U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
DIGS, INC.
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(Name of Small Business Issuer in its charter)
Delaware 95-4603237
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17327 Ventura Boulevard, Suite 200 Encino, California 91316
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(Address of principal executive offices)
Issuer's telephone number: (818) 995-3650
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common
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(Title of class)
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(Title of class)
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PART I
FORWARD LOOKING STATEMENTS
This Report on Form 10-SB includes certain statements that may be deemed to
be "forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The sections of this Report on Form 10-SB
containing such forward-looking statements include "Description of Business,"
"Products," Marketing and Customers," and "Production" under Item 1 below, and
Managements Discussion and Analysis of Financial Condition and Results of
Operations under Item 2 below. Statements in this Form 10-SB which address
activities, events or developments that the registrant expects or anticipates
will or may occur in the future, including such topics as future issuances of
shares, future capital expenditures (including the amount and nature thereof),
expansion and other development and technological trends of industry segments in
which the registrant is active, business strategy, expansion and growth of the
registrants and its competitors business and operations and other such matters
are forward-looking statements. Although the registrant believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of its knowledge of its business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by or
on behalf of the registrant.
The registrants operations are subject to factors outside its control. Any
one, or a combination, of these factors could materially affect the results of
the registrants operations. These factors include: (a) changes in levels of
competition from current competitors and potential new competition; (b) loss of
a significant customer; and (c) changes in availability or terms of working
capital financing from vendors and lending institutions. The foregoing should
not be construed as an exhaustive list of all factors that could cause actual
results to differ materially from those expressed in forward-looking statements
made by the registrant. Forward-looking statements made by or on behalf of the
registrant are based on a knowledge of its business and the environment in which
it operates, but because of the factors listed above, actual results may differ
from those anticipated results described in these forward-looking statements.
Consequently, all of the forward-looking statements made are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the registrant will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the registrant or its business or operations.
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
DIGS, Inc. (the "Company" or "DIGS") provides comprehensive multimedia and
Internet communication solutions for public companies to proactively tell their
story to the investment community, its stockholders and employees. The
Company's CD-ROM program is a state of the art story telling tool creating a
virtual road show of a company's story. The program tells a client's "story" on
a specially designed Internet linked CD-ROM and delivers it, in an attention
getting package, to the computer screens of the client's shareholders,
interested investors, the business community and the media.
The Company's primary product is the Investor Relations CD-ROM ("IRCD"). The
IRCD presents a company's story on an Internet-linked multimedia CD-ROM. IRCD
describes the business of a company utilizing video, audio, animated graphics
and text. The company's message is communicated via CD-ROM linked to the
Internet. The approach makes the often-dry corporate profile come alive, by
using video, audio, text and graphics to present a company's corporate story,
including financial highlights, product data and other information. The IRCD is
user-friendly and Internet-linked. A number of specialized IRCD packages and
programs, including a compacted Annual Report package, are available. All IRCD
packages offer substantial savings to companies over traditional reports in both
production and mailing costs. The Company believes that this means of delivery
information is particularly important in an era when millions of investors
worldwide are using their computers and the Internet as investment tools.
PRODUCTS
IRCD. The Company's principal product is the Investor Relations CD-ROM
- ----
("IRCD"). Companies can use this easy CD-ROM format to communicate with its
stockholders, market makers and investment analysts. One CD-ROM is capable of
providing information that would require more than 1,000 pages if the
traditional written report was prepared. Complete financial information,
including financial statements, schedules and notes, together with yearly
comparison graphs of revenues, sales, profits, earnings per share, etc., are all
set forth in a colorful and creative manner. Audio not only includes music and
sound effects but conversation by company executives, such as its President,
Chief Financial Officer or Chief Scientist, explaining the company's business,
financial success and/or new products and inventions. The IRCD makes an
excellent alternative to an annual report or other information companies
periodically send to its stockholders. Through a direct link to the Internet,
financial statements and other corporate happenings can be kept current by
accessing that company's Website.
EHSCD. The Company developed its Environmental Health and Safety CD-ROM
- -----
("EHSCD") for those companies that are primarily in the natural resources
business. The EHSCD utilizes text, graphics, video and audio in a dynamic
manner to describe and explain a company's environmental, health and safety and
natural resource preservation to investors, environmental groups, media, the
public and to governmental agencies. The Company has produced an EHSCD for
Atlantic Richfield Corporation ("ARCO") who is using it primarily for
information regarding their efforts in the environmental, health and safety
areas.
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EOCD. The Company, using a similar format as its IRCD, has developed an
- ----
Employee Orientation CD-ROM ("EOCD"). The EOCD was developed for internal use
by companies. It is designed to familiarize new employees with their company by
providing a comprehensive look at the company's people, products, services and
policies. The production uses video, audio, graphics and text in a lively,
informative and fun presentation.
EHSREPORTS.COM. In May 1999, the Company launched its new Website,
- --------------
EHSREPORTS.COM. This Website helps Internet users search by company, or
industry, for environmental health and safety reports available in print, online
and interactive CD-ROM formats from hundreds of leading international
corporations.
MARKETING AND CUSTOMERS
The Company markets its products to large public companies who are seeking
unique, efficient and inexpensive distribution of corporate business and
financial information. The Company markets these services through personal
contacts with customers and investment relations firms.
The Company employs ten full time employees to market its products. The
Company's sales persons solicit business from existing and prospective
customers. The sales person also acts as service representative to ensure that
the Company's production staff promptly respond to customer instructions and
meets customer needs.
Since beginning full time operations in December, 1998, the Company has provided
its IRCD products for customers ranging from The Cheesecake Factory to Mikohn
Corp., a manufacturer and developer of systems and games for the gaming
industry. The first two customers utilizing the Company's EOCD product are The
Limited, Inc. and Intimate Brands, Inc., the parent company of Victoria's
Secrets, Inc. The Company's EHSCD product was chosen by Atlantic Richfield
Corporation to communicate their commitment to a clean environment to its
shareholders, government agencies and the media.
PRODUCTION
The Company creates or accepts a client's videos, pictures, copy ("assets") and,
using the Company's proprietary application software, produces a Master CD-ROM
of the client's story.
The basic package includes filming THREE CORPORATE EXECUTIVE INTERVIEWS,
programming a 10-PAGE CORPORATE PROFILE section, a FINANCIAL BOTTOM Line section
featuring charts illustrating all financial aspect of the company, a PRODUCTS
AND SERVICES section, a RESEARCH LIBRARY section, and a PROPRIETARY UPLIN
FUNCTION with an UPDATE FEATURE.
Once the "master" is produced, the Company contracts with outside replication
houses and printers to produce the final product.
COMPETITION
The Company believes that, currently, there is limited direct competition in the
production of CD-ROM's for the investment and environmental community. Although
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competitors can enter the field of CD-ROM production at any time, the Company
believes that, because of its early entrance into this business, together with
its proprietary instant-start software technology, it will continue to be a
strong competitor.
The Company faces substantial competition in the field of financial website
design and maintenance.
The Company also competes with the print media. Competition in the financial and
corporate printing industry is intense and is well established with most
corporate users as the means to communicate to its investors and its market
makers. Most of these companies have far greater resources and marketing ability
than the Company.
The market that the Company operates in is characterized by rapidly changing
technologies, frequent new product and service introductions, and evolving
industry standards. Future success will depend, in part, on the Company's
ability to adapt to rapidly changing technologies by continually improving the
performance features and reliability of its services.
REORGANIZATION
The Company is the product of a reorganization of two previously unaffiliated
companies, Digital Corporate Profiles, Inc. ("Digital") and Advanced Laser
Products, Inc. ("Advanced"). Digital was organized in July 1996 by Peter Dunn.
Advanced was organized on June 27, 1986 and was involved in several different
businesses until becoming inactive in January 1997. In November 1998, Digital
and Advanced effected a reorganization (the "Reorganization") in which all of
the then outstanding shares of common stock of Digital were acquired by Advanced
in exchange for 5,194,968 shares of the common stock of Advanced. As a result
of the Reorganization, Digital became a wholly owned subsidiary of Advanced,
Advanced changed its name to Digs, Inc. and the shareholders of Digital,
immediately prior to the Reorganization, became the owners of approximately 99%
of the outstanding shares of Advanced.
The Company is a Delaware corporation, its executive offices are located at
17327 Ventura Boulevard, Suite 200, Encino, California 91316, and its telephone
number is 818-995-3650.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview:
Effective November 9, 1998, in connection with an agreement of reorganization,
the Company issued 5,194,968 shares of its common stock at $.001 par value per
share in exchange for all of the outstanding common stock of Digital Corporate
Profiles, Inc., a California corporation ("DCP"), in which DCP became a
wholly-owned subsidiary of the Company based on a conversion ratio of three
shares of the Company's common stock for each share of DCP's stock. The merger
qualified for a tax-free reorganization and has been accounted for as a pooling
of interests. Accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the business combination to include the
combined revenues of DIGS, Inc.(formerly known as Advanced Laser Products,
Inc.), a Delaware corporation, and DCP. DCP provides complete multimedia and
internet communications solutions for public companies to proactively tell their
story to the worldwide investment community. DCP produces investor relations
CD-ROM (IRCD) packages for its corporate and investor relations clients. DCP
also offers the environmental health and safety CD-ROM (EHSCD) to dynamically
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tell the environmental, health and safety story to investors, environmental
groups, media and the public. DIGS, Inc. has no revenues for the years ended
December 31, 1998 and 1997. The Company operates in only one business segment.
