituted or
threatened to restrain or prohibit the consummation of the transactions
contemplated by this Agreement.
ARTICLE 9
MANAGEMENT OF THE COMPANY
9.1 Financial Management. FFS agrees that it will permit the
Company to operate autonomously so long as the Board of Directors of the Company
meets its obligation to exercise good business judgment and to fulfill its
obligations to Shareholder as set forth in the By-laws of the Company. FFS
agrees not to adopt a dividend policy for the Company inconsistent with the
provisions of this Agreement.
9.2 Actions Requiring Unanimous Consent. Notwithstanding any
other requirement set forth herein or the Articles of Incorporation of the
Company, the Parties expressly agree that a unanimous vote of all of the
directors of the Company who form a quorum of Directors convened to discuss such
issues, after due notice, shall be obtained before any of the following actions
shall be taken by the Company: (a) the appointment of any new or replacement
Directors of the Company; (b) the issuance of any shares, or of any warrants or
debentures, options or rights in or to shares of the common or other capital
stock of the Company; (c) any pledge, mortgage, sale, lease or other transfer,
except in normal course of business or as part of a complete dissolution or
winding up, or any material portion of its business; (d) any merger,
consolidation or amalgamation with or into another company or corporation; (e)
any change to, or the conduct of any business outside, the general business of
the Company; (f) the incurring of any indebtedness to any third person or entity
for borrowed funds or for the deferred purchase price of purchased goods, or any
other indebtedness of any kind, except as otherwise permitted herein; (g) the
extension of credit to any one debtor in an amount exceeding US$10,000 or its
equivalent in another currency; (h) the agreement of the Company to waive or not
enforce any rights it may have under any agreements, or in respect of
transactions to which it may be a party; (i) the adoption of any dividend policy
calling for the payment of dividends greater than the amounts required to meet
the objectives of this Agreement, or any departure from the dividend policies
set forth herein or in any of the Articles of Incorporation; provided, however,
that the Board of Directors may establish the initial dividend policy consistent
with the terms of this Agreement; or 0) any change in the outside auditors of
the Company.
ARTICLE 10
MISCELLANEOUS
10.1 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
<PAGE>
and shall become effective when one or more counterparts have been signed by the
Parties and delivered to each other Party.
10.2 Governing Law; Arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah
without reference to the choice of law principles thereof. Any controversy or
claim arising out of or in connection with this Agreement shall be finally
settled in accordance with the Commercial Arbitration Rules and supplementary
procedures for commercial arbitrations of the American Arbitration Association
(the "AAA") then in force, by submitting such dispute for binding arbitration
before a jointly-designated arbitrator. If the Parties are unable to agree on a
single arbitrator, then such binding arbitration shall be conducted before a
panel of three arbitrators that shall be chosen as follows: each Party shall
designate one arbitrator and such arbitrators shall designate a third
arbitrator. This arbitration provision shall be deemed to be self executing, and
in the event that either Party fails to appear at any properly noticed
arbitration proceeding award may be entered against such Party notwithstanding
such failure to appear. Any award granted by such arbitral panel shall be
self-executing, to the greatest extent permitted by applicable law, and in any
case shall be eligible for entry of judgment and for enforcement by a court of
appropriate and competent jurisdiction. The location or site of such arbitration
proceeding shall be (i) Salt Lake City, Utah, or (ii) another location mutually
acceptable to the Parties, or (iii) if for any reason it is or becomes
impossible or impracticable for the Parties to conduct arbitration proceedings
in Salt Lake City, Utah and the Parties are unable to agree on another location,
then at a location determined by the American Arbitration Association. Nothing
in this Section shall be construed or deemed to prevent either party from
seeking injunctive relief pursuant to the terms hereof in a court of appropriate
jurisdiction.
10.3 Entire Agreement. This Agreement and the Exhibits
attached hereto and made a part hereof contain the entire agreement between the
Parties, and there are no agreements, understandings, representations or
warranties between the Parties other than those set forth or referred to herein.
10.4 Expenses. Except as set forth in this Agreement, FFS and
the Shareholder shall be responsible for their own legal and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
10.5 Notices. All notices hereunder shall be sufficiently
given for all purposes hereunder if in writing and (i) delivered personally,
(ii) sent by certified mail, postage prepaid, (iii) sent by overnight courier or
(iv) sent by facsimile transmission, to the appropriate address as set forth
below. Notices to the Shareholder shall be addressed to:
Mr. Roger Royce
4362 South Parkview
Salt Lake City, Utah 84124
Telephone: (801) 273-8517
Facsimile: (801) 273-8516
<PAGE>
or at such other address and to the attention of such other person
as Shareholder or the Company may designate by notice to FFS Notices to FFS
shall be addressed to:
Fortune Financial System, Inc.
1200 West State Road 434
Longwood, FL 32750
Attention: Mr. James Byrd
Telephone: (407) 331-1272
Facsimile: (407) 331-3327
or at such other address and to the attention of such other person
as FFS may designate by notice to Shareholder.
Any notice hereunder shall be deemed to have been served or
given as of (a) the date such notice is personally delivered, (b) three business
days after it is mailed certified U.S. mail, First Class postage prepaid, (c)
one business day after it is sent for overnight delivery by Federal Express or
similar next-day courier, or (d) the same day as it is sent by facsimile
transmission with confirmation of receipt.
10.6 Successors and Assigns. The rights and obligations of any
party to this Agreement shall not be assignable by such party without the prior
written consent of all other Parties. Notwithstanding the previous sentence,
this Agreement may be assigned by FFS to any Affiliate of FFS without the
Shareholder's prior written consent; provided, however, no such assignment shall
have the effect of releasing or reducing the obligations of FFS pursuant to this
Agreement, or any other instruments, agreements or covenants provided in or
contemplated by this Agreement. This Agreement shall inure to the benefit and
shall be binding upon the respective successors and permitted assigns of the
Parties. Nothing herein expressed or implied is intended to confer upon any
person, other than to the Parties or their respective heirs, personal
representatives, successors or permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.7 Headings. The headings contained in this Agreement are
solely for convenience of reference and shall not affect its interpretation.
10.8 Severability of Provisions. In the event that any of the
provisions contained herein would be held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason because of the scope, duration
or area of its applicability or for other reasons, unless narrowed by
construction, such provision shall for purposes of such jurisdiction only, be
construed as if such invalid, prohibited or unenforceable provision had been
more narrowly drawn so as not to be invalid, prohibited or unenforceable (or if
such language cannot be drawn narrowly enough, the court making any such
determination shall have the power to modify, to the extent necessary to make
such provision or provisions enforceable in such jurisdiction, such scope,
duration or area or all of them, and such provision shall then be applicable in
such modified form). If, notwithstanding the foregoing, any such provision would
be held to be invalid, prohibited or unenforceable in any jurisdiction for any
<PAGE>
reason, such provision, as to such jurisdiction only, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability, without
invalidating the remaining provisions. No narrowed construction,
court-modification or invalidation of any provision shall affect the
construction, validity or enforce ability of such provision in any other
jurisdiction. Subject to the foregoing, in case any one or more of the
provisions contained in this Agreement or any other documents executed in
connection herewith should be invalid, illegal or unenforceable in any respect,
the validity, legality and unenforceability of the remaining provisions
contained herein and therein shall not be affected in any way thereby.
10.9 Gender. Whenever in this Agreement any masculine,
feminine or neuter pronoun is used, such pronouns shall also include the other
genders whenever required by the context.
10.10 Further Assurances. The Shareholder and FFS shall each
execute and deliver instruments and take such other actions as may be reasonably
required in order to carry out the intent of this Agreement.
10.11 Public Announcement. Neither FFS, Shareholder nor the
Company shall make any announcement or issue any press release relating to this
Agreement or the transactions contemplated hereby without the consent of the
other Parties.
10.12 Amendment; Waiver. This Agreement may be amended,
modified, superseded or canceled, and any of its terms, covenants,
representations, warranties or conditions hereof may be waived, only by a
written instrument executed by FFS and the Shareholder or, in the case of a
waiver, by the party waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right of such party at a later time to enforce the same. No waiver by any
party of any condition, or of the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be construed as a
further or continuing waiver of any such condition or of the breach of any other
provision, term, covenant, representation or warranty of this Agreement.
10.13 Costs. In the event litigation is instituted between or
among any of the Parties, with respect to all or any part of this Agreement, the
prevailing party therein shall be entitled to recover, in addition to all other
relief obtained, its costs, expenses and fees, including reasonable attorneys'
fees incurred in such litigation.
IN WITNESS WHEREOF, this Amended and Restated Agreement and
Plan of Reorganization has been signed by or on behalf of the Parties as of the
day and year first above written.
Shareholder
/s/ Roger C. Royce
------------------
<PAGE>
Roger C. Royce
Fortune Financial Systems, Inc.
/s/ James S. Byrd
-----------------
James S. Byrd
<PAGE>
Schedule A
1. License Agreement to use "Academic Excellence Institute"
trademarks
2. Distribution Agreement for "Business of Learning Programs" - A
tutor training program
3. Distribution Agreement for " EZ Math" Level I and Level 2 -
Accelerated Math Leaning Program utilizing manipulatives for
parents and tutors..
4. Distribution Agreement for "Teach Your Child to Read Using the
Bible. "- A Reading Program with phonetics for parents and
tutors..
5. Distribution Agreement for "Readwrite II'- A Integrated
Reading and Writing Program with phonetics for parents and
tutors..
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 7th day of February, 1997, by and between
Douglas S. Hackett (the "Executive"), and Fortune 21, Inc., a Florida
corporation (the "Company"), a wholly-owned subsidiary of Fortune Financial
Systems, Inc., a Nevada corporation (the "Parent Company").
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment, and the Executive desires
to accept such employment and to enter into such agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities; Outside Opportunities.
A. As of February 1, 1997 (the "Effective Date"), the
Executive shall serve as Executive Vice President of the Company and, in such
capacity, shall exercise such powers and comply with and perform such directions
and duties in relation to the business and affairs of the Company as are
customarily associated with that position and as may from time to time be vested
in or given to him by the Boards of Directors of the Company and of the Parent
Company. The Executive shall at all times report to, and his activities shall at
all times be subject to the direction and control of, the Boards of Directors of
the Company and of the Parent Company. The Executive agrees to devote
substantially all of his business time, attention and services to the diligent,
faithful and competent discharge of such duties for the successful operation of
the Company's business. Notwithstanding the foregoing, the Executive may engage
in the activities listed on Schedule A hereto.
B. The Executive acknowledges and agrees that any business
opportunities of any nature within the scope of the Parent Company, the Company
or their respective subsidiaries' businesses or substantially similar to such
businesses that the Executive may become aware of or be presented with during
the course of his employment hereunder shall be deemed the property of the
Company. The Executive shall not use or otherwise pursue such business
opportunities without first presenting such opportunities to the Boards of
Directors of the Company and the Parent Company. If the Boards of Directors and
the Parent Company determine, within a reasonable period of time, that the
Company will not pursue such business opportunities then, subject to Section 6
hereof, the Executive may pursue such opportunities for his own account.
2. Compensation: Salary, Bonus and Other Benefits. During the
term of this Agreement, the Company shall pay the Executive the following
compensation, including the following annual salary, bonus and other fringe
benefits:
A. Salary. In consideration of the services to be rendered by
the Executive to the Company, the Company shall pay to the Executive a base
<PAGE>
salary at the rate of $25,000 per month (such salary as it may be increased
being hereinafter referred to as the "Base Salary"). The Base Salary shall be
increased, at minimum, by 5% per year. Except as may otherwise be agreed in
writing, the Base Salary shall be payable in conformity with the Company's
customary practices for executive compensation as such practices shall be
established or modified from time to time. Salary payments shall be subject to
all applicable federal and state withholding, payroll and other taxes.
B. Reduction of Salary. Pursuant to the Contribution and
Operating Agreement, dated as of February 7, 1997, by and among the Parent
Company, Success Holdings Company, LLC, an Illinois limited liability company
("Success Holdings") and Peter Morris ("Morris"), the Company will receive
$500,000 from Morris and Morris will arrange to have a $250,000 line of credit
established for use by the Company. If, after such amount has been received by
the Company and such line of credit has been utilized in full, the Board of
Directors of the Parent Company determines, after due regard for the Company's
financial condition, and current and future capital commitments, that the
Company does not have sufficient cash flow to pay the Base Salary, then the
Executive's salary shall be reduced to $15,000 per month until such time as the
Parent Company's Board of Directors shall determine that the Company's cash flow
is sufficient to pay the Base Salary. In the event such determination of
sufficiency is made, the Executive shall receive any portion of the Base Salary
not paid during such period over such period of time as the Board of Directors
of the Parent Company shall determine.