During the year ended December 31, 1998, sales to three customers accounted for
approximately 96% of total revenues. All share and per share amounts have been
adjusted to reflect the 1 for 10 reverse stock split effective April 20, 1998
and the 1 for 20 reverse stock split effective October 16, 1998. Net
revenues and net loss for DIGS, Inc. and DCP for the years ended December 31
were as follows:
Years Ended December 31,
---------------------------------
1998 1997
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Revenue
DIGS, Inc. $ - $ -
DCP 171,694 110,107
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Total $171,694 $110,107
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Net Loss
DIGS, Inc. $ 300 $194,867
DCP 408,481 190,049
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Total $408,781 $384,916
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Years Ended December 31, 1998 and 1997:
The year ended December 31, 1998 represented the final year of DCP's product
development and testing phase. DIGS, Inc. has no revenues for the years ended
December 31, 1998 and 1997. In addition, the combination of DCP and DIGS, Inc.
became effective November 9, 1998. Accordingly, the results of operations for
the years ended December 31, 1998 and 1997 are not directly comparable.
Revenues for the years ended December 31, 1998 and 1997, all generated by DCP,
were $171,694 and $110,107, respectively. Cost of sales for the years ended
December 31, 1998 and 1997, all related to DCP, were $96,980 and $63,745,
respectively. Operating expenses for the years ended December 31, 1998 and 1997
were $543,864 and $428,487, respectively. DIGS, Inc. had no operating expenses
for the year ended December 31, 1998. Loss from operations for the years ended
December 31, 1998 and 1997 were ($469,150) and ($382,125), respectively. Other
income for the year ended December 31, 1998 was $63,000, which consisted of
sublease rental income and included a one-time $40,000 payment from the landlord
as a relocation fee. Sublease rental income will continue through July 31,
1999. Net loss for the years ended December 31, 1998 and 1997 were ($408,781)
and ($384,916), respectively.
Three Months Ended March 31, 1999 and 1998:
Revenues for the three months ended March 31, 1999 were $323,014, as compared to
$37,593 for the three months ended March 31, 1998, an increase of $285,421 or
759.2%. The three months ended March 31, 1999 represents the Company's first
full quarter of operations subsequent to the combination of DCP and DIGS, Inc.
on November 9, 1998. The increase in revenues is primarily attributable to the
commencement of marketing activities during the three months ended December 31,
1998. No sales or marketing efforts were conducted during the nine months ended
September 30, 1998.
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Gross profit for the three months ended March 31, 1999 was $289,505 or 89.6% of
revenues, as compared to $20,116 or 53.5% of revenues for the three months ended
March 31, 1998. Management anticipates that gross profit will decrease to an
annualized average of approximately 80% by the end of 1999.
Operating expenses for the three months ended March 31, 1999 were $268,387 or
83.1% of revenues, as compared to $56,240 or 149.6% of revenues for the three
months ended March 31, 1998. Operating expenses increased by $212,147 or 377.2%
in 1999 as compared to 1998. The increase in operating expenses was primarily a
result of the production of four IRCD programs and increased sales and marketing
expenses. The primarily components of operating expenses were personnel related
costs, occupancy costs and general market costs. The Company had income from
operations of $21,118 for the three months ended March 31, 1999, as compared to
a loss from operations of ($36,124) for the three months ended March 3, 1998.
Other income for the three months ended March 31, 1999 was $9,800, which
consisted of sublease rental income. Sublease rental income will continue
through July 31, 1999. The Company had net income of $22,268 for the three
months ended March 31, 1999, as compared to a net loss of ($37,326) for the
three months ended March 31, 1998.
Liquidity and Capital Resources:
The Company's liquidity requirements arise from its working capital
requirements, as well as from its capital expenditure requirements. The
Company's primarily source of working capital to date has been the sale of its
equity securities, which is expected to continue through at least the year
ending December 31, 1999.
The Company's operations utilized net cash of $383,159 for the year ended
December 31, 1998, as compared to utilizing net cash of $135,084 for the year
ended December 31, 1997, primarily as a result of the Company financing a
substantial portion of its operations through increases to accounts payable and
accrued liabilities in 1997. As of December 31, 1998, the Company's net working
capital was $480,367, reflecting a current ratio of 13:1.
The Company's operations utilized net cash of $181,177 for the three months
ended Mach 31, 1999, as compared to utilizing net cash of $60,000 for the three
months ended March 31, 1998, primarily as a result of increased operating
activities in 1999 as compared to 1998. In particular, the Company's operations
utilized cash to support an increase in accounts receivable of $199,828 during
the three months ended March 31, 1999. As of March 31, 1999, the Company's net
working capital was $497,412, reflecting a current ratio of 25:1.
For the year ended December 31, 1998, the Company utilized net cash of $88,042
in investing activities, primarily for the acquisition of property and
equipment. For the year ended December 31, 1997, the Company utilized net cash
of $51,750 in investing activities, primarily for program development costs.
For the three months ended March 31, 1999, the Company utilized net cash of
$19,825 in investing activities, as compared to utilizing net cash of $1,248 for
the three months ended March 31, 1998.
For the year ended December 31, 1998, the Company generated net cash of $958,414
from financing activities, primarily from the net proceeds from the sale of
common stock of $1,005,735. For the year ended December 31, 1997, the Company
generated net cash of $147,321 from financing activities, primarily from the
sale of common stock and the proceeds from long-term debt, net of repayments.
For the three months ended March 31, 1998, cash flow from financing activities
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consisted of $71,085 of short-term debt. The Company repaid this debt through
the subsequent sale of common stock.
The Company has no material commitments for capital expenditures during 1999.
The Company estimates that the funds expected to be provided by the sale of its
equity securities, combined with the funds expected to be generated by
operations, will be sufficient to fund the Company's working capital and capital
expenditure requirements through the year ending December 31, 1999.
Year 2000 Issue:
The Year 2000 Issue results from the fact that certain computer programs have
been written using two digits rather than four digits to designate the
applicable. Computer programs that have sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things a temporary inability to process transactions, send invoices
or engage in similar normal business activities. Based on a recent internal
assessment, the Company does not believe that the cost to modify its existing
software and/or convert to new software will be significant.
New Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set of
general purpose financial statements. SFAS No. 130 defines comprehensive income
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. The Company adopted SFAS No. 130 for its fiscal year
beginning January 1, 1998, and does not anticipate that adoption of SFAS No. 130
will have a material effect on its financial statement presentation and
disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information " ("SFAS
No. 131"), which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," and which is effective for financial statements issued for
fiscal years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. SFAS No. 131 also establishes standards for disclosures by public
companies regarding information about their major customers, operating segments,
products and services, and the geographic areas in which they operate. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires comparative information for
earlier years to be restated. The Company adopted SFAS No. 131 for its fiscal
year beginning January 1, 1998. Adoption of SFAS No. 131 did not have a
material effect on the Company's financial statement presentation and
disclosures.
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ITEM 3. DESCRIPTION OF PROPERTY.
The Company presently leases, from a third party, 6,153 square feet of
office space at 17327 Ventura Boulevard, Suite 200, Encino, California 91316,
pursuant to a lease with a term ending July 31, 2000, providing for monthly rent
of $7,691. The lease provides options to renew for an additional three and five
years. The Company does not anticipate changing its present leasing situation
or purchasing any real property in the near future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
The following table sets forth certain information regarding the ownership
of the Company's Common Stock known by the Company to be the beneficial owner of
more than 5% of the Common Stock of the Company as of May 31, 1999. Except as
otherwise indicated, the Company has been advised that all individuals listed
below have the sole power to vote and dispose of the number of shares set forth
opposite their names.
Beneficial
Ownership of
Name and Address Common Stock Percent of Class
- ------------------ ------------ ----------------
Allen Kelsey Grammer Trust 450,000 6.8
c/o Donald J. Miod
Miod & Company
15456 Ventura Boulevard, Suite 500
Sherman Oaks, CA 91403
First Capital Network1 439,992 6.6
Worldwide Insurance Consultants1 439,992 6.6
Jamie Mazur1,2 219,996 3.3
Jennifer Mazur1,2 219,996 3.3
Emily Mazur1,2 219,996 3.3
Trent Mazur1,2 219,996 3.3
1 The address of each of the beneficial owners identified is c/o Corporate
Financial Enterprises, 2224 Main Street, Santa Monica, CA 90405.
2 Jamie, Jennifer, Emily and Trent Mazur are siblings and their parents
disclaim beneficial ownership of these shares. Emily and Trent Mazur are
minors, and their shares are held by Michelle Mazur, their mother, as custodian.
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(b) SECURITY OWNERSHIP OF MANAGEMENT:
The following table sets forth certain information regarding the ownership
of the Company's Common Stock which are deemed under the current rules of the
Securities and Exchange Commission to be beneficially owned by the Company's
executive officers and directors, individually, and all executive officers and
directors as a group, as of May 31, 1999. Except as otherwise indicated, the
Company has been advised that all individuals listed below have the sole power
to vote and dispose of the number of shares set forth opposite their names.
Name, Title and Address Number of Shares Percent of Class
- ----------------------- ---------------- ----------------
Peter B. Dunn 1,330,500 20.0
President and Director
17327 Ventura Boulevard, Suite 200
Encino, CA 91316
Allen Dunn 165,000 2.5
Vice President, COO and Director
17327 Ventura Boulevard, Suite 200
Encino, CA 91316
David L. Fleming 120,000 1.8
Secretary and Director
17327 Ventura Boulevard, Suite 200
Encino, CA 91316
Officers and Directors as a Group
(3 Persons) 1,615,500 24.3
(c) CHANGES IN CONTROL:
There are no arrangements known to the Company which may result in a change
in control of the Company.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) OFFICERS AND DIRECTORS: The following table provides information
concerning each executive officer and director of the Company. All directors
hold office until the next annual meeting of shareholders or until their
successors have been elected and qualified.
Age Title
--- --------------------------------------
Peter B. Dunn 59 President, Chief Financial Officer and
Director
Allen Dunn 30 Chief Operating Officer and Director
David L. Fleming 48 Secretary and Director
PETER B. DUNN founded Digital Corporate Profiles, Inc. ("DCP"), a
wholly-owned subsidiary of the Company, in July 1996 and has served as Chairman
of the Board, President, Chief Executive officer, Chief Financial Officer and
Treasurer of DCP since that time, and as President and Chief Financial Officer
for the Company since November 1998. From 1987 to 1996, Mr. Dunn was President
of Lucky Dog Productions where he produced, directed and/or wrote 12 Golf TV
shows/videos, one commercial, two cable TV pilots and a made-for-video movie for
such clients as Paramount Home Video, Classic Golf International, British
Broadcasting Corp., Lifetime Vision, Ltd, and Best of British Film and TV, Ltd.
From 1980 to 1987, he was President of International Special Promotions (ISP), a
special events marketing company serving companies such as Coca-Cola, R.J.
Reynolds, and Proctor and Gamble. From 1972 to 1980, Mr. Dunn was Chief
Executive Officer of Western Corporate Services, Inc., which he founded in 1972.
Western Corporate Services is the owner of U.S. Stock Transfer Corporation,
which is the third largest independent stock transfer agency in the United
States. Mr. Dunn remains a major shareholder and member of the Board of
Directors of Western Corporate Services. Mr. Dunn received his Bachelor of Arts
in Industrial Management from Clarkson University, and attended graduate school
at the University of California, Los Angeles, where he studied Math and
Business.
ALLEN DUNN joined Digital Corporate Profiles, Inc. ("DCP"), a wholly-owned
subsidiary of the Company at its inception, in July 1996, in its computer
department and, since November 1998, has been serving as Vice President, Chief
Operating Officer and director of both the Company and DCP. Mr. Dunn has been
responsible for the Company's web page design and Html coding, as well as
website maintenance of the Company's UNIX operating system. From August 1997 to
March 1998, Mr. Dunn was director of sales and marketing. Mr. Dunn received his
Bachelor of Arts in Economics from California State University at Northridge in
1993, and is an alumnus of the University of Colorado School of Astrophysics and
Atmospherics. He is currently pursuing an advanced degree in Computer Science at
California State University at Northridge. Mr. Dunn is the son of Peter Dunn.
DAVID L. FLEMING joined the Board of Directors of Digital Corporate
Profiles, Inc., a wholly-owned subsidiary of the Company, in July 1996 and has
been a director and Secretary of the Company since November 1998. Since 1991,
Mr. Fleming has been a managing partner in DG&F Design, a privately owned
graphic arts company.
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ITEM 6. EXECUTIVE COMPENSATION.
(a) SUMMARY COMPENSATION TABLE: The following information is provided for
the Company's Chief Executive officer during the Company's last completed fiscal
year. The Company had no executive officers whose total annual salary and bonus
exceeded $100,000 for such year.
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
-------------- -------
Secur-
ities
All Rest- Under- All
Other ricted lying Other
Name and Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARs Payouts sation
- ------------ ---- ------- ----- ------- ------ -------- ------- -------
Peter B.
Dunn, CEO 1998 $80,000 -0- -0- -0- -0- -0- -0-
1997 $ 5,000 -0- -0- -0- -0- -0- -0-
1996 -0- -0- -0- -0- -0- -0- -0-
OPTIONS/SAR GRANTS in Last Fiscal Year: None. On January 2, 1999, pursuant to
a 1999 Stock Incentive Plan, the Company granted options to Peter Dunn and Allen
Dunn to purchase 100,000 shares and 80,000 shares, respectively. The exercise
price for Peter Dunn was $5.50 per share, and for Allen Dunn $5.00 per share.
For Peter Dunn, the options expire five years from date of grant and, for Allen
Dunn, the options expire ten years from date of grant. As of May 31, 1999, no
options have been exercised.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1997 and 1998, the Company borrowed monies from Peter Dunn, its
President, evidenced by a demand loan agreement with interest at 10% per annum.
In December 1998, the Company repaid $47,321 to Mr. Dunn, representing all
amounts owed to Mr. Dunn, including interest.
ITEM 8. DESCRIPTION OF SECURITIES.
(a) GENERAL:
The Company has authorized 100,000,000 shares consisting of 80,000,000
shares of Common Stock, $.001 par value, and 20,000,000 shares of Preferred
Stock, $.01 par value. There are issued and outstanding, as of May 31, 1999,
6,648,631 shares of Common Stock (258 holders of record). No Preferred Stock
has been issued.
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(b) COMMON STOCK:
Each share of Common Stock entitles the holder thereof to one vote, either
in person or by proxy, at a meeting of shareholders. The holders are not
permitted to vote their shares cumulatively. Accordingly, the holders of more
than 50% of the issued and outstanding shares of Common Stock can elect all of
the directors of the Company.
All shares of Common Stock are entitled to participate ratably in dividends
when and as declared by the Company's Board of Directors out of the funds
legally available therefor. Any such dividends may be paid in cash, property or
additional shares of Common Stock. The Company has not paid any dividends since
its inception and presently anticipates that no dividends will be declared in
the foreseeable future. Any future dividends will be subject to the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of the Company, its
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the Common Stock will
be paid in the future.
Holders of Common Stock have no preemptive or other subscription rights,
conversion rights, redemption or sinking fund provisions. In the event of the
dissolution, whether voluntary or involuntary, of the Company, each share of
Common Stock is entitled to share ratably in any assets available for
distribution to holders of the equity securities of the Company after
satisfaction of all liabilities.
(c) PREFERRED STOCK:
The Company is authorized to issue up to 20,000,000 shares of Preferred
Stock, $.01 par value, of which no shares are issued and outstanding.
The Board of Directors has authority to issue the authorized Preferred
Stock in one or more series, each series to have such designation and number of
shares as the Board of Directors may fix prior to the issuance of any shares of
such series. Each series may have such preferences and relative, participating,
optional or other special rights, with such qualifications, limitations or
restrictions, as are stated in the resolution or resolutions providing for the
issue of such series as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares of such series.
(d) 1999 STOCK INCENTIVE PLAN:
On January 2, 1999, the Company's Board of Directors approved a 1999 Stock
Incentive Plan (the "1999 Plan"), subject to approval, within twelve months, by
the stockholders. The purpose of the 1999 Plan is to enable the Company to
recruit and retain selected officers and other employees by providing equity
participation in the Company to such individuals. Under the 1999 Plan, regular
salaried employees, including directors, who are full time employees, may be
granted options exercisable at not less than 100 percent of the fair value of
the shares at the date of grant. The exercise price of any option granted to an
optionee who owns stock possessing more than ten percent of the voting power of
all classes of stock of the Company must be 110 percent of the fair market value
of the common stock on the date of grant, and the duration may not exceed five
years. Options generally become exercisable at a rate of 33 percent of the
13
<PAGE>
shares subject to option one year after grant. The remaining shares generally
become exercisable ratably over an additional 24 months. The duration of
options may not exceed ten years. Options under the Plan are nonassignable,
except in the case of death and may be exercised only while the optionee is
employed by the Company, or in certain cases, within a specified period after
termination of employment (within three months) or death (within twelve months).
The purchase price and number of shares that may be purchased upon exercise of
options are subject to adjustment in certain cases, including stock splits,
recapitalizations and reorganizations.
The number of options granted and to whom, are determined by the Board of
Directors, at their discretion.
Under the 1999 Plan, there were 750,000 shares available for grant. As of
May 31, 1999, 287,000 options have been granted and are outstanding under the
1999 Plan, leaving a balance of 463,000 shares available for grant.
(e) TRANSFER AGENT:
The Transfer Agent for the Company's common stock is Signature Stock
Transfer, Inc., 14675 Midway Road, Suite 229, Dallas, Texas 75244.
14
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
MARKET INFORMATION
The Common Stock of the Company is traded under the symbol DIGS in the
over-the-counter market through the NASDs electronic OTC Bulletin Board service.
The following table sets forth the range of high and low bid prices per share of
the Common Stock for each of the periods indicated. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not necessarily represent actual transactions. Quotations for periods prior to
November, 1998 are for the common stock of Advanced Laser Products, Inc. prior
to the Reorganization.
<TABLE>
<CAPTION>
Bid Prices
----------
High Low
----- -------
<S> <C> <C>
Quarter ended:
March 31, 1997 . . . . . . . $2.43 $0.97
June 30, 1997. . . . . . . . $1.28 $0.28
September 30, 1997 . . . . . $0.35 $0.17
December 31, 1997. . . . . . $0.20 $0.08
March 31, 1998 . . . . . . . $0.09 $0.03
June 30, 1998. . . . . . . . $1.50 $0.04*
September 30, 1998 . . . . . $2.62 $0.25
December 31, 1998. . . . . . $6.87 $4.87**
March 31, 1999 . . . . . . . $7.00 $3.00
April 1 through June 10, 1999 $10.25 $7.00
<FN>
* Reflects a 1 for 10 reverse stock split.