C. Bonuses: The Executive shall be entitled to receive,
annually, a cash bonus, not in excess of $200,000, equal to 10% of the Company's
net earnings before taxes as reflected in the Company's regularly prepared
audited financial statements, but before deducting any bonuses under this or
other executive employment or consulting agreement ("Pre-tax Profits"). If the
Company's Pre-tax Profits exceed $5 million for any fiscal year and the
Executive is employed hereunder for at least nine months of such fiscal year,
then the Executive shall be entitled to receive an additional bonus in the form
of a combination of cash and stock options having net value as follows: if
Pre-tax Profits exceed $5 million but are less than $6 million, $250,000; if
Pre- tax profits exceed $6 million but are less than $7 million, $350,000; and
if Pre-tax Profits exceed $7 million, $500,000, as further described below. The
Board of Directors shall determine, in its sole discretion, the combination of
cash and stock options the Executive shall receive. To the extent that the
Executive is granted options as described above to purchase shares of the Parent
Company's common stock, such stock options (x) shall have an exercise price per
share to be determined by the Board of Directors, provided, that such exercise
price is equal to not more than 50% of the Fair Value of the share on the date
of grant, (y) shall be granted in accordance with a stock option agreement, the
form of which will be mutually acceptable to the Executive and the Parent
Company, and which agreement will provide that the options shall be fully vested
upon the date of grant and that one-third of the options shall be exercisable on
each of the date of grant and the first and second anniversaries of the date of
grant, and (z) may be subject to the terms of any Parent Company employee stock
option plan adopted by the Parent Company after the date hereof. The "net value"
of any stock options granted to the Executive under the Section for purposes of
calculation the $500,000 valuation above shall be the Fair Value per share on
the date of grant under such option multiplied by the number of shares subject
to such option. The term "Fair Value" of a share of the Parent Company's common
<PAGE>
stock shall mean (i) if the common stock is traded on a national securities
exchange, the closing price for such stock on the day immediately preceding the
date of determination or if there is no closing price on such date, the last
preceding closing price, (ii) if the common stock is not traded on a national
securities exchange, the mean of the high bid and ask quotes of such stock as
reported in the NASDAQ/NMS reports or the National Quotation Bureau Inc.'s pink
sheets or in the NASD Bulletin Board on the day immediately preceding the date
of determination or if there were no high bid and ask quotes on such date, the
last preceding day that there were, and (iii) if neither (i) or (ii) are
applicable, as determined in good faith by the Board of Directors.
All cash bonuses shall be paid to the Executive at such time as annual
bonuses are paid to executives of the Company generally, but in no event later
than 60 days after the end of each fiscal year. All bonuses consisting of stock
options shall be granted no later than 60 days after the end of each fiscal
year.
D. Employee Benefits. The Executive shall be entitled to
participate, in accordance with the provisions thereof, in any health,
disability and life insurance and other employee benefit plans and programs made
available by the Company to its executive management employees generally.
E. Vacations. During each calendar year during the term of his
employment, the Executive shall be entitled to five weeks paid vacation. In
addition, the Executive shall be entitled to all paid holidays given by the
Company to its employees generally.
F. Expenses. During the term of the Executive's employment
under this Agreement, the Company shall pay the Executive (i) an automobile
allowance of $800 per month, (ii) $600 per month for the payment of certain club
membership fees, and (iii) an entertainment expense allowance of $1,000 per
month. The Executive shall also be entitled to receive prompt reimbursement, in
accordance with the Company's policies, for all other reasonable and customary
expenses incurred by him in performing services hereunder.
3. Term. The term of the Executive's employment under this Agreement
shall be from the Effective Date until the fifth anniversary of the Effective
Date, unless earlier terminated as hereinafter provided.
4. Termination. The Executive's term of employment under this Agreement
may be earlier terminated as follows:
A. At the Election of the Company For Cause. The Company may,
immediately and unilaterally, terminate the Executive's employment hereunder
"for cause" at any time during the term of this Agreement upon written notice to
the Executive, but only after a determination to so terminate the Executive has
been made by a decision approved by all members of the Board of Directors of the
Company and the Parent Company other than the Executive and James S. Byrd, Jr.
at a meeting duly noticed and held with an opportunity for the Executive to be
heard. Termination of the Executive's employment by the Company shall constitute
a termination "for cause" under this Section 4(A) if such termination is for one
or more of the following causes:
<PAGE>
(i) intentional misconduct causing material damage to the Company; (ii) any act
of fraud, misappropriation, misfeasance, malfeasance or knowing breach of
fiduciary duty; (iii) conviction of a felony, or repeated habitual drunkenness
or drug addiction; (iv) continued gross negligence in the conduct or management
of the Company not remedied within 30 days after receipt of written notice from
the Company; (v) willful refusal to perform the duties reasonably assigned to
the Employee by the Board of Directors; (vi) willful and material breach by the
Executive of Sections 6, 7 or 8 of this Agreement, or (vii) breach by the
Executive of any other material provision of this Agreement in any material
respect not remedied within 30 days after receipt of written notice from the
Company. Any notice given by the Company pursuant to this Section shall describe
the activities which, in the Company's opinion, constitute cause and shall state
that the Company believes that such activities constitute cause under this
Agreement. In the event of a termination "for cause" pursuant to the provisions
of clauses (i) through (vii) above, inclusive, the Executive shall be entitled
to no payments or other benefits, and shall have no further rights under this
Agreement. Notwithstanding the foregoing, the Executive shall retain any stock
options granted to the Executive prior to the date of such termination pursuant
to Section 2(C) hereof.
B. At the Election of the Executive or Upon Death or
Disability. (i) The Executive's employment hereunder shall terminate upon his
death, and may be terminated by the Company due to his Disability (as defined
below). "Disability" shall mean the determination by the Board of Directors of
the Company that the Executive is physically or mentally incapacitated and has
been unable for a period of 90 days, whether or not continuous, in any period of
12 consecutive months, to perform the duties for which he was responsible
immediately before the onset of his incapacity.
(ii) In the event the Executive voluntarily terminates his
employment hereunder or his employment hereunder is terminated due to death or
Disability, until the date of such termination of his employment, the Executive
(or the Executive's heirs) shall be entitled to receive payments of Base Salary
pursuant to Section 2(A) and expense payments pursuant to Section 2(C). In
addition, to the extent the Executive was entitled to receive a cash or stock
option bonus pursuant to Section 2(C), such bonus shall be paid to the Executive
(or his heirs) in accordance with Section 2(C).
5. Insurance. The Company shall use reasonable best efforts to obtain a
key man insurance policy (the "Insurance Policy") on the Executive in an amount
equal to $5,000,000 at reasonable premium cost. The Company shall be the sole
beneficiary of the Insurance Policy.
6. Noncompetition Covenant. A. During the period of his employment
hereunder, the Executive agrees that he will not engage and will not serve as a
partner, officer, director, consultant, employee, stockholder or in any other
capacity to any company or business organization which engages in any business
activity which is competitive with the principal business of the Company, the
Parent Company or Success as of date of termination (other than the activities
listed on Schedule A) unless the Executive obtains the prior approval of the
Company, Success, Morris, and James S. Byrd, Jr. and provides such persons with
full disclosure of the Executive's proposed activities. Notwithstanding the
foregoing, the Executive may own up to 5% of the outstanding common stock of any
<PAGE>
class of common equity which is traded on a national securities exchange or in
the over-the-counter market.
B. The Company may, at its option, require the Executive to
observe the foregoing non-competition covenant, notwithstanding his termination
or voluntary resignation, provided the Company continues to pay to the Executive
the base salary set forth in Section 2.A for the period of time for which the
Company requires the non-competition covenant to be in effect; provided,
however, the Company shall give the Executive 90 days notice prior to the
termination of such period.
7. Non-Solicitation.
A. During the period of his employment hereunder and, if
termination is for cause, or voluntary by the Executive. for two years after the
termination of his employment, Executive agrees that he shall not directly or
indirectly solicit for employment, employ in any capacity or make an unsolicited
recommendation to any other person that it employ or solicit for employment any
person who is a current or "former" employee of the Company, the Parent Company
or Success or their affiliates. As used in this Agreement, "former" employee
means any employee who was an employees of the Company, the Parent Company or
Success or their respective affiliates within 90 days of such solicitation.
B. If the Executive violates the provisions of Section 7(A)
hereof, then the Executive shall pay to either the Company, Fortune 21, or
Success, as appropriate, an amount equal to the compensation the solicited
person received from such company for the twelve months prior to the termination
of such person's employment with such company. Such amount shall be payable by
the Executive within 30 days after the Executive's receipt of written notice
from the Company, the Parent Company or Success, as appropriate.
8. Nondisclosure Obligation. Executive will not at any time, whether
during or after the termination of his employment, divulge, use, furnish,
disclose or make available to any person, association or company any of the
trade secrets or confidential information concerning the organization, marketing
plans and strategies, pricing policies, plans and strategies relating to
acquisitions made or to be made by the Company, the Parent Company or Success,
the business, finances or financial information, of the Company, the Parent
Company, or Success so far as they have come or may come to his knowledge,
except as may be required in the ordinary course of performing his duties as an
officer of the Company or the Parent Company as may be in the public domain
through no fault of his, as may be required by law, or as were acquired by the
Executive prior to his association with the Company. Executive shall keep secret
all matters of such nature entrusted to him and shall not use or attempt to use
any such information in any manner which may injure or cause loss to the
Company, the Parent Company or Success. Upon the termination of the Executive's
employment, the Executive shall return to the Company or Success, as
appropriate, any confidential materials in the Executive's possession. Such
materials may include professional, technical and administrative manuals and the
associated forms, processes, computer software and other methodologies and
systems. If the Executive is required to disclose any confidential information
by law, the Executive shall contact the Company's Board of Director prior to
such disclosure.
<PAGE>
9. Remedies Upon Breach. Executive agrees that any breach of this
Agreement by him could cause irreparable damage to the Company, the Parent
Company or Success and that in the event of such breach the Company, the Parent
Company and Success shall have, in addition to any and all remedies of law and
otherwise under the Agreement, the right to an injunction, specific performance
or other equitable relief to prevent the violation of his obligations hereunder,
plus the recovery of any and all costs and expenses incurred by the Company, the
Parent Company and Success, including reasonable attorneys fees in connection
with the enforcement of this Agreement, provided that the Company, the Parent
Company and Success shall have been successful on the merits or otherwise in any
proceeding related to the enforcement thereof.
10. Representations. The Executive hereby represents and warrants that
his employment with the Company on the terms and conditions set forth herein and
his execution and performance of this Agreement do not constitute a breach or
violation of any other agreement, obligation or understanding with any third
party. The Executive represents that he is not bound by any agreement or any
other existing or previous business relationship which conflicts with, or may
conflict with, the performance of his obligations hereunder or prevent the full
performance of his duties and obligations hereunder. The Executive represents
that he has no knowledge of any circumstance which would prevent the Company
from obtaining the Insurance Policy and, to his knowledge, he is in good health.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida.
12. Severability. In case any one or more of the provisions contained
in this Agreement for any reason shall 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 but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
13. Waivers and Modifications. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in accordance
with this Section 13. No modification or waiver by the Company shall be
effective without the consent of at least a majority of the Board of Directors
then in office at the time of such modification or waiver. No waiver by either
party of any breach by the other or any provision hereof shall be deemed to be a
waiver of any later or other breach thereof or as a waiver of any other
provision of this Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
14. Assignment. The Executive acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Executive may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The Company shall have the right to assign this Agreement to its
successors and assigns, and the rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding upon, the
<PAGE>
successors and assigns of the Company.
15. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to be duly given when (i) delivered by hand, (ii) 5
days after mailing if sent by first-class certified mail, postage prepaid,
return receipt requested, (iii) on the scheduled delivery date, if sent by
overnight commercial courier, or (v) transmitted by telecopy or facsimile
machine (with receipt confirmed) provided a copy is mailed by registered mail,
return receipt requested, to the following address or fax number, as applicable,
of the party to whom such notice is to be made or to such other address as such
party may designate in the same manner provided herein:
If to the Company:
1200 W.S.R. 434, Ste 112
Longwood, Florida 32750
Attn: James S. Byrd, Jr.
If to the Executive:
Douglas S. Hackett
1900 Alaqua Drive
Longwood, Florida 32779
16. Survival of Obligations. Executive's obligations under this
Agreement shall survive the termination of his employment with the Company
regardless of the manner of such termination and shall be binding upon his
heirs, executors and administrators. The provisions of Sections 6, 7 and 8 shall
survive the termination or expiration of this Agreement as a continuing
agreement of the Executive. The existence of any claim or cause of action by
Executive against the Company shall not constitute and shall not be asserted as
a defense to the enforcement by the Company of this Agreement.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by arbitration to be held in
Orlando, Florida. Upon the occurrence of any such dispute or controversy, each
of the parties shall select an arbitrator (an "Arbitrator") who has no prior
professional or personal relationship with any party, the Arbitrators so chosen
shall select a third Arbitrator and each party shall furnish to the Arbitrators
written notice (each, a "Party Determination") of such party's desired outcome
or resolution for such dispute or controversy. If upon receipt of a Party
Determination, the Arbitrators shall notify the other party in writing (a
"Determination Notice") that they have received such Party Determination and the
Arbitrators shall not disclose the contents thereof until the earlier of the
Arbitrators' receipt of Party Determinations from the other party and 20 days
after delivery of the Determination Notice. If the other party fails to deliver
its Party Determinations within 20 days after delivery of the Determination
Notice, the first Party Determinations shall be the resolution of the dispute or
controversy. If more than one Party Determination is delivered to the
Arbitrators within 20 days after the delivery of the Determination Notice, the
<PAGE>
Arbitrators shall determine the resolution of the dispute or controversy;
provided, however, that in determining the resolution of the dispute or
controversy, the Arbitrators' discretion shall be limited to selecting one of
the proposed resolutions set forth in the Party Determinations delivered to the
Arbitrators within 20 days after the delivery of the Determination Notice. All
fees and expenses of the Arbitrators incurred in connection with its
determination of such dispute or controversy shall be borne by the party that
submitted a Party Determination that was not chosen by the Arbitrators. All
decisions of the Arbitrators shall be final and binding on each of the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
FORTUNE 21, INC.
By: /s/ James S. Byrd
-----------------
James S. Byrd, Jr.
President
EXECUTIVE
By: /s/ Douglas S. Hackett
----------------------
Douglas S. Hackett
Executive Vice President
PARENT COMPANY:
FORTUNE FINANCIAL SYSTEMS INC.
By: /s/ James S. Byrd
-----------------
James S. Byrd, Jr.
President
Solely with respect to Sections 6, 7 and 8
SUCCESS HOLDINGS COMPANY, LLC
By: /s/s Peter R. Morris
--------------------
Peter R. Morris
Chairman of the Board
<PAGE>
SCHEDULE A
(Permitted Activities)
1. Hackett Media, Inc. - 100% owned by Hackett
- Advertising and Direct Response Marketing Agency
- Consulting Services - TV, marketing, print, direct mail, turnarounds,
radio, general media
2. List Mart of Florida, Inc. - 50% Hackett; 50% M. Colhen
List Rental of direct mail, brokerage, consulting
3. JC Holdings, Inc.
Direct mail, list brokerage, database management, consulting, list
where
4. Securities Insurance and Money Management - 100% owned by Hackett
Securities licenses, insurance licenses held with different firms and
organizations)
5. Tax Institute - 100% owned by Hackett
Owner and developer of Tax Institute and Tax Connection programs and
other private labeled versions.
6. Hackett Travel Services - 100% Rep. deal
Independent travel agent
7. Real Estate Investments
Various properties and property management
8. Success Holdings/Magazine
Minority Shareholder - Board/Director
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, by and, between Roger
C. Royce (the "Executive"), and Fortune Financial Systems, Inc., a Nevada
corporation (the "Company").
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment, and the Executive desires
to accept such employment and to enter into such agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities; Outside Opportunities.
A. As of July 28, 1997 (the "Effective Date"), the
Executive shall serve as President and CEO of the
Company and, in such capacity, shall exercise such
powers and comply with and perform such directions
and duties in relation to the business and affairs of
the Company as are customarily associated with that
position and as may from time to time be vested in or
given to him by the Board of Director of the Company.
The Executive shall at all times report to, and his
activities shall at all times be subject to the
direction and control of, the Board of Directors of
the Company. The Executive agrees to devote
substantially all of his business time, attention and
services to the diligent, faithful and competent
discharge of such duties for the successful operation
of the Company's business. Notwithstanding the
foregoing, the Executive may engage in the activities
listed on Schedule A hereto.
B. The Executive acknowledges and agrees that nay
business opportunities of any nature within the scope
of the Company or their respective subsidiaries'
businesses or substantially similar to such
businesses that the Executive may become aware of or
be presented with during the course of his employment
hereunder shall be deemed the property of the
Company. The Executive shall not use or otherwise
pursue such business opportunities without first
presenting such opportunities to the Board of
Directors of the Company. If the Board of Directors
determine, within a reasonable period of time, that
the Company will not pursue such business
opportunities then, subject to Section 6 hereof, the
Executive may pursue such opportunities for his own
account.
2. Compensation: Salar, Bonus and Other Benefits. During the term
of this Agreement, the Company shall pay the Executive the
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<PAGE>
following compensation, including the following annual salary,
bonus and other fringe benefits:
A. Salary. In consideration of the services to be
rendered by the Executive to the Company, the Company
shall pay to the Executive a base salary at the rate
of $25,000 per month (such salary as it may be
increased being hereinafter referred to as the "Base
Salary"). The Base Salary shall be increased, at
minimum, by 5% per year. Except as may otherwise be
agreed in writing, the Base Salary shall be payable
in conformity with the Company's customary practices
for executive compensation as such practices shall be
established or modified from time to time. Salary
payments shall be subject to all applicable federal
and state withholding, payroll and other taxes.
B. Reduction of Salary. Pursuant to the Contribution and
Operating Agreement, dated as of February 7, 1997, by
and among the Parent Company, Success Holdings
Company, LLC, an Illinois limited liability company
("Success Holdings") and Peter Morris ("Morris"), the
Company will receive $500,000 from Morris and Morris
will arrange to have a $250,000 line of credit
established for use by the Company. If, after such
amount has been received by the Company and such line
of credit has been utilized in full, the Board of
Directors of the Parent Company determines, after due
regard for the Company's financial condition, and
current and future capital commitments, that the
Company does not have sufficient cash flow to pay the
Base Salary, then the Executive's salary shall be
reduced to $15,000 per month until such time as the
Board of Directors shall determine that the Company's
cash flow is sufficient to pay the Base Salary. In
the event such determination of sufficiency is made,
the Executive shall receive any portion of the Base
Salary not paid during such period over such period
of time as the Board of Directors of the Parent
Company shall determine.
C. Bonuses: The Executive shall be entitled to receive,
annually, a cash bonus, not in excess of $200,000,
equal to 10% of the Company's net earnings before
taxes as reflected int he Company's regularly
prepared audited financial statements, but before
deducting any bonuses under this or other executive
employment or consulting agreement ("Pre-tax
Profits"). If the Company's Pre-Tax Profits exceed $5
million for any fiscal year and the Executive is
employed hereunder for at least nine months of such
fiscal year, then the Executive shall be entitled to
receive an additional bonus in the form of a
combination of cash and stock options having net
value as follows: if Pre-tax Profits exceed $5
million but are less than $6 million, $350,000; and
if Pre-tax Profits exceed $7 million, $500,000, as
further described below. The Board of Directors shall
determine, in its sole discretion, the combination of
cash and stock options the Executive shall receive.
To the extent that the Executive is granted options
as described above to purchase shares of the Parent
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<PAGE>
Company's common stock, such stock options (x) shall
have an exercise price per share to be determined by
the Board of Directors, provided, that such exercise
price is equal to not more than 50% of the Fair Value
of the share on the date of grant, (y) shall be
granted in accordance with a stock option agreement,
the form of which will be mutually acceptable to the
Executive and the Parent Company, and which agreement
will provide that the options shall be fully vested
upon the date of grant and that one-third of the
options shall be exercisable on each of the date of
grant and that one-third of the option shall be
exercisable on each of the date of grant and the
first and second anniversaries of the date of grant,
and (z) may be subject to the terms of any Parent
Company employee stock option plan adopted by the
Parent Company after the date hereof. The "net value"
of any stock options granted to the Executive under
the Section for purposes of calculation the $500,000
valuation above shall be the Fair Value per share on
the date of grant under such option multiplied by the
number os shares subject to such option. The term
"Fair Value" of a share of the Parent Company's
common stock shall mean (i) if the common stock is
traded on a national securities exchange, the closing
price for such stock on the day immediately preceding
the date of determination or if there is no closing
price on such date, the last preceding closing price,
(ii) if the common stock is not traded on a national
securities exchange, the mean of the high bid and ask
quotes of such stock as reported on the NASDAQ/NMS
reports or the National Quotation Bureau Inc.'s pink
sheets or in the NASD Bulletin Board on the day
immediately preceding the date of determination or if
there were no high bid and ask quotes on such date,
the last preceding day that there were, and (iii) if
neither (i) or (ii) are applicable, as determined in
good faith by the Board of Directors.
All cash bonuses shall be paid to the Executive at such time
as annual bonuses are paid to executives of the Company generally, but in no
event later than 60 days after the end of each fiscal year. All bonuses
consisting of stock options shall be granted no later than 60 days after the end
of each fiscal year.
D. Employee Benefits. The Executive shall be entitled to
participate, in accordance with the provisions
thereof, in any health, disability and life insurance
and other employee benefit plans and programs made
available by the Company to its executive management
employees generally.
E. Vacations. During each calendar year during the term
of his employment, the Executive shall be entitled to
five weeks paid vacation. In addition, the Executive
shall be entitled to all paid holidays given by the
Company to its employees generally.
F. Expenses. During the term of the Executive's
3
<PAGE>
employment under this Agreement, the Company shall
pay the Executive (i) an automobile allowance of $800
per month, (ii) $600 per month for payment of certain
club membership fees, and (iii) an entertainment
expense allowance of $1,000 per month. The Executive
shall also be entitled to receive prompt
reimbursement, in accordance with the Company's
policies, for all other reasonable and customary
expenses incurred by him in performing services
hereunder.
3. Term. The term of the Executive's employment under this
Agreement shall be from the Effective Date until the fifth
anniversary of the Effective Date, unless earlier terminated
as hereinafter provided.
4. Termination or Change of Control. The Executive's term of
employment under this Agreement may be earlier terminated as
follows:
A. At the Election of the Company For Cause. The Company
may, immediately and unilaterally, terminate the
Executive's employment hereunder "for cause" at any
time during the term of this Agreement upon written
notice to the Executive, but only after a
determination to so terminate the Executive has been
made by a decision approved by all members of the
Board of Directors of the Company at a meeting duly
noticed and held with an opportunity for the
Executive to be heard. Termination of the Executive's
employment by the Company shall constitute a
termination "for cause" under this Section 4(A) if
such termination is for one or more of the following
causes: (i) intentional misconduct causing material
damage to the Company; (ii) any act of fraud,
misappropriation, misfeasance, malfeasance or knowing
breach of fiduciary duty; (iii) conviction of a
felony, or, repeated habitual drunkenness or drug
addiction; (iv) continue gross negligence in the
conduct or management of the Company not remedied
within 30 days after receipt of written notice from
the Company; (v) willful refusal to perform the
duties reasonably assigned to the Employee by the
Board of Directors; (vi) willful and material breach
by the Executive of Sections 6, 7 or 8 of this
Agreement, or (vii) breach by the Executive of any
other material provision of this Agreement in any
material respect not remedied within 30 days after
receipt of written notice from the Company. Any
notice given by the Company pursuant to this Section
shall describe the activities which, in the Company's
opinion, constitute cause and such state that the
Company believes that such activities constitute
cause under this Agreement. In the event of a
termination "for cause' pursuant to the provisions of
causes (i) through (vii) above, inclusive, the
Executive shall be entitled to no payment or other
benefits, and shall have no further rights under this
Agreement. Notwithstanding the foregoing, the
Executive shall retain any stock options granted to
the Executive prior to the date of such termination
pursuant to Section 2(C) hereof.
B. At the Election of the Executive or Upon Death or
4
<PAGE>
Disability. The Executive's employment hereunder
shall terminate upon his death, and may be terminated
by the Company due to his Disability (as defined
below). "Disability" shall mean the determination by
the Board of Directors of the Company that the
Executive is physically or mentally incapacitated and
has been unable for a period of 90 days, whether or
not continuous, in any period of 12 consecutive
months, to perform the duties for which he was
immediately before the onset of his incapacity.
(i) In the event the Executive voluntarily
terminates his employment hereunder is
terminated due to death or Disability, until
the date of such termination of his
employment, the Executive (or the
Executive's heirs) shall be entitled to
receive payments of Base Salary pursuant to
Section 2(A). In addition, to the extent the
Executive was entitled to receive a cash or
stock option bonus pursuant to Section 2(C),
such bonus shall be paid to the Executive
(or his heirs) in accordance with Section
2(C).
(ii) Change of Control. If there is a change of
control which is defined by 25% change of
ownership or control of the Board of
Directors other than Byrd, Morris, and
Hackett. Royce will have the ongoing option
of continuing under the same terms and
conditions or resigning without restriction
with the Company continuing his compensation
and benefits program for a two year period.
5. Indemnification and Insurance. The Company will provide
Director and Officer Insurance at a minimum level of
$5,000,000. The Company agrees to fully indemnify Royce and
all of its officers and directors for acts taken on behalf of
the Company except for act of gross malfeasance. The Company
shall use reasonable best efforts to obtain a key man
insurance policy (the "Insurance Policy") on the Executive in
an amount equal to $5,000,000 at reasonable premium cost. The
Company shall be the sole beneficiary of the Insurance Policy.
6. Non-competition Covenant.
A. During the period of his employment hereunder if the
Executive is terminated for cause or voluntarily
terminates his employment prior to February 1, 2002,
for three months after termination of his employment,
the Executive agrees that he will not engage and will
not serve as a partner, officer, director,
consultant, employee, stockholder or in any other
capacity to any company or business organization
which engages in any business activity which is
competitive with the principal business of the
Company, Success as of date of termination (other
than the activities listed on Schedule A) unless the
Executive obtains the prior approval of the Company,
5
<PAGE>
and provides such persons with full disclosure of the
Executive's proposed activities. Notwithstanding the
foregoing, the Executive may own up to 5% of the
outstanding common stock of any class of common
equity which is traded on a national securities
exchange or in the over-the-counter market.
B. The Company may, at its option, require the Executive
to observe a non-competition covenant,
notwithstanding his termination or voluntary
resignation on or after February 1, 2002, if the
Company continues to pay the Executive the base
salary and benefits set forth in Section 2(A) for a
two year period of time.
7. Non-Solicitation.
A. During the period of his employment hereunder and, if
termination is for cause, or voluntary by the
Executive, for three months after the termination of
his employment, Executive agrees that he shall not
directly or indirectly solicit for employment, employ
in any capacity or make an unsolicited recommendation
to any other person that it employ or solicit for
employment any person who is a current or "former"
employee of the Company, the Parent Company or
Success or their affiliates. As used in this
Agreement, "former" employee means any employee who
was an employee of the Company, the Parent Company or
Success or their respective affiliates within 90 days
of such solicitation.