** Reflects a 1 for 20 reverse stock split.
</TABLE>
Holders of Common Stock
As of May 31, 1999, the number of holders of record of common stock was
258.
Dividends
To date, the company has not paid any cash dividends on its common stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company anticipates that all earnings, if any, for the foreseeable future will
be retained for development of the Company's business.
15
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
A Complaint was filed against the Company and others in the United States
District Court in Los Angeles, California. The Complaint alleges, among other
things, the sale to plaintiff, in May of 1996, of unregistered securities and
breach of contract. The Company denies any liability and is diligently
defending this matter. The Company's investment banking firm has agreed to hold
the Company harmless for any and all damages, including, but not limited to, the
cost of litigation resulting from this lawsuit.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(1) On November 9, 1998, in connection with a Plan and Agreement of
Reorganization (the "Plan"), the Company issued 5,194,968 shares of its Common
Stock in exchange for all of the outstanding common stock of Digital Corporate
Profiles, Inc. ("DCP"). Upon the close of the Plan, DCP's shareholders owned
approximately 99% of the outstanding Common Stock of the Company. As a result,
DCP became a wholly-owned subsidiary of the Company.
(2) On November 10, 1998, the Company sold 1,400,000 shares of Common
Stock to four individuals pursuant to a Rule 504 offering. The shares were sold
at $0.71 per share for gross proceeds of $994,000. The Company had reasonable
grounds to believe that each purchaser was capable of evaluating the merits and
risks of his investment and bearing the economic risks of his investment. The
Company had not raised, over the prior twelve months, more than one million
dollars inclusive of the proceeds from this offering. Accordingly, the Company
believes that this transaction was exempt from the registration provisions of
the Securities Act of 1933, as amended, pursuant to the exemption under
Regulation D of that Act, and the Rules and Regulations promulgated thereunder.
(3) On January 2, 1999, the Board of Directors duly adopted a stock
option plan, subject to shareholder approval, pursuant to which options to
purchase up to 750,000 shares of the Company's Common Stock may be granted by a
committee of directors to key employees and others. Each option will have a
term not to exceed ten years, or such shorter period as is determined by the
Board of Directors, and will be exercisable at the per share fair market value
of the Company's Common Stock as at the date of grant. As of May 31, 1999,
options to purchase 287,000 shares of Common Stock have been granted.
16
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporate Law ("GCL") of the State of Delaware
empowers a Delaware corporation, such as the Company, to indemnify its directors
and officers under certain circumstances. The Company's Certificate of
Incorporation provides that the Company shall indemnify such persons to the
fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors and officers and controlling persons of
the Company pursuant to the provisions of Delaware law or otherwise, the Company
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy in said Act and will be governed by the final adjudication of such
issue.
Article Seventh of the Company's Certificate of Incorporation provides that
the Company shall, to the full extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, indemnify all persons
whom it may indemnify pursuant thereto.
17
<PAGE>
PART F/S
The following financial statements are included as a separate section following
the signature page to this Form 10-SB and are incorporated herein by reference.
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Audited Financial Statements:
Independent Auditors' Report. . . . . . . . . . . . F-2
Prior Independent Auditors' Report. . . . . . . . . F-3, F-4
Consolidated Balance Sheet as of December 31, 1998. F-5
Consolidated Statements of Operations - Years Ended
December 31, 1998 and 1997. . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1998 and 1997. . . . . . F-7, F-8
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998 and 1997. . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements. . . . . F-10 - F-16
Unaudited Financial Statements
Consolidated Balance Sheet - Three Months Ended
March 31, 1999. . . . . . . . . . . . . . . . . . F-17
Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998. . . . . . . F-18
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998. . . . . . . F-19
Notes to Consolidated Financial Statements. . . . . F-20
</TABLE>
18
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
Item Description
2. Plan and Agreement of Reorganization between the Registrant and
Digital Corporate Profiles, Inc. dated October 3, 1998.
3.(i) Articles of Incorporation and Amendments thereto.
(ii) By-Laws of Registrant.
10.(i) Registrant's 1999 Stock Incentive Plan.
(ii) Employment Agreement between Registrant's wholly-owned subsidiary
and Peter Dunn.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIGS, INC.
Date: June 10, 1999
By: /s/ Peter B. Dunn
-----------------------------
Peter B. Dunn, President and
Chief Financial Officer
20
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
21
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Pages
--------------
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . F - 2
Prior Independent Auditors' Reports . . . . . . . . F - 3 - F - 4
Consolidated Balance Sheet as of December 31, 1998. F - 5
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997. F - 6
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997 F - 7 - F - 8
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997. F - 9
Notes to Consolidated Financial Statements. . . . . F - 10 - F - 16
Consolidated Balance Sheet (Unaudited)
as of March 31, 1999. . . . . . . . . . . . . . F - 17
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 1999 and 1998 . . . . . . F - 18
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1999 and 1998 . . . . . . F - 19
Selected Information (Unaudited) -
Substantially All Disclosures Required by
Generally Accepted Accounting Principles are not Included. . . F - 20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
April 5, 1999
To the Board of Directors
DIGS, Inc. and subsidiaries
Encino, California
We have audited the accompanying consolidated balance sheet of DIGS, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. 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 did
not audit the 1997 financial statements of Digital Corporate Profiles, Inc.
(subsidiary) which statements reflect total assets of $125,084 as of December
31, 1997 and total revenues of $110,107 for the year then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Digital
Corporate Profiles, Inc. for the year ended December 31, 1997, is based solely
on the report of the other auditors.
The consolidated financial statements as of December 31, 1998 and for the years
ended December 31, 1998 and 1997 have been restated to reflect the pooling of
interests with Digital Corporate Profiles, Inc. as described in Note 9 to the
consolidated financial statements. We did not audit the August 31, 1998 and
December 31, 1997 financial statements of DIGS, Inc., which statements reflect
total assets of $0 and $0 as of August 31, 1998 and December 31, 1997,
respectively, and total revenues of $0 and $0 for the periods then ended. Those
statements were audited by other auditor whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for DIGS, Inc.
for the eight months ended August 31, 1998 and for the year ended December 31,
1997, is based solely on the report of the other auditor.
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 and reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors, the
consolidated financial statements referred to in the first paragraph above
present fairly, in all material respects, the financial position of DIGS, Inc.
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P.
Woodland Hills, California
F-2
<PAGE>
JAAK (JACK) OLESK
Certified Public Accountant
270 North Canon Drive, Suite 203
Beverly Hills, California 90210
(310) 288-0693
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of directors
Advanced Laser Products, Inc.
I have audited the accompanying balance sheet of Advanced Laser Products,
Inc. as of August 31, 1998 and December 31, 1997 and the related statements of
operations, stockholders' equity <deficit> and cash flows for, each of the two
years in the period ended December 31, 1997, and for the eight month period
ended August 31, 1998. These financial statements are the responsibility of the
company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Laser Products,
Inc. as of August 31, 1998, and December 31, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
(X) JAAK OLESK, CPA
signature
Beverly Hills, California
September 14, 1998
F-3
<PAGE>
KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Board of Directors
Digital Corporate Profiles, Inc.
(Formerly known as StockNet, Inc.)
Encino, California
Independent Auditor's Report
We have audited the accompanying balance sheet of Digital Corporate Profiles,
Inc. (formerly known as StockNet, Inc.) as of December 31, 1997 and the related
statements of operations and accumulated deficit and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 the test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Corporate Profiles,
Inc. (formerly known as StockNet, Inc.), as of December 31, 1997 and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Kellogg & Andelson
signature
April 10, 1998
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
C.P.A. ASOCIATES OFFICES IN PRINCIPLE CITIES
14724 VENTURA BOULEVARD. SECOND FLOOR, SHERMAN OAKS, CALIFORNIA 91403
PHONE (818) 971-5100 FAX (818) 971- 5155
F-4
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
<S> <C>
Cash (Note 2) $ 515,920
Marketable equity securities (Notes 2 and 3) 1,150
Accounts receivable - trade 3,183
------------
Total Current Assets 520,253
PROPERTY AND EQUIPTMENT,
net of accumulated depreciation (Notes 2 and 5) 90,552
PROGRAM DEVELOPMENT COSTS,
net of accumulated amortization (Notes 2 and 6) 47,755
LONG-TERM ASSETS
Deferred tax assets (Note 4) --
------------
Total Assets $ 658,560
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 20,912
Payroll tax liabilities 11,339
Accrued vacation pay 4,635
Sub-lease deposits 3,000
------------
Total Current Liabilities 39,886
------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 0 shares issued and outstanding --
Common stock, par value $.001 per share; 80,000,000
shares authorized, 6,648,631 shares issued and
outstanding (Notes 9 and 11) 6,649
Additional paid-in capital 2,965,839
Unrealized holding (loss) (Notes 2 and 3) (7,850)
Retained (deficit) (Notes 9 and 12) (2,345,964)
------------
Total Stockholders' Equity 618,674
------------
Total Liabilities and Stockholders' Equity $ 658,560
============
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
<S> <C> <C>
REVENUE (Notes 2 and 8) $ 171,694 $ 110,107
COST OF SALES 96,980 63,745
---------- ----------
Gross Profit 74,714 46,362
OPERATING EXPENSES (Note 12) (543,864) (428,487)
---------- ----------
Loss from Operations (469,150) (382,125)
OTHER INCOME (EXPENSE)
Rental income (Note 7) 63,000 --
Other income -- 823
Interest expense (1,831) (2,814)
---------- ----------
Loss Before Income Taxes (407,981) (384,116)
PROVISION FOR INCOME TAX (Note 4) (800) (800)
---------- ----------
Net Loss (Note 9) (408,781) (384,916)
OTHER COMPREHENSIVE INCOME, net of
tax:
Unrealized holding (loss) arising during
period (Notes 2 and 3) (7,850) --
---------- ----------
Comprehensive Income (Loss) $(416,631) $(384,916)
========== ==========
(Loss) per common share and common share
equivalent (Note 2) $ (.08) $ (.07)
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
F-6
<PAGE><TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred Stock Common Stock Additional Other Retained
------------------------ ------------------------- Paid-In Comprehensive Earnings
Shares Amount Shares Amount Capital Income (Deficit) Total
----------- ----------- ----------- ------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as
previously
reported Dec. 31,
1996 (Note 9) 2,967,697 $ 2,968 $ 1,658,168 $(1,470,998) $ 190,138
Pooling of
interest with
Digital Corporate
Profiles, Inc.
Nov. 9, 1998 -
subsequent to
all stock splits
(Notes 9 and 10) 5,194,968 5,195 307,127 (81,269) 231,053
----------- ----------- ----------- ------------ ---------- ---------- ----------- ------------
Balance, as
restated
Dec. 31, 1996 -- -- 8,162,665 8,163 1,965,295 -- (1,552,267) 421,191
Shares issued for
services and
extinguishment
of debt during
1997 4,729,743 4,730 4,730
Net (loss) for the
year ended
Dec. 31. 1997 (362,371) (362,371)
Prior period
adjustment
Dec. 31, 1997
(Note 12) (22,545) (22,545)
----------- ----------- ----------- ------------ ---------- ---------- ----------- ------------
Balance at
Dec. 31, 1997 -- -- 12,892,408 12,893 1,965,295 -- (1,937,183) 41,005
1 for 10 Reverse
Split effective
April 20, 1998 (6,927,696) (6,928) 6,928 --
Shares issued in
July, 1998 300,000 300 300
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
F-7
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred Stock Common Stock Additional Other Retained
----------------------- ------------------- Paid-In Comprehensive Earnings
Shares Amount Shares Amount Capital Income (Deficit) Total
----------- ---------- --------- -------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 for 20 Reverse
Split effective
Oct. 16, 1998 (1,016,081) (1,016) 1,016 --
Stock sales
Nov. 10, 1998
(Note 11) 1,400,000 1,400 992,600 994,000
Net (loss) for the
year ended
Dec. 31, 1998 (408,781) (408,781)
Unrealized
holding (loss)
Dec. 31, 1998
(Notes 2 and 3) (7,850) (7,850)
----------- ---------- --------- -------- ---------- ------------ ------------ ---------
Balance at
Dec. 31, 1998 -- $ -- 6,648,631 $ 6,649 $2,965,839 $ (7,850) $ (2,345,964) $ 618,674
=========== ========== ========= ======== ========== ============ ============ =========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
----------- ----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (408,781) $(384,916)
Adjustments to reconcile net (loss) to net cash provided (used)
by operating activities:
Amortization and depreciation 31,607 17,766
Issuance of common stock for services 300 4,730
(Increase) in accounts receivable (3,183) --
(Decrease) Increase in current liabilities and accrued expenses (6,102) 227,336
Increase in deposits 3,000 --
----------- ----------
Net Cash Flows (Used) by Operating Activities (383,159) (135,084)
----------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Acquisition of property and equipment (79,042) (12,615)
(Increase) in program development cost -- (39,135)
Acquisition of marketable equity securities (9,000) --
----------- ----------
Net Cash Flows (Used ) by Investing Activities (88,042) (51,750)
----------- ----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debts -- 100,200
Issuance of common stock (Notes 10 and 11) 1,005,735 100,000
(Decrease) in note payable to stockholders (47,321) --
Payment of long-term debt -- (52,879)
----------- ----------
Net Cash Flows Provided by Financing Activities 958,414 147,321
----------- ----------
NET INCREASE (DECREASE) IN CASH 487,213 (39,513)
CASH AT THE BEGINNING OF THE YEAR 28,707 68,220
----------- ----------
CASH AT THE END OF THE YEAR $ 515,920 $ 28,707
=========== ==========
ADDITIONAL DISCLOSURES:
Cash paid during the year for:
Interest $ 1,831 $ 2,814
=========== ==========
Income Taxes $ 800 $ 800
=========== ==========
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued in exchange for subsidiary's common stock $ 312,322 $ --
=========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements
F-9
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS
DIGS, Inc. (the Company), formerly known as Advanced Laser Products, Inc., a
Delaware corporation, was incorporated on June 27, 1986 as Skin Research
Laboratories, Ltd. On September 25, 1990, the Company changed its name to
Medipak Corporation. On February l, 1995, the Company changed its name to
Advanced Laser Products, Inc. In the late 1980's, the Company was attempting to
enter the medical receivables financing business. On November 9, 1998, the
Company merged with Digital Corporate Profiles, Inc. (DCP) (see Note 9). DCP
provides complete multimedia and Internet communications solutions for public
companies to proactively tell their story to the worldwide investment community.
DCP produces investor relations CD-ROM (IRCD) packages for its corporate and
investor relations clients. DCP also offers the environmental health and safety
CD-ROM (EHSCD) to dynamically tell the environmental, health and safety story to
investors, environmental groups, media and the public.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
- ------------------------
The consolidated financial statements include the accounts of the wholly owned
subsidiaries of Digital Corporate Profiles, Inc. (DCP), a California
corporation, and Advanced Laser Products, Inc., a Nevada corporation (inactive).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform with the current
year presentation.
Cash and Cash Equivalents
- ----------------------------
The Company and its subsidiaries consider cash on hand and cash in banks as cash
and cash equivalents.
As of the year ended December 31, 1998, the Company funds held in its operating
checking account exceeded FDIC limit by $415,920.
Marketable Securities
- ----------------------
Marketable securities consist of common stock. Marketable securities are stated
at market value as determined by the most recently traded price of each security
at the balance sheet date, with the unrealized gains and loses, net of tax,
reported as a separate component of stockholders' equity. All marketable
securities are defined as trading securities or available-for-sale securities
under provisions of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
F-10
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
- --------------------
Design and development contract revenues are billed in equal one-third
installments as the contracts progress. All payments are nonrefundable and
revenue is recognized when earned. The average length of a contract is
approximately two months.
Annual service contract revenues are recognized when earned. Service revenues
are billed quarterly and the advance charges are recorded and presented as
deferred revenue until earned.
As of December 31, 1998 and 1997, the Company did not have any open contracts.
Earnings Per Share
- --------------------
Earnings per share are computed on the basis of the weighted average number of
common shares outstanding during the year. The weighted average shares
outstanding for the years ended December 31, 1998 and 1997 were 5,436,233 and
5,221,840, respectively (see Note 9). Fully diluted per share data is not
presented, as the effects would be antidiluted.
Property and Equipment
- ------------------------
Depreciation of equipment and amortization of leasehold improvements is
calculated by the straight-line and accelerated methods based on the following
estimated useful lives:
Years
-----
Computer 5
Furniture and fixtures 7
Organizational costs 5
Computer software 5
Leasehold improvements 10
Program Development Costs
- ---------------------------
Costs associated with software production, incurred subsequent to the
establishment of the technological feasibility of the products, have been
capitalized and are amortized on the straight-line method over the estimated
economic life of the products, which is estimated at five years.
Income Taxes
- -------------
This Company has adopted SFAS No. 109, "Accounting for Income Taxes", which
requires a liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax bases of assets
F-11
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (continued)
- -------------------------
and liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to the periods in
which they are expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce deferred tax asset accounts to the amounts
that will more likely than not be realized. Income tax expense is the current
tax payable or refundable for the period, plus or minus the net change in the
deferred tax asset and liability accounts.
Use of Estimates
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Year 2000 Compliance
- ----------------------
In general, management believes its computerized systems used to report
financial information are year 2000 compliant. Management does not foresee any
material year 2000 problems with the Company's vendors, service providers, or
other third parties which affect the Company's financial information.
Name Change
- ------------
On March 17, 1998, Digital changed its name from Stocknet-USA, Inc. to Digital
Corporate Profiles, Inc.
On October 8, 1998, the Company changed its name from Advanced Laser Products,
Inc. to DIGS, Inc.
NOTE 3 - MARKETABLE EQUITY SECURITIES
Cost and fair value of marketable equity securities at December 31, 1998 are as
follows:
Gross Gross
Unrealized Unrealized
Costs Gains Losses Fair Value
December 31, 1998 -------- --------- -------- -----------
Available for Sale
Equity securities $ 9,000 $ -- $(7,850) $ 1,150
======== ========= ======== ===========
Gross unrealized losses during the year ended December 31, 1998 amounted to
$7,850.
F-12
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 - INCOME TAXES
The Company has available at December 31, 1998, net operating loss carryforwards
totaling $680,014 that may be offset against future taxable income subject to
limitations under IRS code Section 1502. If not used, the net operating loss
carryforwards will expire as follows:
Operating Losses $ 81,269
Year 2011 190,049
Year 2012 408,696
Year 2018 ------------
$ 680,014
============
The net deferred tax assets resulting from the net operating loss included in
the accompanying balance sheet include the following amounts of deferred tax
assets and liabilities at December 31, 1998:
Deferred Tax Asset - Current $ --
Deferred Tax Asset - Non-Current 224,237
---------
224,237
Valuation allowance (224,237)
---------
$ --
=========
For the year ended December 31, 1998, valuation allowance increased by $156,530.