B. If the Executive violates the provisions of Section
7(A) hereof and it is adjudicated by arbitration,
then the Executive shall pay to either the Company,
or Success, as appropriate, an amount equal to the
compensation the solicited person received from such
company for the three months prior to the termination
of such person's employment with such company. Such
amount shall be payable by the Executive within 30
days after the Executive's receipt of written notice
from the Company, or Success, as appropriate.
8. Non-Disclosure Obligation. Executive will not at any time,
whether during or after the termination of his employment,
divulge, use, furnish, disclose or make available to any
person, association or company any of the trade secrets or
confidential information concerning the organization,
marketing plans and strategies, pricing policies, plans and
strategies relating to acquisitions made or to be made by the
Company, or Success, the business, finances or financial
information, of the Company, or Success so far as they have
come or may come to his knowledge, except as may be required
in the ordinary course of performing his duties as an officer
of the Company as may be in the public domain through no fault
of his, as may be required by law, or as were acquired by the
Executive prior to his association with the Company. Executive
shall keep secret all maters of such nature entrusted to him
and shall not use or attempt to use any such information in
6
<PAGE>
any manner which may injure or cause loss to the Company or
Success. Upon the termination of the Executive's employment,
the Executive shall return to the Company or Success, as
appropriate, any confidential materials in the Executive's
possession. Such materials may include professional, technical
and administrative manuals and the associated forms,
processes, computer software and other methodologies and
systems. If the Executive is required to disclose any
confidential information by law, the Executive shall contact
Company's Board of Directors prior to such disclosure.
9. Remedies Upon Breach. Executive agrees that any breach of this
Agreement by him could cause irreparable damage to the Company
or Success and that in the event of such breach the Company,
and Success shall have, in addition to any and all remedies of
law and otherwise under the Agreement, the right to an
injunction, specific performance or other equitable relief to
prevent the violation of his obligations hereunder, plus the
recovery of any and all costs and expenses incurred by the
Company, and Success, including reasonable attorneys fees in
connection with the enforcement of this Agreement, provided
that the Company, and Success shall have been successful on
the merits or otherwise in any proceeding related to the
enforcement thereof.
10. Representations. The Executive hereby represents and warrants
that his employment with the Company on the terms and
conditions set forth herein and his execution and performance
of this Agreement do not constitute a breach or violation of
any other agreement, obligation or understanding with any
third party. The Executive represents that his is not bound by
any agreement or any other existing or previous business
relationship which conflicts with or may conflict with, the
performance of his obligations hereunder or prevent the full
performance of his duties and obligations hereunder. The
Executive represents that he has no knowledge of any
circumstance which would prevent the Company from obtaining
the Insurance Policy and, to his knowledge, he is in good
health.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Utah.
12. Severability. In case any one or more of the provisions
contained in this Agreement for any reason shall 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 but this Agreement shall
be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein.
13. Waivers and Modifications. This Agreement may be modified, and
the rights and remedies of any provision hereof may be waived,
only in accordance with this Section 13. No modification or
waiver by the Company shall be effective without the consent
of at least a majority of the Board of Directors then in
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<PAGE>
office at the time of such modification or waiver. No waiver
by either party of any breach by the other or any provision
hereof shall be deemed to be a waiver of any later or other
breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the
subject matter set forth herein and may not be waived,
changed, discharged or terminated orally or by any course of
dealing between the parties. But only by an instrument in
writing signed by the party against whom any waiver, change,
discharge or termination is sought.
14. Assignment. The Executive acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the
Executive may not assign any of his rights or delegate any of
his duties or obligations under this Agreement. The company
shall have the right to assign this Agreement to its
successors and assigns, and the rights and obligations of the
Company under this Agreement shall inure to the benefit of,
and shall be binding upon, the successors and assigns of the
Company.
15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to be duly given when (i)
delivered by hand, (ii) 5 days after mailing if sent by
first-class certified mail, postage prepaid, return receipt
requested, (iii) on the scheduled delivery date, if sent by
overnight commercial courier, or (iv) transmitted by telecopy
or facsimile machine (with receipt confirmation) provided a
copy is mailed by registered mail, return receipt requested,
to the following address or fax number, as applicable, of the
party to whom such notice is to be made or to such other
address as such party may designate in the same manner
provided herein:
If to the Company:
6975 Union Park Center, #180
Midvale, Utah 84047
Attn: President and CEO
If to the Executive:
4362 S. Parkview Drive
Salt Lake City, Utah 84124
16. Survival of Obligations. Executive's obligations under this
Agreement shall survive the termination of it's employment
with the Company regardless of the manner of such termination
and shall be binding upon his heirs, executors and
administrators. The provisions of Sections 6, 7 and 8 shall
survive the termination or expiration of this Agreement as a
continuing agreement of the Executive. The existence of any
claim or cause of action by Executive against the Company
shall not constitute and shall not be asserted as a defense to
8
<PAGE>
the enforcement by the Company of this Agreement.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by arbitration
to be held in Salt Lake City, Utah. Upon the occurrence of any
such dispute or controversy, each of the parties shall select
an arbitrator (an "Arbitrator") who has no prior professional
or personal relationship with any party, the Arbitrators so
chosen shall select a third Arbitrator and each party shall
furnish to the Arbitrators written notice (each, a "Party
Determination") of such party's desired outcome or resolution
for such dispute or controversy. If upon receipt of a Party
Determination, the Arbitrators shall notify the other party in
writing (a "Determination Notice") that they have received
such Party Determination and the Arbitrators shall not
disclose the contents thereof until the earlier of the
Arbitrators' receipt of Party Determinations from the other
party and 20 days after delivery of the Determination Notice.
If the other party fails to deliver its Party Determinations
within 20 days after delivery of the Determination Notice, the
first Party Determinations shall be the resolution of the
dispute or controversy. If more than one Party Determination
is delivered to the Arbitrators within 20 days after the
delivery of the Determination Notice, the Arbitrators shall
determine the resolution of the dispute or controversy;
provided, however, that in determining the resolution of the
dispute or controversy, the Arbitrators' discretion shall be
limited to selecting one of the proposed resolutions set forth
in the Party Determination that was not chosen by the
Arbitrators. All decisions of the Arbitrators shall be final
and binding on each of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FORTUNE FINANCIAL SYSTEMS, INC.
By: /s/ Roger C. Royce By: /s/ James S. Byrd
------------------ -----------------
Roger C. Royce James S. Byrd, Jr. President CEO
Solely with respect,
to Sections 6, 7 and 8
SUCCESS HOLDINGS COMPANY, LLC
By: /s/ Peter Morris
----------------
Peter Morris, Chairman of Board
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SCHEDULE A
1. Westban Financial, Inc.
2. Board of Directors (3)
3. American Education Institute, Inc.
10
Fortune Financial Systems, Inc.
6975 Union Park Center Suite 180
Salt Lake City, Utah 84047
December 31,1997
Mr. James Byrd
1200 W.S.R. 434, Suite 110
Longwood, Fl. 32750
Via Hand Delivery
Dear Jim,
Per our discussion, I have discussed your resignation as Chairman and
Director of Fortune Financial Systems, Inc. with the members of the Executive
Board. They have agreed to the following terms and conditions:
1. Your will be named as a consultant to the Company with a 4
year guaranteed contract. Beginning in January, this will
consist of a monthly payment of $15,000 per month based upon
you being available for consulting and legal work for a
minimum of 20 hours per week (less 4 weeks vacation). You will
report directly to the President and C. E. O. and on an "as
needed basis" in this matter. It is understood that your
expertise in the area of legal matters of the company, your
ability to act as active counsel on designated matters,
consulting in matters of corporate finance, shareholder stock
appreciation programs, and company promotion is vital and
essential to the consideration of this agreement. The company
will make available an of rice and secretarial support during
this period. It is understood that you will be consulting and
doing legal work for other unrelated and non-competitive
parties, however, you agree to make yourself available, at the
rate of $200 per hour for additional consulting, subject to
other time constraints. Of course, any expenses related to
Fortune Financial business will be reimbursable. You will be
entitled to a bonus and stock option package which is
identical to that of Peter Morris.
2. The company will pay $5,000 a month for your non-compete, as
herein described. Under this agreement, you agree not enter
into any other like business in which Fortune Financial
Systems, Inc or its subsidiaries or affiliates is engaged.
3. You agree that, during the 4 year term of this agreement, you
will participate prorata in any "stock lock-up" which is
unanimously agreed to by Byrd, Hackett, Morris and Success.
4. Both parties agree that they will mutually agree as to any
press release or other dissemination of information regarding
the resignation.
<PAGE>
5. This agreement will be interpreted under Florida law, and
enforceable by binding arbitration, "baseball style", in
Orlando, Fla. All other agreements mentioned in this letter
shall remain intact, unless specifically modified by this
agreement. You shall retain any other rights which you had in
any shareholders or operating agreements to which you are a
party.
6. Except for the matters contained herein, the Company releases
you, indemnifies you, and holds you harmless from any
liabilities or claims resulting from your tenure as an officer
and director of the Company.
Sincerely,
/s/ Roger C. Royce
- ------------------
Roger C. Royce
President and C.E.O.
AGREED AND ACCEPTED:
/s/ James S. Byrd Jr.
- ---------------------
James S. Byrd, Jr.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Among
DEERE PARK CAPITAL MANAGEMENT, INC.,
PROFUTURES SPECIAL EQUITIES FUND, L.P.
And
FORTUNE FINANCIAL SYSTEMS, INC.
Dated as of October 28, 1997
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of October 28, 1997
(the "Agreement"), among DEERE PARK CAPITAL MANAGEMENT, INC., a corporation
organized and existing under the laws of the State of Illinois, as nominee
("Deere Park"), PROFUTURES SPECIAL EQUITIES FUND, L.P., a Delaware limited
partnership ("ProFutures" and, together with Deere Park the "Investors"), and
FORTUNE FINANCIAL SYSTEMS, INC., a corporation organized and existing under the
laws of the State of Nevada (the "Company").
RECITALS
--------
A. The parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investors, and the
Investors shall purchase from the Company, from time to time as provided herein,
the Company's 5% Convertible Preferred Stock, par value $.001 per share, having
those rights and preferences set forth in Exhibit A hereto (the "Preferred
Stock"), for an aggregate purchase price of up to $20,000,000.
B. Except as otherwise provided in this Agreement, such
investments will be made in reliance upon the provisions of Section 4(2)
promulgated by the Securities and Exchange Commission under the United States
Securities Act of 1933, as amended, and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Preferred Stock to be made hereunder.
NOW, THEREFORE, in consideration of the foregoing Recitals which
are hereby incorporated by this reference and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Call." See Section 2.3(a).
Section 1.2 "Call Date" or "Optional Purchase Date" means the date the
Company draws down a portion of the subscription amount pursuant to Section 2.3.
Section 1.3 "Closing" means the consummation of each purchase and sale of
Preferred Stock pursuant to Section 2.1.
<PAGE>
Section 1.4 "Closing Date" means, with respect to each purchase and sale
of Preferred Stock pursuant to this Agreement, (i) with respect to the Initial
Shares, the first business day following execution of this Agreement and
satisfaction of all conditions set forth in Section 3.1, and (ii) with respect
to Optional Shares, the third Trading Day after an Optional Purchase Date,
provided in each case that all conditions to the applicable Closing have been
satisfied.
Section 1.5 "Commitment Period" means the period commencing on the
Effective Date and expiring on the earlier to occur of (x) the date on which the
Investors shall have purchased Preferred Stock pursuant to this Agreement for an
aggregate Purchase Price of $20,000,000, (y) the date this Agreement is
terminated pursuant to Section 2.6, or (z) the second anniversary of the
Effective Date.
Section 1.6 "Condition Satisfaction Date." See Section 3.2.
Section 1.7 "Conversion Notice" means the written form of notice given to
notify the Company that an Investor is exercising its option to convert the
Preferred Stock to Common Stock, and directing the Company or its transfer agent
to issue and deliver to the party indicated, a certificate or certificates
representing the Common Shares received upon conversion.
Section 1.8 "Effective Date" means the date on which the SEC declares
effective the Registration Statement described in Section 3.2(a).
Section 1.9 "Equity Offerings" means the issuance or sale by the Company
in a transaction exempt from or not subject to the registration requirements of
the Securities Act of any shares of the Company's Common Stock, par value $0.001
per share (the "Common Stock"), or securities which are convertible into or
exchangeable for its Common Stock or any warrants, options or other rights to
subscribe for or purchase its Common Stock or any such convertible or
exchangeable securities (other than shares of Common Stock which may be issued
upon exercise of options under the Company's employee or director stock option
plans, upon the conversion or exchange of convertible or exchangeable securities
or upon the exercise of warrants, or other rights, which options, convertible or
exchangeable securities, warrants or other rights are outstanding on the date of
execution and delivery of the Agreement and are described in Section 5.4(a) of
this Agreement (other than the Warrants) and other than (x) shares of Common
Stock which may be issued upon exercise of options granted under such plans, (y)
shares of Common Stock which may be issued upon exercise of the Warrants, and
(z) shares of Common Stock or securities which are convertible into or
exchangeable for Common Stock or any warrants, options or other rights to
subscribe for or purchase Common Stock or any such convertible or exchangeable
securities issued in business combinations or strategic corporate partnering
transactions.)