The components of the provision for income taxes are as follows:
1998 1997
Current ----- -----
State $ 800 $ 800
===== =====
NOTE 5 - PROPERTY AND EQUIPMENT
Computer $ 47,032
Furniture and fixtures 4,691
Organizational costs 4,996
Computer software 21,180
Leasehold improvements 43,524
----------
121,423
Less accumulated amortization and depreciation ( 30,871)
----------
$ 90,552
==========
Amortization and depreciation expenses for the years ended December 31, 1998 and
1997 were $18,356 and $12,515, respectively. Depreciation and amortization
expense for the year ended December 31, 1997 included an $835 prior year
adjustment (see Note 12).
F-13
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 - PROGRAM DEVELOPMENT COSTS
Program development costs $ 66,257
Less accumulated amortization (18,502)
---------
$ 47,755
=========
Amortization expense for the years ended December 31, 1998 and 1997 were $13,251
and $5,251, respectively. Amortization expense for the year ended December 31,
1997 included $4,670 prior year adjustment (see Note 12).
NOTE 7 - COMMITMENTS
As of September 1, 1997, the Company entered into an operating lease for its
offices expiring on August 31, 2007. The lease agreement contains certain terms
and conditions, which include, but are not limited to, property taxes,
insurance, rent increases, and repairs and maintenance.
As of August 1, 1998, the above lease commitment was terminated and the Company
entered in a new two-year operating lease on its current premises, expiring July
31, 2000, with the same lessor for the monthly lease payment of $7,691. The
lease agreement contains certain terms and conditions, which include, but are
not limited to, property taxes, insurance, rent increases, repairs and
maintenance. There is an option to renew the lease for additional three and
five years.
The following is a schedule of future minimum rental payments required under the
above operating leases as of December 31, 1998:
Year Ending
December 31, Amount
------------- --------------
1999 $ 92,295
2000 53,837
---------------
146,132
===============
The above rental expenses will be offset by $21,000 in sublease rental income
through the year ending July 31, 1999.
For the years ended December 31, 1998 and 1997, rental expenses were $52,778 and
$18,000, respectively. Rentals under the subleases expiring July 31, 2000
amounted to $23,000 in 1998. (See Note 14).
In 1998, the lessor compensated DCP in an amount of $40,000 for moving to its
current facility. As of December 31, 1998, the above amount has been classified
as rental income.
On March 1, 1998, DCP entered into an employment contract with its president
that provides for an annual salary of $96,000 as well as annual vacation, sick
pay, bonus, and miscellaneous reimbursement of out-of-pocket costs. The
contract expires on February 28, 2000.
F-14
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 8 - MAJOR CUSTOMER AND SUPPLIERS
During the year ended December 31, 1998, sales to three customers accounted for
approximately 96% of total revenue.
NOTE 9 - AGREEMENT OF REORGANIZATION
Effective November 9, 1998, in connection with the agreement of reorganization,
the Company issued 5,l94,968 shares of its common stock at $.001 par value per
share, in exchange for all of the outstanding common stock of Digital Corporate
Profiles, Inc. (DCP), in which DCP became a wholly owned subsidiary of the
Company based on a conversion ratio of 3 shares of the Company's common stock
for each share of DCP's stock. The merger qualified for a tax-free
reorganization and has been accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements have been restated
for all periods prior to the business combination to include the combined
results of DIGS, Inc. and Digital Corporate Profiles, Inc. Net revenues and net
loss for the individual companies were as follows:
For the Years Ended December 31,
--------------------------------
1998 1997
REVENUE --------------- ---------------
DIGS, Inc. $ -- $ --
Digital Corporate Profiles, Inc. 171,694 110,107
$171,694 $110,107
=============== ===============
NET LOSS
DIGS, Inc. $ 300 $ 194,867
Digital Corporate Profiles, Inc. 408,481 190,049
$ 408,781 $ 384,916
=============== ===============
For periods preceding the merger, there were no intercompany transactions that
required elimination from the combined consolidated results of operations and
there were no adjustments necessary to conform the accounting practices of the
two companies.
NOTE 10 - SALE OF DCP'S STOCK
In 1997, DCP issued 100,000 shares of its common stock, an equivalent of 300,000
shares of the Company, no par, to two individuals at the price of $1 per share.
The net proceeds were $100,000. These shares were outstanding at the time of
the merger with the Company (see Note 9).
On March 20, 1998, pursuant to an short-term loan agreement, DCP's Board of
Directors authorized the issuance of 586,656 shares of its common stock, an
equivalent of 1,759,968 shares of the Company, no par, to various individuals at
the price of $.02 per share. All transactions were finalized on September 15,
1998. The net proceeds were $11,734. These shares were outstanding at the time
of the merger with the Company (see Note 9).
F-15
<PAGE>
DIGS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS ADVANCED LASER PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 11 - SALE OF DIGS' STOCK
On November 10, 1998, the Company issued 1,400,000 shares of common stock
through a 504 offering. The net proceeds of the offering were $994,000. The
Company used $600,000 of the net proceeds to repay outstanding short-term debts.
NOTE 12 - PRIOR PERIOD ADJUSTMENT
Due to the discovery of unrecorded liabilities and the miscalculation of
depreciation as of December 31, 1997, the following adjustments were made to
DCP's beginning retained earnings as of January l, 1998:
Amortization and depreciation $ 5,505
Commission 3,124
Accounting fees 13,916
-------
$22,545
=======
The above changes increased DCP's net loss for the year ended December 31, 1997
from $167,504 to $190,049, and the Company's net loss from $362,371 to $384,916.
NOTE 13 - LITIGATION
The Company is a defendant in a suit in which the plaintiff is seeking recovery
of approximately $85,000. The dispute arose as to the investment made by the
plaintiff and the non-delivery of the shares by the Company. The Company's
investment banking firm agreed to hold the Company and DCP harmless for any and
all damages including but not limited to the cost of litigation resulting from
this suit. Consequently, no provision has been make in the accounts for any
liability from this suit.
NOTE 14 - RELATED PARTY TRANSACTIONS
For the first eight months of 1997, the Company leased its facilities from the
majority stockholder. The amount of rent paid to the stockholder during 1997
was $18,000.
For the year ended December 31, 1998, the Company paid its Secretary
approximately $9,000 for services in connection with the production of its
products.
For the year ended December 31, 1998, DCP repaid the president of the Company
the short-term note in an amount of $47,321. This amount was on DCP's books
since December 31, 1997.
NOTE 15 - SUBSEQUENT EVENTS
On March 2, 1999, DCP paid a commission in an amount of $3,124 to U. S. Stock
Transfer for referring customers during the year ended December 31, 1997. The
president of DCP is also a member of the Board of Directors and a shareholder of
U.S. Stock Transfer.
On January 2, 1999, pursuant to a 1999 Stock Incentive Plan, the Company granted
287,000 options to the following individuals:
Excerise Expire From
Options price Date of Grant
------- ------ -------------
Peter Dunn, President 100,000 $ 5.50 5 yrs.
Allen Dunn, Vice President 80,000 5.00 10 yrs.
Various other individuals 107,000 5.00 10 yrs.
-------
287,000
=======
F-16
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1999
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 314,918
Accounts receivable - trade 203,011
------------
Total Current Assets 517,929
PROPERTY AND EQUIPTMENT, 93,437
net of accumulated depreciation
PROGRAM DEVELOPMENT COSTS, 57,943
net of accumulated amortization
LONG-TERM ASSETS
Deferred tax assets --
------------
Total Assets $ 669,309
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,935
Payroll tax liabilities 8,947
Accrued vacation pay 4,635
Sub-lease deposits 3,000
------------
Total Current Liabilities 20,517
------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 20,000,000 shares
authorized, 0 shares issued and outstanding --
Common stock, par value $.001 per share; 80,000,000
shares authorized, 6,648,631 shares issued and
outstanding 6,649
Additional paid-in capital 2,965,839
Retained (deficit) (2,345,964)
Net income 22,268
------------
Total Stockholders' Equity 648,792
------------
Total Liabilities and Stockholders' Equity $ 669,309
============
</TABLE>
See Accompanying Notes to Unaudited Financial Statements
F-17
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
----------- -----------
<S> <C> <C>
REVENUE $ 323,014 $ 37,593
COST OF SALES 33,509 17,477
----------- -----------
Gross Profit 289,505 20,116
OPERATING EXPENSES (268,387) (56,240)
----------- -----------
Loss from Operations 21,118 ( 36,124)
OTHER INCOME (EXPENSE)
Rental income 9,800 --
Interest expense -- (1,202)
Realized (loss) on sale of securities (7,850) --
----------- -----------
Income Before Taxes 23,068 (37,326)
(PROVISION) FOR INCOME TAX (800) --
----------- -----------
Net Income (Loss) 22,268 (37,326)
OTHER COMPREHENSIVE INCOME:
Add reclassification adjustment for loss
Included in net income 7,850 --
----------- -----------
Comprehensive Income (Loss) $ 30,118 $ (37,326)
=========== ===========
Income (Loss) per common share and common
share equivalent $ .0 $ (.0)
=========== ===========
Weighted average common shares 6,648,631 5,233,631
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Financial Statements
F-18
<PAGE>
<TABLE>
<CAPTION>
DIGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 22,268 $(37,327)
Adjustments to reconcile net (loss) to net cash provided (used)
by operating activities:
Amortization and depreciation 7,902 7,902
(Increase) in accounts receivable (199,828) (26,785)
(Decrease) Increase in current liabilities and accrued expenses. (19,369) (3,790)
Realized loss on sale of marketable equity securities 7,850 --
---------- ---------
Net Cash Flows (Used) by Operating Activities (181,177) (60,000)
---------- ---------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Acquisition of property and equipment (7,475) (1,248)
(Increase) in program development cost (13,500) --
Sale of marketable equity securities 1,150 --
---------- ---------
Net Cash Flows (Used ) by Investing Activities (19,825) (1,248)
---------- ---------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of short-term debts -- 71,085
---------- ---------
Net Cash Flows Provided by Financing Activities -- 71,085
---------- ---------
NET INCREASE (DECREASE) IN CASH (201,002) 9,837
CASH AT THE BEGINNING OF THE PERIOD 515,920 28,707
---------- ---------
CASH AT THE END OF THE PERIOD $ 314,918 $ 38,544
========== =========
ADDITIONAL DISCLOSURES:
Interest paid $ -- $ 1,203
========== =========
Income taxes paid $ 800 $ --
========== =========
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Realized (loss) on sale of marketable equity securities $ (7,850) $ --
========== =========
</TABLE>
See Accompanying Notes to Unaudited Financial Statements
F-19
<PAGE>
DIGS, INC. AND SUBSIDIARIES
SELECTED INFORMATION (UNAUDITED) -
Substantially All Disclosures Required by Generally Accepted Accounting
Principles are not Included
MARCH 31, 1999
NOTE 1 - BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information pursuant to regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto of the Company for the
years ended December 31, 1998 and 1997 included elsewhere herein.
NOTE 2 - AGREEMENT OF REORGANIZATION
Effective November 9, 1998, in connection with the agreement of reorganization,
the Company issued 5,l94,968 shares of its common stock at $.001 par value per
share, in exchange for all of the outstanding common stock of Digital Corporate
Profiles, Inc. (DCP), in which DCP became a wholly owned subsidiary of the
Company based on a conversion ratio of 3 shares of the Company's common stock
for each share of DCP's stock. The merger qualified for a tax-free
reorganization and has been accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements have been restated
for all periods prior to the business combination to include the combined
results of DIGS, Inc. and Digital Corporate Profiles, Inc.
For periods preceding the merger, there were no intercompany transactions that
required elimination from the combined consolidated results of operations and
there were no adjustments necessary to conform the accounting practices of the
two companies.
F-20
PLAN AND AGREEMENT OF REORGANIZATION
BETWEEN
DIGITAL CORPORATE PROFILES, INC.
AND
ADVANCED LASER PRODUCTS, INC.
RELATING TO THE EXCHANGE OF COMMON STOCK OF
DIGITAL CORPORATE PROFILES, INC.
FOR
COMMON STOCK OF ADVANCED LASER PRODUCTS, INC.
DATED SEPTEMBER 28, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
PLAN OF REORGANIZATION ................................................. 1
AGREEMENT .............................................................. 1
SECTION 1 TRANSFER OF DIGITAL SHARES ............................... 1
SECTION 2 ISSUANCE OF EXCHANGE STOCK TO DIGITAL
SHAREHOLDERS ............................................. 2
SECTION 3 CLOSING .................................................. 3
SECTION 4 REPRESENTATIONS AND WARRANTIES BY DIGITAL AND
CERTAIN SHAREHOLDERS ..................................... 5
SECTION 5 REPRESENTATIONS AND WARRANTIES BY ADVANCED ............... 9
SECTION 6 ACCESS AND INFORMATION ................................... 14
SECTION 7 COVENANTS OF DIGITAL ..................................... 15
SECTION 8 COVENANTS OF ADVANCED .................................... 17
SECTION 9 ADDITIONAL COVENANTS OF THE PARTIES ...................... 17
SECTION 10 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS ................................................ 18
SECTION 11 CONDITIONS PRECEDENT TO OBLIGATIONS
OF PARTIES ............................................... 18
SECTION 12 TERMINATION, AMENDMENT, WAIVER ........................... 21
SECTION 13 MISCELLANEOUS ............................................ 24
EXHIBIT LIST ........................................................... 27
SCHEDULE LIST .......................................................... 27
i
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
This PLAN AND AGREEMENT OF REORGANIZATION ("Agreement") is entered into on
this 28th day of September, 1998, by and between ADVANCED LASER PRODUCTS, INC.,
a Delaware corporation ("ADVANCED") and DIGITAL CORPORATE PROFILES, INC., a
California corporation ("DIGITAL"), and those persons listed in Exhibit A
hereto, being all of the shareholders of DIGITAL who own individually at least
five percent (5%) of the outstanding stock of DIGITAL and together control over
50% of the outstanding stock of DIGITAL as of the date this Agreement is
executed.
PLAN OF REORGANIZATION
The transaction contemplated by this Agreement is intended to be a "tax
free" exchange as contemplated by the provisions of Sections 351 and
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. ADVANCED will
acquire up to 100% of DIGITAL's issued and outstanding common stock, (no par
value per share) (the "DIGITAL Stock" or the "DIGITAL Shares"), in exchange for
approximately 5,191,968 shares of ADVANCED's common stock, $0.001 par value per
share (the "Exchange Stock"). Upon the consummation of the exchange transaction
and the issuance and transfer of the ADVANCED common stock as set forth in
Section 2 hereinbelow, DIGITAL Shareholders would hold approximately 99% of the
then outstanding common stock of ADVANCED. The Exchange Transaction will result
in DIGITAL becoming a subsidiary of ADVANCED.
AGREEMENT
SECTION 1
TRANSFER OF DIGITAL SHARES
1.1 All shareholders of DIGITAL (the "Shareholders" or the "DIGITAL
Shareholders"), as of the date of Closing as such term is defined in Section 3
herein (the "Closing" or the "Closing Date"), shall transfer, assign, convey and
deliver to ADVANCED at the date of Closing, certificates representing
approximately 100% of the DIGITAL Shares or such lesser percentage as shall be
acceptable to ADVANCED, but in no event less than approximately 90% of the
DIGITAL Shares. The transfer of the DIGITAL Shares shall be made free and clear
of all liens, mortgages, pledges, encumbrances or charges, whether disclosed or
undisclosed, except as the DIGITAL Shareholders and ADVANCED shall have
otherwise agreed in writing.
SECTION 2
ISSUANCE OF EXCHANGE STOCK TO DIGITAL SHAREHOLDERS
2.1 As consideration for the transfer, assignment, conveyance and delivery
of the DIGITAL Stock hereunder, ADVANCED shall, at the Closing issue to the
DIGITAL Shareholders, pro rata in accordance with each Shareholder's percentage
ownership of DIGITAL immediately prior to the Closing, certificates for
approximately 5,191,968 shares. (The ADVANCED common stock to be issued are
referred to herein as the "Exchange Stock.") The parties intend that the
Exchange Stock being issued will be used to acquire all outstanding DIGITAL
Shares. To the extent that less than 100% of the DIGITAL Stock is acquired, the
1
<PAGE>
number of shares issuable to those DIGITAL Shareholders who have elected to
participate in the exchange described in this Agreement (the "Exchange") shall
increase proportionately.
2.2 The issuance of the Exchange Stock shall be made free and clear of all
liens, mortgages, pledges, encumbrances or charges, whether disclosed or
undisclosed, except as the DIGITAL Shareholders and ADVANCED shall have
otherwise agreed in writing. As provided herein, and immediately prior to the
Closing, ADVANCED shall have issued and outstanding: (i) not more than 53,487
shares of Common Stock; (ii) no shares of Preferred Stock; and (iii) no other
capital stock, warrants, options or other securities convertible or exchanged
into Common Stock issued and outstanding, except as may be set forth in Schedule
5.1(b) hereto.
2.3 None of the Exchange Stock issued or to be issued to the DIGITAL
Shareholders, nor any of the DIGITAL Stock transferred to ADVANCED hereunder
shall, at the time of Closing, be registered under federal securities laws but,
rather, shall be issued pursuant to an exemption therefrom and be considered
"restricted stock" within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act"). All of such shares shall bear a
legend worded substantially as follows:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 (the "Act") and are 'restricted securities' as
that term is defined in Rule 144 under the Act. The shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
exemption from registration under the Act, the availability of which is to
be established to the satisfaction of the Company."
The respective transfer agents of ADVANCED and DIGITAL shall annotate their
records to reflect the restrictions on transfer embodied in the legend set forth
above. There shall be no requirement that ADVANCED register the Exchange Stock
under the Act, nor shall DIGITAL or the Shareholders be required to register any
DIGITAL Shares under the Act.
SECTION 3
CLOSING
3.1 Closing of Transaction. Subject to the fulfillment or waiver of the
conditions precedent set forth in Section 11 hereof, the Closing shall take
place on the Closing Date at the offices of Pacific Rim Capital, 3233 Donald
Douglas Loop South, Suite D, Santa Monica, California 90405 at 1:00 p.m. P.S.T.,
or at such other time on the Closing Date as DIGITAL and ADVANCED may mutually
agree in writing
3.2 Closing Date. The Closing Date of the Exchange shall take place on a
date chosen by mutual agreement of DIGITAL and ADVANCED not later than October
31, 1998, or such later date upon which DIGITAL and ADVANCED may mutually agree
in writing, or as extended pursuant to subsection 12.1(b) hereinbelow.