Section 1.10 "Escrow Agent" means, initially, LaSalle National Bank, or
such other entity or individual mutually agreed to by the Company and Deere
Park.
Section 1.11 "Escrow Agreement" means that certain Escrow Agreement to be
entered into among the Company, the Escrow Agent and Deere Park, as the same may
be amended from time to time.
2
<PAGE>
Section 1.12 "Exchange Act" means the United States Securities Exchange
Act of 1934, as amended.
Section 1.13 "Holdback Shares" means those 20,000 shares of Preferred
Stock which the Investors agree to purchase, and the Company, at its option, may
sell pursuant to Section 2.2(a).
Section 1.14 "Initial Closing Date" means the date upon which the Closing
of the purchase and sale of the Initial Shares shall occur.
Section 1.15 "Initial Shares." See Section 2.2.
Section 1.16 "Investment Amount" means the amount required to be invested
by the Investors with respect to any Optional Purchase Date as notified by the
Company to the Investors in accordance with Section 2.5 hereof.
Section 1.17 "Market Price" means (i) with respect to a conversion of
Preferred Stock by an Investor in accordance with the terms of this Agreement
and the terms of the Preferred Stock, the average of the closing bid price (as
reported by Bloomberg L.P.) of the Company's Common Stock over the 10-Trading
Day period immediately preceding the date of the applicable Conversion Notice
and (ii) if the Company elects to issue Common Stock instead of Preferred Stock
in accordance with Section 2.3, the average of the closing bid price (as
reported by Bloomberg L.P.) of the Company's Common Stock over the 10-Trading
Day period immediately following the applicable Call Date.
Section 1.18 "Material Adverse Effect" means an effect on the business,
operations, properties, prospects, or financial condition of the Company which
has a material adverse effect on the trading market for the shares of Common
Stock of the Company, but only so long as there is a "material adverse effect"
on the trading market for the shares of Common Stock of the Company.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Optional Purchase Date" shall mean a Trading Day during the
Commitment Period on which the Company elects by delivery of an Optional
Purchase Notice pursuant to Section 2.5 to sell Preferred Stock or Common Stock
to the Investors, in conformity with the provisions of this Agreement.
Section 1.21 "Optional Purchase Notice." See Section 2.5.
Section 1.22 "Optional Shares." See Section 2.3(a).
Section 1.23 "Principal Market" means the Nasdaq National Market, the
Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Company's Common Stock.
Section 1.24 "Registration Rights Agreement." See Section 2.7.
3
<PAGE>
Section 1.25 "Registration Statement." See Section 3.2(a).
Section 1.26 "SEC" shall mean the Securities and Exchange Commission.
Section 1.27 "Securities Act" shall mean the United States Securities Act
of 1933, as amended.
Section 1.28 "SEC Documents" shall mean registration statements, reports
and documents, including proxy statements filed with the SEC pursuant to the
Securities Act or Exchange Act.
Section 1.29 "Subscription Date" shall mean the date of this Agreement.
Section 1.30 "Trading Cushion" shall mean the mandatory 30 Trading Days
between Optional Purchase Dates.
Section 1.31 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.32 "Warrants." See Section 2.7.
ARTICLE II
Purchase and Sale of Preferred Stock
Section 2.1 Investments. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), during
the Commitment Period the Company shall issue and sell to the Investors, and the
Investors shall purchase from the Company, Preferred Stock.
Section 2.2 Initial Purchase. The Company agrees to sell and the Investors
agree to purchase up to 40,000 shares of Preferred Stock (the "Initial Shares")
at a price of $100.00 per share. 20,000 shares of the Initial Shares shall be
purchased and sold on the Initial Closing Date and the balance (the "Holdback
Shares") shall be purchased and sold at such time as the conditions set forth in
Section 3.2 have been satisfied; provided, however, that at any time prior to
the Closing for the Holdback Shares, the Company with written notice to the
Investors may decline to sell the Investors the Holdback Shares.
Section 2.3. Optional Shares.
(a) In addition to the purchase of the Initial Shares and the
Holdback Shares, pursuant to Section 2.2, the Investors agree to make purchases
of shares of Preferred Stock for up to Sixteen Million Dollars ($16,000,000) in
the aggregate (the "Optional Shares"). During the Commitment Period, the Company
will be obligated to draw down a minimum of Seven Million Five Hundred Thousand
4
<PAGE>
Dollars ($7,500,000) excluding the Initial Shares commitment and the Holdback
Shares (the "Minimum Drawdown"), from the full subscription commitment of
$20,000,000.
Subsequent to the satisfaction of the conditions described in
Section 3.2, the Company shall have the option of issuing Preferred Stock in an
aggregate amount of a Call (as defined below) or issuing unlegended, registered
shares of Common Stock. In the event the Company determines to issue Common
Stock, the price of the Common Stock shall be equal to 93% of the Market Price.
Each purchase of Optional Shares shall occur on an Optional
Purchase Date. The Company will have the option to set the date of each draw
down (which date shall be not less than ten (10) Trading Days following the date
of issuance of the applicable Optional Purchase Notice) and the Investment
Amount relating to such draw down (each, a "Call"); provided, however, that (i)
under no circumstances will shares in excess of 20% of the Company's currently
outstanding shares be issued pursuant to this Agreement; (ii) the average daily
trading volume of the Company's Common Stock over the course of the previous
sixty days preceding each Call must be greater than 80,000 shares per Trading
Day as reported by Bloomberg L.P.; and (iii) no Call may be made if the closing
bid price per share of the Company's Common Stock is less than $4.00 for any
five (5) of the ten (10) Trading Days immediately preceding the Call Date. In
addition, the Company shall not deliver an Optional Purchase Notice until the
expiration of an applicable Trading Cushion.
(b) The Company may in its sole discretion on any Optional
Purchase Date sell to the Investors the number of shares of Preferred Stock
determined by dividing the Investment Amount by the per share purchase price
equal to $100.00 or the number of shares of Common Stock determined by dividing
the Investment Amount by 93% of the Market Price of the Common Stock. The
Investment Amount relating to each Call shall be determined by the Company,
shall be in the minimum amount of $100,000 and may be in increments of $10,000
in excess thereof but shall not exceed $1,500,000. Notwithstanding the
foregoing, the Company and the Investors may by mutual agreement from time to
time provide for a greater Investment Amount per Call.
Section 2.4 Closings.
(a) With respect to the sale of the Initial Shares (i) on or
before the Initial Closing Date, the Company shall deliver to the Investors two
or more certificates aggregating a total of 20,000 shares of Preferred Stock to
be purchased by the Investors pursuant to Section 2.2, registered in the names
of the Investors as designated in writing by the Investors or, at an Investor's
option, deposit such certificates into such account or accounts previously
designated by the Investor and (ii) on or before the Initial Closing Date the
Investors shall deliver or cause to be delivered to the Company the amount of
$2,000,000 by wire transfer of immediately available funds to one or more
accounts designated by the Company.
(b) With respect to each Closing relating to Optional Shares (i)
concurrently with delivery of the Optional Purchase Notice to the Investors, the
Company shall deliver to the Escrow Agent for deposit into escrow one or more
certificates representing the number of shares to be purchased by the Investors
pursuant to Section 2.3, such shares to be registered in the names of the
5
<PAGE>
Investors as designated in writing by the Investors or, at an Investor's option,
deposited in such account or accounts as previously designated by the Investor,
(ii) on or before the Closing Date, the Investors shall deliver to the Escrow
Agent for deposit into escrow the Investment Amount by wire transfer to the
account designated in the Escrow Agreement and (iii) following delivery of the
Investment Amount by the Investors, the Escrow Agent shall be directed to
deliver the certificates representing the shares described in clause (i) to the
Investors and release the Investment Amount to the Company.
(c) In addition, on or prior to each Closing Date, each of the
Company and the Investors shall deliver all documents, instruments and writings
required to be delivered or reasonably requested by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein. Delivery of certificates to escrow shall occur three (3) business days
following the Effective Date or Call Date, as applicable. Payment of funds to
the Company shall occur out of escrow on the business day following receipt of
the related stock certificates, concurrently with delivery of such certificates
to the Investors.
Section 2.5 Mechanics of Exercise Relating to Optional Shares.
(a) Delivery of Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver written notices to the Investors
(each such notice hereinafter referred to as an "Optional Purchase Notice")
setting forth the Investment Amount, subject to the limitations imposed by
Sections 2.3 and 3.2 herein, which the Company proposes to draw down. Any
Optional Purchase Notice shall be revocable within three (3) business days after
delivery to the Investors at the Company's option. The Company may not deliver
an Optional Purchase Notice to the Investors if the events described in Section
2.6 occur or if the conditions set forth in Article III are not satisfied. If
any of the events described in Section 2.6 occur on or after the date on which
an Optional Purchase Notice is given, but prior to the closing of the
transaction on the Closing Date associated with such Optional Purchase Notice,
or if the conditions set forth in Section 2.3(a) or Article III are not
satisfied as of the Closing Date (subject to any extension as mutually agreed by
the Company and the Investors), such Optional Purchase Notice shall be null,
void and of no further force or effect.
(b) Date of Delivery of Optional Purchase Notice. An Optional
Purchase Notice shall be deemed delivered on (i) the Trading Day it is received
by facsimile or otherwise by the Investors if such notice is received prior to
5:00 P.M. Chicago time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 P.M. Chicago time. No Optional
Purchase Notice may be delivered or deemed delivered, on a day which is not a
Trading Day.
Section 2.6 Termination or Suspension of Investment Obligation. The
Investors shall not be required to purchase any Optional Shares from the Company
on any Closing Date nor may an Optional Purchase Notice be delivered at any time
during the Commitment Period that there shall exist any one or more of the
following: (i) the withdrawal of the effectiveness of the Registration
Statement, (ii) the Company's failure to satisfy in all material respects the
requirements in Section 3.2, or (iii) any failure or interruption in the
compliance in all material respects with the Company's covenants provided in
Article VI; provided, however that the obligation of the Investors to purchase
Optional Shares shall be terminated (including with respect to a Closing Date
which has not yet occurred) in the event that (x) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement, for any
6
<PAGE>
reason other than as a result of subsequent corporate developments which would
require such Registration Statement to be amended to reflect such event in order
to maintain its compliance with the disclosure requirements of the Securities
Act, or (y) the Company shall at any time fail to comply with the requirements
of Sections 6.3, 6.4, 6.5 or 6.6.
Section 2.7 Commitment Fee.
(a) On the Initial Closing Date, the Company will issue to the
Investors warrants, exercisable beginning on the eleventh (11th) Trading Day
following the Effective Date (collectively the "Warrants") and then exercisable
at any time over the following three year period, to purchase an aggregate of
500,000 shares of Common Stock at the following prices: (i) 250,000 shares at a
price of $6.00 per share, and (ii) 250,000 shares at a price of $7.00 per share.
The shares of Common Stock to be issued upon exercise of the Warrants shall be
registered for resale on the Registration Statement referenced in Section 3.2(a)
herein. The resale by the Investors of Common Stock issuable upon exercise of
the Warrants shall be subject to a registration rights agreement (the
"Registration Rights Agreement") to be entered into between the Company and the
Investors on the Initial Closing Date.
(b) If the Minimum Drawdown is not drawn down by the Company
during the Commitment Period pursuant to this Agreement, the Company shall issue
additional three (3) year warrants to the Investors to purchase an additional
200,000 shares in the aggregate at the greater of the Market Price of the
Company's Common Stock on the last Trading Day of the Commitment Period and
$5.00 per share of Common Stock, the issuance of which shall be the sole remedy
of the Investors for the Company's failure to effect the Minimum Drawdown. Such
additional warrants shall be subject to the same terms and conditions as the
Warrants. Each of the Warrants shall be in form and substance reasonably
acceptable to the Company and the Investors. The Company agrees that a breach of
its obligations under this Section 2.7(b) could cause the Investors irreparable
injury and that monetary damages may not be an adequate remedy for any such
breach. In the event of a breach or threatened breach by the Company of this
Section 2.7(b), the Company agrees that the Investors are entitled to equitable
relief in any court of competent jurisdiction, including the remedy of specific
performance, in addition to all other remedies available to the Investors at law
or in equity. Notwithstanding anything to the contrary set forth herein, in the
event that the Investors are not obligated to purchase Optional Shares by reason
of the failure of the Company to satisfy the condition set forth in Section
3.2(f) hereof, the Company shall be relieved of its obligation to issue the
additional warrants pursuant to this Section 2.7(b).
ARTICLE III
Conditions to Closing
Section 3.1 Conditions Precedent to the Obligations to Issue and Sell
Stock by the Company and to Purchase Stock by the Investors.
(a) Conditions Precedent to Company's Obligation. The obligation
hereunder of the Company to issue and sell Initial Shares, Holdback Shares and
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Optional Shares to the Investors incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(i) Accuracy of the Investors' Representations and
Warranties. The representations and warranties of the Investors shall be
true and correct in all material respects as of the date of this Agreement
and as of the date of each Closing as though made at each such time.
(ii) Performance by the Investors. The Investors shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investors at or prior to such
Closing.
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which, in the reasonable opinion of the Company and
its legal counsel, prohibits or materially adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have
been commenced which may have the effect of prohibiting or materially
adversely affecting any of the transactions contemplated by this
Agreement.
(b) Conditions Precedent to the Investors' Obligations. The
obligation hereunder of the Investors to purchase Initial Shares is subject to
the satisfaction, at or before the Initial Closing Date, of each of the
conditions set forth below:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be
true and correct in all material respects as of the Initial Closing Date
as though made at such time with respect to all periods, and as to all
events and circumstances occurring or existing to and including the
Initial Closing Date.
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing Date.
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or materially adversely affects any
of the transactions contemplated by this Agreement, and no proceeding
shall have been commenced which may have the effect of prohibiting or
materially adversely affecting any of the transactions contemplated by
this Agreement.
(iv) Adverse Changes. Since June 30, 1997, no event
which had or is reasonably likely to have a Material Adverse Effect (as
that term is defined in Section 5.5 hereof) has occurred.
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(v) Legal Opinions. The Company shall have caused to be
delivered to the Investors an opinion of the Company's independent counsel
in form and substance reasonably acceptable to the Investors and their
counsel.
(vi) Officer's Certificate. The Company shall have
delivered to the Investors a certificate dated as of the Initial Closing
Date executed by an executive officer of the Company and to the effect
that all the conditions to such Closing have been satisfied as at the date
of each such certificate.
(viii) Security and Pledge Agreements. In order to
secure performance of the Company's obligations under Section 6.10(b) of
this Agreement, the Company shall have delivered or caused to have been
delivered to the Investors (A) a Security and Pledge Agreement in form and
substance satisfactory to the Investors pursuant to which the Company
grants to the Investors a security interest in all of its assets; (B) one
or more Financing Statements on Form UCC-1 showing the Company as Debtor
and the Investors as Secured Parties and evidencing the grant of security
described in (A) hereof; and (C) one or more Pledge Agreements in form and
substance satisfactory to the Investors executed by one or more current
stockholders of the Company and granting to the Investors a perfected
security interest in 2,000,000 shares of Common Stock of the Company.
(ix) Other. The Investors shall have received and been
reasonably satisfied with such other certificates and documents as shall
have been reasonably requested by the Investors in order for the Investors
to confirm the Company's satisfaction of the conditions set forth in this
Agreement.
Section 3.2 Conditions Precedent to the Right of the Company to Deliver an
Optional Purchase Notice and the Obligation of the Investors to Purchase Stock.
The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investors hereunder to acquire and pay for Optional Shares
incident to a Closing for the sale and purchase of Optional Shares or the
Holdback Shares is subject to the satisfaction, on the date of delivery of such
Optional Purchase Notice and on the applicable Closing Date (each a "Condition
Satisfaction Date") of each of the following conditions.
(a) Registration of the Common Stock with the SEC.
(i) The Company shall have filed with the SEC a
registration statement on Form S-1 or otherwise appropriate form (the
"Registration Statement") for the registration of the resale by the
Investors of Common Stock to be acquired pursuant to this Agreement
(including Common Stock to be issued upon conversion of the Preferred
Stock and upon exercise of the Warrants) under the Securities Act, which
Registration Statement shall have been declared effective by the SEC on
the Effective Date, no later than 120 days subsequent to the Initial
Closing Date, and no stop order or suspension or withdrawal of the
effectiveness of or with respect to any such registration statement or any
other suspension of the use of any such registration statement or related
prospectus shall have been issued by the SEC or any state securities
commission during the Commitment Period; and the Company shall be in
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compliance in all material respects with the terms of the Registration
Rights Agreement.
(ii) The Company shall have filed with the SEC a
registration statement on Form 10 or otherwise appropriate form for the
registration of the Company's Common Stock pursuant to Section 12(g) of
the Exchange Act, which registration statement shall have been declared
effective by the SEC no later than 120 days subsequent to the Initial
Closing Date, and no stop order or suspension or withdrawal of the
effectiveness of or with respect to any such registration statement or any
other suspension of the use of any such registration statement or related
prospectus shall have been issued by the SEC or any state securities
commission during the Commitment Period.
(iii) The Company shall have filed a listing application
for the Common Stock with the American Stock Exchange or another Principal
Market, have been approved for listing and trading of the Common Stock on
the Principal Market and commenced trading on the Principal Market.
(b) Effective Registration Statement. The Registration Statement
shall have previously become effective and shall remain effective on each
Closing Date and for so long as the Investors hold any shares of Preferred Stock
or Common Stock and (i) neither the Company nor the Investors shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so, and (ii) no other suspension
of the use of the Registration Statement or prospectus shall exist pursuant to
the Registration Rights Agreement.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Closing Date as though made at each such time
(except for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and circumstances
occurring or existing to and including each Closing Date (provided, however,
that if the Investors are aware of any inaccuracy or breach of any
representation or warranty, the Investors shall give written notice thereof to
the Company.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Closing Date (provided, however, that if
the Investors are aware of any failure of compliance by the Company with any
such covenant, agreement or condition, the Investors shall give written notice
thereof to the Company.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits or materially adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced which may have
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the effect of prohibiting or materially adversely affecting any of the
transactions contemplated by this Agreement.
(f) Adverse Changes. Since June 30, 1997, no event which had or
is reasonably likely to have a Material Adverse Effect (as that term is defined
in Section 5.5 hereof) has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the National Association of Securities Dealers, Inc. (the
"NASD") and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market. The issuance of
shares of Preferred Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be delivered
to the Investors, (i) within five (5) Trading Days prior to the effective date
of the Registration Statement and (ii) to the extent provided by Section 3.3, an
opinion of the Company's independent counsel in form and substance reasonably
acceptable to the Investors and their counsel, addressed to the Investors
stating, inter alia, that nothing shall have come to such counsel's attention
that causes such counsel to believe that the Registration Statement (if
applicable, as amended to the date thereof) contains an untrue statement of
material fact or omits a material fact required to make the statements contained
therein, not misleading or that the underlying prospectus (if applicable, as so
amended or supplemented) contains an untrue statement of material fact or omits
a material fact required to make the statements contained therein, in light of
the circumstances in which they were made, not misleading, except with respect
to the financial statements and the notes thereto and the schedules and other
financial and statistical data derived therefrom in the Registration Statement
or the Prospectus, as to which such counsel shall express no opinion; provided,
however, that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investors, the Company shall promptly
revise the Registration Statement and shall not deliver an Optional Purchase
Notice. If an Optional Purchase Notice shall have been delivered in good faith
without knowledge by the Company that an opinion of independent counsel cannot
be delivered as required, the Company may postpone such Closing Date for a
period of up to five (5) Trading Days until such an opinion is delivered to the
Investors (or such Closing shall otherwise be canceled). The Company's
independent counsel shall also deliver to the Investors on the Initial Closing
Date an opinion in form and substance satisfactory to the Investors and their
counsel addressing, among other things, corporate matters and the exemption from
registration under the Securities Act of the issuance of the Initial Shares by
the Company to the Investors under this Agreement.
(i) Officer's Certificate. The Company shall have delivered to
the Investors, on each Closing Date, a certificate dated as of such Closing
Date, executed by an executive officer of the Company and to the effect that all
the conditions to such Closing have been satisfied as at the date of each such
certificate.
(j) Due Diligence. No dispute between the Company and the
Investors shall exist pursuant to Section 3.3 as to the adequacy of the
disclosures contained in the Registration Statement.
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(k) Timely Issuance of Common Stock Upon Conversion. The Company
shall have issued all shares of Common Stock for which it therefore shall have
received appropriate Conversion Notices from the Investors.
(l) Escrow Agreement. The Company, Deere Park, as agent for the
Investors, and the Escrow Agent shall have entered into an Escrow Agreement in
form and substance reasonably satisfactory to all parties thereto.
(m) Other. On each Closing Date, the Investors shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investors in order for
the Investors to confirm the Company's satisfaction of the conditions set forth
in Section 3.2.
Section 3.3 Due Diligence Review. The Company shall make available for
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors), any underwriter
participating in any disposition of Common Stock on behalf of the Investors
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company to confirm the accuracy of the Registration Statement.
The Company shall not disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investors' advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
Nothing herein shall require the Company to disclose non-public
information to the Investors, their respective advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investor who purchases stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investors and
underwriters, if any, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
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Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 3.3 shall be construed
to mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading; provided, however, that in no event shall the
Investors' advisors or representatives disclose to the Investors the nature of
the specific event or circumstances constituting any non-public information
discovered by such advisors or representatives in the course of their due
diligence (without the written consent of the Investors prior to disclosure of
such information).
The Investors' advisers or representatives shall make complete
disclosure to the Investors' independent counsel of all events or circumstances
constituting non-public information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Investors' independent
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto. In the event after
such consultation the Investors' independent counsel believes that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading, (x) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investors, as promptly as practicable with
copies of the Registration Statement and related prospectus, as so amended, (y)
if the Company disputes the existence of any such material misstatement or
omission, (i) the Company's independent counsel shall provide the Investors'
independent counsel with an opinion stating that nothing has come to their
attention that would lead them to believe that the Registration Statement or the
related prospectus, as of the date of such opinion contains an untrue statement
of a material fact or omits a material fact required to be stated in the
Registration Statement or the related prospectus or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading and (ii) in the event the dispute relates to the adequacy
of financial disclosure and the Investors shall reasonably request, the
Company's independent auditors shall provide to the Company a letter outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Investors and the Company shall provide the Investors with a
copy of such letter, or (z) if the Company disputes the existence of any such
material misstatement or omission, and the dispute relates to the timing of
disclosure of a material event and the Company's independent counsel is unable
to provide the opinion referenced in clause (y) above to the Investors, then
this Agreement shall be suspended for a period of up to thirty (30) days, at the
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end of which, if the dispute still exists between the Company's independent
counsel and the Investors' independent counsel, the Company shall either (i)
amend the Registration Statement as provided above, (ii) provide to the
Investors the Company's independent counsel opinion and a copy of the letter of
the Company's independent auditors referenced above, or (iii) this Agreement
shall be suspended for an additional period of up to thirty (30) days; provided,
however, that at the end of such sixty (60) day period, if the dispute still
exists between the Company's independent counsel and the Investors' independent
counsel, the Company shall either (i) amend the Registration Statement as
provided above, (ii) provide the Company's independent counsel opinion
referenced above, or (iii) the obligation of the Investors to purchase shares of
Preferred Stock or Common Stock pursuant to this Agreement shall terminate.
ARTICLE IV
Representations and Warranties of Investors
Each of the Investors represents and warrants to the Company that:
Section 4.1 Intent. The Investors are entering into this Agreement for
their own account and the Investors have no present arrangement (whether or not
legally binding) at any time to sell the Preferred Stock or Common Stock to or
through any person or entity; provided, however, that by making the
representations herein, the Investors do not agree to hold the Preferred Stock
or any Common Stock issued to such Investors or received upon the conversion of
the Preferred Stock or the exercise of the Warrant for any minimum or other
specific term and reserves the right to dispose of the Preferred Stock and the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 4.2 Sophisticated and Accredited Investors. Each of the Investors
is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D)
and an accredited investor (as defined in Rule 501 of Regulation D), and each
Investor has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in Preferred Stock
and Common Stock. Each Investor acknowledges that an investment in the equity
securities of the Company is speculative and involves a high degree of risk.
Each Investor acknowledges that the shares of Preferred Stock to be issued
pursuant to this Agreement are "restricted securities" within the meaning of the
Securities Act and the rules and regulations promulgated thereunder and may not
be resold in the absence of an effective registration statement under the
Securities Act or an available exemption from the Securities Act registration
requirements.
Section 4.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Investors and is a valid and binding agreement of
the Investors enforceable against them in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.4 Not an Affiliate. Neither Investor is an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
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Section 4.5 Organization and Standing. Deere Park represents and warrants
that it is a corporation duly organized, validly existing, and in good standing
under the laws of the state of Illinois. ProFutures represents and warrants that
it is a limited partnership duly organized, validly existing and in good
standing under the laws of the state of Delaware.
Section 4.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on an Investor, or
the provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which an Investor or any of its assets is bound, or
conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by an
Investor to any third party, or require the approval of any third-party (which
has not been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which an Investor is subject or to which any
of its assets, operations or management may be subject.
Section 4.7 Disclosure; Access to Information. Investors have received all
documents, records, books and other information pertaining to Investors'
investment in the Company that have been requested by Investors.
Section 4.8 Manner of Sale. At no time were Investors presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to the Investors that:
Section 5.1 Company Status. The Company will take all necessary and
appropriate action to have registered its Common Stock pursuant to Section 12(b)
or 12(g) of the Exchange Act and to remain in full compliance with all reporting
requirements of the Exchange Act, and the Company will take all necessary and
appropriate action to meet and maintain all requirements for the initial and
continued listing or quotation of its Common Stock on the Principal Market. As
of the date hereof, the Company expects that the Principal Market shall be the
American Stock Exchange.
Section 5.2 Financial Statements. The Company has furnished to the
Investors its audited consolidated financial statements for the fiscal year
ended December 31, 1996, and the three month period ended March 31, 1997, and
its unaudited consolidated balance sheet as of June 30, 1997, and consolidated
income statement for the six months ended June 30, 1997. All such financial
statements were prepared in conformity with United States generally accepted
account principles applied on a consistent basis and fairly present the
financial position, results of operations and changes in financial condition of
the Company for the periods ended on the dates thereof (subject in the case of
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the unaudited financial statement, to periodic and year-end adjustments and to
the absence of footnotes).
Section 5.3 No General Solicitation in Regard to this Transaction. Neither
the Company nor any of its affiliates nor any distributor or any person acting
on its or their behalf has conducted any general solicitation (as that term is
used in Rule 502(c) of Regulation D) with respect to any Preferred Stock or
Common Stock, nor have they made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Preferred Stock or Common Stock under the Securities
Act.
Section 5.4 Capitalization; Valid Issuance of Common Stock.
(a) As of the date of this Agreement, the Company has authorized
capitalization consisting of 100,000,000 shares of Common Stock, par value
$0.001 per share and 5,000,000 shares of Preferred Stock, par value $.001 per
share. As of September 15, 1997, there were issued and outstanding 19,957,253
shares of Common Stock and no issued and outstanding shares of Preferred Stock.
Except for a convertible note in the principle amount of $50,000 issued to
Listmart of Florida, Inc., there are no outstanding options, warrants, rights,
contracts, commitments, arrangements or understandings, whether absolute or
contingent to subscribe for purchase or issue any shares of the capital stock of
the Company or any outstanding security or indebtedness convertible into capital
stock or exercisable or exchangeable therefore.
(b) All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable. The shares of Common Stock to be issued upon the conversion of
the Preferred Stock or which the Company may issue as Optional Shares and upon
exercise of the Warrants have been duly reserved for issuance upon conversion of
Preferred Stock and exercise of the Warrants, as the case may be. Upon issuance
of the Common Stock to the Investors pursuant to the conversion of the Preferred
Stock or exercise of the Warrant or otherwise in accordance with the terms of
this Agreement, the Common Stock will be duly and validly issued, fully paid and
nonassessable. The holders of outstanding Common Stock of the Company are not
and shall not be entitled to preemptive or other rights afforded by the Company
or other rights afforded by the Company to subscribe for the capital stock or
other securities of the Company as a result of the sale of the Preferred Stock
or Warrants to the Investors hereunder.
(c) The Preferred Stock has been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of 5% Convertible Preferred Stock, with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement.
Section 5.5 Organization and Qualification.
(a) The Company is a corporation duly incorporated and existing
in good standing under the laws of the State of Nevada and each subsidiary of
the Company is duly incorporated and existing in good standing under the laws of
the state of its organization. The Company and each of its subsidiaries is duly
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licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, other than those in which the failure
so to qualify would not have a Material Adverse Effect. The Company and each of
its subsidiaries has the requisite corporate power to own their properties and
to carry on their business as now being conducted and as proposed to be
conducted.
(b) Except as listed on Schedule 5.5(b), (i) the Company does not
own of record or beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other corporation, or
(B) any participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control directly or indirectly, any
other entity. The subsidiaries of the Company are listed on Schedule 5.5(b).
Section 5.6 Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to issue the Preferred Stock and the Warrants,
(ii) the execution, issuance and delivery of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than such stockholder
approval as may be required by the standards imposed on companies listed on the
Principal Market) and (iii) this Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Section 5.7 Corporate Documents. The Company has furnished or made
available or will furnish and make available prior to the Initial Closing Date
to the Investors true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 5.8 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation, the issuance of Preferred
Stock and the Warrants do not and will not (i) result in a violation of the
Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
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violation of, in conflict with or in default under any of the foregoing;
provided that, for purposes of the Company's representations and warranties as
to violations of foreign law, rule or regulation referenced in clause (iii),
such representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investors under
or pursuant to any such foreign law, rule or regulation). The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Preferred Stock or the Warrants in accordance with the terms hereof (other
than any SEC, NASD or state securities filings which may be required to be made
by the Company subsequent to any Closing, and any registration statement which
may be filed pursuant hereto and other than any shareholder approval required by
the rules applicable to companies listed in the Principal Market); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 5.9 Documents. The Company has delivered or made available to the
Investors true and complete copies of the SEC Documents, if any, (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investors any information which, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied and will comply in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents contained or will contain any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply and
will comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been and will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.10 No Material Adverse Effect. Since June 30, 1997, no Material
Adverse Effect has occurred or exists with respect to the Company or its
subsidiaries.
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Section 5.11 No Undisclosed Liabilities. The Company and its subsidiaries
have no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the financial statements described in
Section 5.1 or following the Company's filing of the Registration Statements
described in Section 3.2., in SEC Documents or otherwise publicly announced,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since the filing of the Company's most
recent SEC Document, and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company and upon any of its
subsidiaries.
Section 5.12 No Undisclosed Events or Circumstances. Since June 30, 1997,
no event or circumstance has occurred or exists with respect to the Company or
its subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed in the
SEC Documents.
Section 5.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Preferred Stock under the Securities Act.
Section 5.14 Litigation and Other Proceedings. Except as set forth in
Schedule 5.14, there are no lawsuits or proceedings pending or to the best
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect on the Company or which could reasonably be expected to materially
adversely affect the transactions contemplated by this Agreement. Except as set
forth in Schedule 5.14, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which could reasonably be expected to
result in a Material Adverse Effect on the Company or which could reasonably be
expected to materially adversely affect the transactions contemplated by this
Agreement.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Registration Rights Agreement shall
remain in full force and effect and the Company shall comply in all respects
with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the conversion of the Preferred Stock and incident
to the exercise of the Warrants and otherwise in accordance with the terms of
this Agreement; such amount of shares of Common Stock to be reserved to be
calculated based upon the minimum purchase price therefor under the terms of
this Agreement, and assuming the full exercise of the Warrants. The number of
shares so reserved from time to time, as theretofore increased or reduced as
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hereinafter provided, may be reduced by the number of shares actually delivered
hereunder and the number of shares so reserved shall be increased to reflect (a)
potential increases in the Common Stock which the Company may thereafter be so
obligated to issue by reason of adjustments to the purchase price therefor and
the issuance of the Warrants and (b) stock splits and stock dividends and
distributions.
Section 6.3 Listing of Common Stock. The Company hereby agrees to obtain
and maintain the listing of its Common Stock on a Principal Market, and as soon
as practicable but in any event prior to the commencement of the Commitment
Period to list the shares of Common Stock issuable under this Agreement
(including Common Stock issuable upon conversion of Preferred Stock and exercise
of the Warrant). The Company shall undertake its best efforts to obtain the
shareholder approval, if any, referenced in Section 5.6 required for the
issuance of Preferred Stock under this Agreement within such time period as
shall not at any time preclude the Company from providing an Optional Purchase
Notice for the maximum Investment Amount provided by Section 2.2.
Section 6.4 Exchange Act Registration. The Company will cause its Common
Stock to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under said Act,
and, once registered, will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Company will take all action to continue the listing and
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
issued to the Investors after the Effective Date upon the conversion of the
Preferred Stock and the exercise of the Warrants or otherwise in accordance with
the terms of this Agreement, subject to the continued effectiveness of the
appropriate registration statement, shall be free of legends, so-called "stop
transfer," or "stock transfer restrictions," or other restrictions upon transfer
by the Investors to a bona fide third party which is not an affiliate of the
Company. Notwithstanding the absence of such legends or restrictions, the
Investors agree to comply with Securities Act prospectus delivery requirements
in any sale of Preferred Stock and Common Stock not made in compliance with Rule
144 or another available exemption. Immediately following the Effective Date,
the Investors shall have the right to surrender certificates representing the
any shares of Common Stock issued to the Investors as contemplated by this
Agreement in exchange for new certificates free of legends, "stop transfer" or
"stock transfer restrictions," or other restrictions upon transfer, and the
Company agrees to perform whatever acts are reasonably necessary to facilitate
such exchange on a timely basis.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will furnish to the
Investors upon request copies of all SEC Documents furnished or submitted to the
SEC.
Section 6.8 Blackout Period. (a) The Company will immediately notify the
Investors upon the occurrence of any of the following events in respect of a
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registration statement or related prospectus in respect of an Equity Offerings;
(i) receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Common Stock for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; (iv) the happening of any event which makes any
statement made in the registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or which requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
the registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (vi) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate; and the Company will promptly make available to the
Investors any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investors any Optional Purchase Notice during
the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within 10
days after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify the
Investors as to its reasonable expectations as to the dollar amount it intends
to raise during such calendar quarter, if any, through the issuance of Optional
Purchase Notices. Such notification shall constitute only the Company's good
faith estimate and shall in no way obligate the Company to raise such amount, or
any amount, or otherwise limit its ability to deliver Optional Purchase Notices.
The failure by the Company to comply with this provision can be cured by the
Company's notifying the Investors at any time as to its reasonable expectations
with respect to the current calendar quarter.
Section 6.10 Penalties for Failure to Obtain or Maintain Effectiveness of
Registration Statements.
(a) In the event the Company fails to obtain the effectiveness of a
Registration Statement on or before February 28, 1998 as set forth in Section
3.2(a) or the effectiveness of the Registration Statement is suspended or a
current prospectus meeting the requirements of Section 10 of the Securities Act
is not available for delivery by the Investors (such suspension or failure of
delivery is referred to herein as a "suspension"), the Company shall pay to the
Investors within five (5) days following the end of each thirty (30) day period
following the date by which such Registration Statement was required to have
been declared effective or following the date of suspension, in cash, an
aggregate amount equal to $60,000 for the first 30 days such registration is not
declared effective, and an aggregate of $120,000 per each 30-day period
thereafter. All amounts payable hereunder shall be paid to the Investors by
cashier's check or wire transfer in immediately available funds to such account
or accounts as shall be designated in writing by the Investors.
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(b) In the event the Company fails to obtain the effectiveness of a
Registration Statement within 210 days following the Initial Closing Date, the
Investors for a period of 90 days following the expiration of such 210-day
period shall have a right to sell to the Company and the Company shall be
obligated to purchase from the Investors the Initial Shares at a price equal to
the Subscription Price thereof plus accrued and unpaid dividends. In the event
the Investors exercise such rights of sale, the Company shall be obligated to
close the purchase of the Initial Shares within 15 days after receipt of notice
of such exercise. Performance of the Company's obligations under this Section
6.10(b) will be secured by a Security and Pledge Agreement to be executed and
delivered by the Company on the Initial Closing Date and by a pledge of
2,000,000 shares of Common Stock by certain stockholders of the Company pursuant
to a Pledge Agreement to be executed and delivered by such stockholders on the
Initial Closing Date.
Section 6.11 Legal Fees and Expenses. The Company shall pay upon demand or
otherwise reimburse the Investors for all reasonable legal fees and expenses
incurred in connection with the transactions contemplated by this Agreement, the
Warrants and the Registration Rights Agreement, including without limitation
those incurred in connection with the negotiation, drafting, documentation and
closing thereof.
Section 6.12 Amendment of Articles of Incorporation. Immediately following
the Initial Closing, the Company shall cause the Articles of Incorporation of
the Company to be further amended to conform the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred Stock to Exhibit A
attached hereto and made a part hereof.
ARTICLE VII
Legends
Section 7.1 Legends. The Initial Shares, the Holdback Shares, subsequently
issued Preferred Stock and each Warrant will bear the following legend (the
"Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
Upon the execution and delivery hereof, the Company is issuing to
the transfer agent for its Preferred Stock and Common Stock (and to any
substitute or replacement transfer agent for its Preferred Stock and Common
Stock coterminous with the Company's appointment of any such substitute or
replacement transfer agent) irrevocable instructions. Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
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Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Preferred Stock and Common Stock
from time to time upon transfer of Preferred Stock and Common Stock by the
Investors to issue certificates evidencing Preferred Stock and Common Stock free
of the Legend during the following periods and under the following circumstances
and without consultation by the transfer agent with the Company or its counsel
and without the need for any further advice or instruction or documentation to
the transfer agent by or from the Company or its counsel or the Investors:
(a) At any time after the Effective Date: (i) incident to the
conversion of shares of Preferred Stock; (ii) incident to the exercise of any
Warrant; or (iii) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; and
(b) At any time upon any surrender of one or more certificates
evidencing Preferred Stock or Common Stock which bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor has a bona fide intention to dispose of such stock pursuant to Rule 144
under the Securities Act or is otherwise permitted to dispose thereof without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act; or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such stock in a manner other
than pursuant to an effective registration statement, to a transferee who will
upon such transfer be entitled to freely tradeable securities; provided that in
connection with an event described in clause (i) or (ii), the transfer agent
shall be entitled to receive an opinion of counsel to the Investor that in such
circumstances the Legend may be removed and that the transferee (provided that
such transferee is not an affiliate of the Company) shall be entitled to hold
freely tradeable securities.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No Legend has
been or shall be placed on the share certificates representing the Preferred
Stock and Common Stock and no instructions or "stop transfers," so called,
"stock transfer restrictions," or other restrictions have been or shall be given
to the Company's transfer agent with respect thereto other than as expressly set
forth in this Article VII.
Section 7.3 Investors' Compliance. Nothing in this Article VII shall
affect in any way the Investors' obligations under any agreement to comply with
all applicable securities laws upon resale of Preferred Stock and Common Stock.
Section 7.4 Covenants of the Investors. The Investors agree that any short
sales made by the Investors with respect to Common Stock will be followed by a
notice of conversion with respect to an equivalent number of shares of Common
Stock within four trading days of such short sale.
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ARTICLE VIII
Other Issuances of Common Stock
Section 8.1 Antidilution Prohibition. Except with the prior written
consent of the Investors which consent shall not unreasonably be withheld, the
Company may not at any time within the time period commencing on the
Subscription Date and ending on the last day of the Commitment Period, issue
shares of Common Stock without consideration (other than in the form of a
dividend) or at a price per share less than the daily low trading price on the
date of issue, issue options, rights or warrants to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) without consideration
or at a price per share (or having a conversion price per share, if a security
convertible into Common Stock) less than the daily low trading price of the
Common Stock on the date of issue, or in the case of securities convertible into
Common Stock having a conversion price less than the daily low trading price of
the Common Stock on the date of conversion. The foregoing prohibition shall not
apply to the issuance of shares of Common Stock which may be issued upon
exercise of options under the Company's employee or director stock option plans,
upon the conversion or exchange of convertible or exchangeable securities or
upon the exercise of warrants, or other rights, which options, convertible or
exchangeable securities, warrants or other rights are outstanding on the date of
execution and delivery of this Agreement.
ARTICLE IX
Choice of Law and Venue
Section 9.1 Choice of Law; Submission to Jurisdiction. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall, at the option of either party, be litigated only in a
state or federal court located in the City of Chicago, Cook County, Illinois.
The parties consent to the jurisdiction and venue of the foregoing court and
consent that any process or notice of motion or other application to said court
or a judge thereof may be served inside or outside the State of Illinois by
registered mail, return receipt requested, directed to the party for which it is
intended at its address set forth in this Agreement (and service so made shall
be deemed complete five (5) days after the same has been posted as aforesaid) or
by personal service or in such other manner as may be permissible under the
rules of said court.
ARTICLE X
Assignment; Entire Agreement, Amendment; Publicity
Section 10.1 Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by any party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Preferred Stock and Common Stock purchased or acquired by the Investors
hereunder with respect to the Preferred Stock and Common Stock held by such
person, and (b) the Investor's interest in this Agreement may be assigned at any
time, in whole or in part, to any other person or entity (including any
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affiliate of any Investor) upon the prior written consent of the Company, which
consent shall not to be unreasonably withheld.
Section 10.2 Entire Agreement, Amendment. This Agreement, the Registration
Rights Agreement, and the other documents delivered or to be delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subject hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
Section 10.3 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the names of the Investors without
their consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
ARTICLE XI
Notices; Cost and Expenses; Indemnification
Section 11.1 Notices. All notices, demands, requests, consents, approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or deposited in the mail, registered or certified, return receipt
requested, postage prepaid, or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice:
(a) if to the Company, to: Fortune Financial Systems, Inc.
1200 West State Road 434
Suite 112
Longwood, Florida 32750
Attention: James S. Byrd
Facsimile No.: (407)328-9680
with copies to: Atlas Pearlman Trop & Borkson
New River Center, Suite 1900
200 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Attention: James Schneider, Esq.
Facsimile No.: (954)766-7800
(b) if to the Investors, to: Deere Park Capital Management, Inc.
650 Dundee Road, Suite 460
Northbrook, Illinois 60062
Attention: Douglas A. Gerrard, President
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Facsimile No.: (847)509-8529
and
ProFutures Special Equities Fund, L.P.
c/o ProFutures Fund Management, Inc.,
General Partner
1310 Highway 620 South
Suite 200
Austin, Texas 78734
Attention: Gary D. Halbert, President
Facsimile No.: (512)263-3459
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with copies to: Ungaretti & Harris
3500 Three First National Plaza
Chicago, IL 60602
Attention: Gary I. Levenstein, Esq.
Facsimile No.: (312)977-4108
and
Fishman, Jones, Walsh & Marsh
1310 Highway 620 South
Suite 200
Austin, Texas 78734
Attention: John Gray, Esq.
Facsimile No.: (512)263-8058
Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third
business day following the date mailed or on the second business day
following delivery of such notice by a reputable air courier service.
Section 11.2 Indemnification.
(a) Indemnification of Investors. The Company agrees to indemnify
and hold harmless the Investors and each person, if any, who controls the
Investors within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement
of a material fact contained in the Registration Statement (or any
amendment thereto), including any prospectus, or in any offering circular
or other document, as applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statement therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), or in any offering
circular or other document, as applicable, or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such statement or omission, or any such alleged
untrue statement or omission; provided that (subject to Section 11.3(d)
below) any such settlement is effected with the written consent of the
Company; and
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(iii) against any and all expenses whatsoever, as
incurred (including the fees and disbursements of counsel chosen by the
Investors), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i ) or (ii) above; provided, however, that this
indemnity shall not apply to any loss, liability, claim, damage or expense
to the extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by the Investors expressly
for use in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in
any offering circular or other document, as applicable.
(b) Indemnification of Company. The Investors agree to indemnify
and hold harmless the Company its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in
offering circular or other document, as applicable, in reliance upon and in
conformity with written information furnished to the Company by the Investors
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or in any offering circular or other document, as applicable.
(c) Action against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
11.3(a) above, counsel to the indemnified parties shall be selected by the
Investors, and in the case of parties indemnified pursuant to Section 11.3(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry or any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section or Section 11.4 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
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consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of an any indemnified party.
(d) Settlement without Consent or Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for the fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 11.3(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
Section 11.4 Contribution. If the indemnification provided for in Section
11.3 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to herein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Investors on the other hand from the offering of the Preferred
Stock pursuant to this Agreement or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the Investors on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and
the Investors on the other hand in connection with the offering of the Common
Stock pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Preferred Stock
pursuant to this Agreement (before deducting expenses) received by the Company
and the total net proceeds received by the Investors (before deducting expenses)
bear to the aggregate public offering price.
The relative fault of the Company on the one hand and the
Investors on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Investors and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 11.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.4
shall be deemed to include any legal or other expenses reasonably incurred by
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such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.4, the
Investors shall not be required to contribute any amount in excess of the amount
by which the total price at which the Preferred Stock purchased by it and resold
to the public exceeds the amount of any damages which the Investors have
otherwise been required to pay by reason of any such untrue or alleged untrue
statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 11.4, each person, if any, who
controls the Investors within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Investors, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
Section 12.2 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.3
and 11.4 hereof shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or of the Commitment Period, (ii) any
investigation made by or on behalf of any indemnified party or by or on behalf
of the Company, and (iii) the consummation of the sale or successive resales of
the Common Stock. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.3 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.4 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
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Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg L.P. or any other reputable pricing service chosen by the Investors
and reasonably acceptable to the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
written above.
DEERE PARK CAPITAL MANAGEMENT, INC.
By: /s/ David A. White
------------------
President
PROFUTURES SPECIAL EQUITIES FUND, L.P.
By PROFUTURES FUND MANAGEMENT, INC., a general partner
By: / s/ Gary D. Halbert
--------------------
President
FORTUNE FINANCIAL SYSTEMS, INC.
By: /s/ Roger C. Royce
------------------
President and CEO
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EXHIBIT A
PREFERRED STOCK DESIGNATION OF PREFERENCES
Pursuant to the authority vested in the Board of Directors of the
Corporation by its Certificate of Incorporation, as amended, a series of
Preferred Stock of the Corporation hereby is created; and the designations,
preferences and relative, participating, optional or other special rights of the
shares of such series, and the qualifications, limitations and restrictions
thereof, shall be as follows:
A. Designation and Number of Shares. The series created hereby shall be
designated and known as the "Series A Convertible Preferred Stock" of the
Corporation, consisting of Two Hundred Thousand (200,000) shares, $0.001 par
value per share ("Series A Preferred"). For purposes of making certain
calculations provided for herein, the Series A Preferred shall have a stated
value of One Hundred Dollars ($100.00) per share. The Corporation may from time
to time redeem, repurchase or otherwise acquire shares of the Series A
Preferred, out of funds legally available therefor; and said shares shall be
canceled and shall revert to the status of authorized but unissued Preferred
Stock, undesignated as to series and subject to reissuance by the Corporation as
shares of Preferred Stock of any one or more series.
B. Dividends. The holders of the Series A Preferred shall receive out of
funds legally available therefor, preferential non-participating dividends at
the rate of Five Percent (5%) of the stated value per share of the Series A
Preferred per year, payable in four (4) equal installments on March 31, June 30,
September 30 and December 31 in each year. Such dividends on the Series A
Preferred shall be cumulative, such that if dividends for any dividend period at
<PAGE>
the rate specified above shall not have been paid, or declared and a sum
sufficient for the payment thereof set apart, the deficiency shall be fully paid
or set apart, with interest thereon at the prime rate as quoted from time to
time by The Wall Street Journal, before any dividends shall be set apart for or
paid on any shares of the Common Stock of the Corporation. Whenever full
dividends on the Series A Preferred for all past dividend periods, with
interest, and for the current dividend period shall have been declared, and the
Corporation shall have either paid such dividends or set apart a sum sufficient
for the payment thereof, then the Board of Directors of the Corporation may
declare and pay dividends on the Common Stock out of the remainder of the
Corporation's assets available therefor.
C. Conversion. Each holder of the Series A Preferred shall have the right,
at his option, to convert each share of Series A Preferred owned by him into
shares of the Common Stock of the Corporation, at any time on the following
terms and conditions:
1. Right of Conversion. The Series A Preferred shall be
convertible commencing on the date of issuance at the principal
business office of the Corporation (or at the office of any transfer
agent for the Series A Preferred) into such number of fully paid and
non-assessable shares of the Common Stock of the Corporation,
calculated as to each conversion to the nearest one/one-hundredth
(1/100th) of a share, dividing the sum of the stated value of each
share of Series A Preferred and all accrued and unpaid dividends
through the date of conversion by the conversion price determined as
provided in subparagraph 4 below, each share of Series A Preferred to
be converted having a stated value of One Hundred Dollars ($100.00) for
the purpose of such conversion.
2
<PAGE>
2. Procedure for Conversion. In order to convert shares of the
Series A Preferred into Common Stock of the Corporation, the holder
thereof shall deliver to any office specified in subparagraph 1 above
his certificate or certificates for the shares to be converted, duly
endorsed to the Corporation or accompanied by an executed stock power,
together with written notice to the Corporation that he elects to
convert such shares. Shares of the Series A Preferred shall be deemed
to have been converted immediately prior to the close of business on
the day of the surrender of the certificate or certificates for such
shares for conversion in accordance with the foregoing provisions (the
"Conversion Time"). At the Conversion Time, the rights of the holder of
such Series A Preferred as such holder shall cease, and the person or
persons entitled to receive the Common Stock of the Corporation
issuable upon such conversion shall thereafter be treated for all
purposes as the record holder or holders of such Common Stock. As soon
as possible after the conversion, but in no event later than four (4)
business days after the Conversion Time, the Corporation shall issue
and shall deliver to the converting holder (i) a certificate or
certificates for the number of full shares of the Common Stock of the
Corporation issuable upon such conversion, (ii) a cash payment in lieu
of any fraction of a share, as provided in subparagraph 3 below, which
the converting holder is entitled to receive, (iii) a cash payment in
an amount equal to all accrued dividends with respect to each share of
Series A Preferred converted which have been declared but not paid
prior to the conversion, and (iv) a certificate for any shares of
Series A Preferred which were represented by the surrendered
certificate or certificates but which were not converted.
3
<PAGE>
3. No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred. In lieu
thereof, the Corporation shall pay a cash adjustment equal to the same
fraction of the conversion price on the date on which the certificate
or certificates for Series A Preferred were surrendered for conversion.
4. Conversion Price. The conversion price shall be equal to a
percentage of the average of the closing bids for the Common Stock of
the Corporation for the ten (10) trading days immediately prior to the
Conversion Time as reported by Bloomberg L.P. The percentage used to
calculate the conversion price shall vary depending upon the amount of
time the converting holder has held the Series A Preferred, as shown in
the following table:
Holding Period Percentage
-------------- ----------
From the date of issuance of the Series A Preferred through
the 30th day after issuance 93%
From the 31st day through the 60th day after issuance 92%
From the 61st day through the 90th day after issuance 90%
From the 91st day through the 120th day after issuance 89%
From the 121st day through the 150th day after issuance 88%
From the 151st day through the 180th day after issuance 86%
From the 181st day through the 225th day after issuance 84%
From the 226th day through the 270th day after issuance 82%
From the 271st day through the 315th day after issuance 80%
From the 316th day through the 360th day after issuance 76%
From and after the 361st day after issuance 75%
4
<PAGE>
5. Reservation of Shares. The Corporation shall at all times
while any shares of the Series A Preferred remain outstanding reserve a
sufficient number of shares of the Corporation's Common Stock for
issuance upon conversion of the Series A Preferred.
6. Penalty for Failure to Convert. In the event that the
Corporation fails to deliver to a converting holder of Series A
Preferred those items which said holder is entitled to receive as
specified in subparagraph 2 above within four (4) business days after
the Conversion Time, the Corporation shall be required to pay to such
converting holder a penalty in cash calculated on the stated value of
the Series A Preferred surrendered for conversion at the rate of Three
Percent (3%) per month. The amount of such penalty shall be calculated
on the basis of a 30-day month and shall be payable no later than five
(5) days following each 30-day period during which conversion has not
occurred.
D. Voting Rights. The holders of the Series A Preferred shall be entitled
to one (1) vote for each share of Series A Preferred owned by them on all
matters required or permitted to be submitted to a vote of stockholders.
5
<PAGE>
SCHEDULE 5.5(b)
Subsidiaries and Investments
(i) and (ii) None except as indicated below:
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Success Media, Inc. Florida
Fortune Marketing International, Inc. Nevada
Professional Marketing, Inc. Utah
Internet Development Incorporated Utah
6
<PAGE>
SCHEDULE 5.14
Litigation and Other Proceedings
None.
7
The Board of Directors
Fortune Financial Systems, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Maitland, Florida
March 31, 1998
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