3.3 Deliveries at Closing.
(a) DIGITAL shall deliver or cause to be delivered to ADVANCED at or
prior to Closing:
(1) certificates representing all shares, or an amount of shares
acceptable to ADVANCED, of the DIGITAL Stock as described in
2
<PAGE>
Section 1, each endorsed in blank by the registered owner;
(2) an agreement from each Shareholder surrendering his or her
shares agreeing to a restriction on the transfer of the Exchange
Stock as described in Section 2 hereof;
(3) a copy of a consent of DIGITAL's board of directors
authorizing DIGITAL to take the necessary steps toward Closing the
transaction described by this Agreement in the form set forth in
Exhibit B;
(4) a copy of a Certificate of Good Standing for DIGITAL issued
not more than ten (10) days prior to Closing by the California
Secretary of State;
(5) an opinion of the Law Offices of William B. Barnett, counsel
to DIGITAL, dated the Closing Date, in a form deemed acceptable by
ADVANCED and its counsel;
(6) Articles of Incorporation and Bylaws of DIGITAL certified as
of the Closing Date by the President and Secretary of DIGITAL;
(7) all of DIGITAL's corporate records;
(8) such other documents, instruments or certificates as shall be
reasonably requested by ADVANCED or its counsel.
(b) ADVANCED shall deliver or cause to be delivered to DIGITAL at
Closing:
(1) a copy of a consent of ADVANCED's board of directors
authorizing ADVANCED to take the necessary steps toward Closing
the transaction described by this Agreement in the form set forth
in Exhibit C;
(2) a copy of a Certificate of Good Standing for ADVANCED issued
not more than thirty days prior to Closing by the Secretary of
State of Delaware.
(3) stock certificate(s) representing the Exchange Stock to be
newly issued by ADVANCED under this Agreement, which certificates
shall be in the names of the appropriate DIGITAL Shareholders,
each in the appropriate denomination as described in Section 2;
(4) an opinion of Stephen A. Zrenda, Jr., special counsel to
ADVANCED, dated the Closing Date, in a form deemed acceptable by
DIGITAL and its counsel;
(5) Articles of Incorporation and Bylaws of ADVANCED certified as
of the Closing Date by the President and Secretary of ADVANCED;
(6) executed bank forms for ADVANCED bank accounts reflecting a
change in management and signatories to said bank accounts;
(7) letters of resignation as an officer and/or director of
ADVANCED from any and all officers or directors of ADVANCED, as
requested by DIGITAL prior to closing;
(8) all of ADVANCED's corporate records;
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(9) such other documents, instruments or certificates as shall be
reasonably requested by DIGITAL or its counsel.
3.4 Filings; Cooperation.
(a) Prior to the Closing, the parties shall proceed with due diligence
and in good faith to make such filings and take such other actions as
may be necessary to satisfy the conditions precedent set forth in
Section 11 below.
(b) On and after the Closing Date, ADVANCED, DIGITAL and the
Shareholders set forth in Exhibit A shall, on request and without
further consideration, cooperate with one another by furnishing or using
their best efforts to cause others to furnish any additional information
and/or executing and delivering or using their best efforts to cause
others to execute and deliver any additional documents and/or
instruments, and doing or using their best efforts to cause others to do
any and all such other things as may be reasonably required by the
parties or their counsel to consummate or otherwise implement the
transactions contemplated by this Agreement.
SECTION 4
REPRESENTATIONS AND WARRANTIES BY
DIGITAL AND CERTAIN SHAREHOLDERS
4.1 Subject to the schedule of exceptions, attached hereto and incorporated
herein by this reference, (which schedules shall be acceptable to ADVANCED),
DIGITAL and those Shareholders listed on Exhibit A represent and warrant to
ADVANCED as follows:
(a) Organization and Good Standing of DIGITAL. The Articles of
Incorporation of DIGITAL and all Amendments thereto as presently in
effect, certified by the Secretary of State of California, and the
Bylaws of DIGITAL as presently in effect, certified by the President and
Secretary of DIGITAL, have been delivered to ADVANCED and are complete
and correct and since the date of such delivery, there has been no
amendment, modification or other change thereto.
(b) Capitalization. DIGITAL's authorized capital stock is 5,000,000
shares of no par value Common Stock (defined as "DIGITAL Common Stock"),
of which no more than 1,730,656 shares will be issued and outstanding
prior to the Closing Date, and held of record by approximately 13
persons. All of such outstanding shares are validly issued, fully paid
and non-assessable. Except as set forth in Schedule 4.1(b), no other
equity securities or debt obligations of DIGITAL are authorized, issued
or outstanding.
(c) Subsidiaries. DIGITAL has no subsidiaries and no other investments,
directly or indirectly, or other financial interest in any other
corporation or business organization, joint venture or partnership of
any kind whatsoever.
(d) Financial Statements. DIGITAL will deliver to ADVANCED, prior to
Closing, a copy of DIGITAL's audited financial statements through
December 31, 1997, and unaudited financial statements for the six months
ended June 30, 1998, which will be true and complete. The unaudited
financial statements through June 30, 1998 will be signed by the
President and Secretary of DIGITAL certifying that, to the best of their
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knowledge, such financial statements are true and complete. Other than
changes in the usual and ordinary conduct of the business since June 30,
1998, there have been, and at the Closing Date there will be, no
material adverse changes in such financial statements.
(e) Absence of Undisclosed Liabilities. DIGITAL has no liabilities which
are not adequately reflected or reserved against in the DIGITAL
Financial Statements or otherwise reflected in this Agreement and
DIGITAL shall not have as of the Closing Date, any liabilities (secured
or unsecured and whether accrued, absolute, direct, indirect or
otherwise) which were incurred after June 30, 1998, and would be
individually or in the aggregate, material to the results of operations
or financial condition of DIGITAL as of the Closing Date.
(f) Litigation. Except as disclosed in Schedule 4.1(f), there are no
outstanding orders, judgments, injunctions, awards or decrees of any
court, governmental or regulatory body or arbitration tribunal against
DIGITAL or its properties. Except as disclosed in Schedule 4.1(f), there
are no actions, suits or proceedings pending, or,to the knowledge of
DIGITAL, threatened against or affecting DIGITAL, any of its officers or
directors relating to their positions as such, or any of its properties,
at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, in connection with the business,
operations or affairs of DIGITAL which might result in any material
adverse change in the operations or financial condition of DIGITAL, or
which might prevent or materially impede the consummation of the
transactions under this Agreement.
(g) Compliance with Laws. To the best of its knowledge, the operations
and affairs of DIGITAL do not violate any law, ordinance, rule or
regulation currently in effect, or any order, writ, injunction or decree
of any court or governmental agency, the violation of which would
substantially and adversely affect the business, financial conditions or
operations of DIGITAL.
(h) Absence of Certain Changes. Except as set forth in Schedule 4.1(h),
or otherwise disclosed in writing to ADVANCED, since June 30, 1998, (i)
DIGITAL has not entered into any material transaction not in the
ordinary course of business; (ii) there has been no change in the
condition (financial or otherwise), business, property, prospects,
assets or liabilities of DIGITAL as shown on the DIGITAL Financial
Statement, other than changes that both individually and in the
aggregate do not have a consequence that is materially adverse to such
condition, business, property, prospects, assets or liabilities; (iii)
there has been no damage to, destruction of or loss of any of the
properties or assets of DIGITAL (whether or not covered by insurance)
materially and adversely affecting the condition (financial or
otherwise), business, property, prospects, assets or liabilities of
DIGITAL; (iv) DIGITAL has not declared, or paid any dividend or made any
distribution on its capital stock, redeemed, purchased or otherwise
acquired any of its capital stock, granted any options to purchase
shares of its stock, or issued any shares of its capital stock; (v)
there has been no material adverse change, except in the ordinary course
of business, in the contingent obligations of DIGITAL by way of
guaranty, endorsement, indemnity, warranty or otherwise; (vi) there have
been no loans made by DIGITAL to its employees, officers or directors;
(vii) there has been no waiver or compromise by DIGITAL of a valuable
right or of a material debt owed to it; (viii) there has been no
extraordinary increase in the compensation of any of DIGITAL's
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employees; (ix) there has been no agreement or commitment by DIGITAL to
do or perform any of the acts described in this Section 4.1(h); and (x)
there has been no other event or condition of any character which might
reasonably be expected either to result in a material and adverse change
in the condition (financial or otherwise) business, property, prospects,
assets or liabilities of DIGITAL or to impair materially the ability of
DIGITAL to conduct the business now being conducted.
(i) Employees. There are, except as disclosed in Schedule 4.1(i), no
collective bargaining, bonus, profit sharing, compensation, or other
plans, agreements or arrangements between DIGITAL and any of its
directors, officers or employees and there is no employment, consulting,
severance or indemnification arrangements, agreements or understandings
between DIGITAL on the one hand, and any current or former directors,
officers or employees of DIGITAL on the other hand.
(j) Assets. All of the assets reflected on the June 30, 1998, DIGITAL
Financial Statements or acquired and held as of the Closing Date, will
be owned by DIGITAL on the Closing Date. Except as set forth in Schedule
4.1(j), DIGITAL owns outright and has good and marketable title, or
holds valid and enforceable leases, to all of such assets. None of
DIGITAL's equipment used by DIGITAL in connection with its business has
any material defects and all of them are in all material respects in
good operating condition and repair, and are adequate for the uses to
which they are being put; none of DIGITAL's equipment is in need of
maintenance or repairs, except for ordinary, routine maintenance and
repair. DIGITAL represents that, except to the extent disclosed in
Schedule 4.1(j) to this Agreement or reserved against on its balance
sheet as of June 30, 1998, it is not aware of any accounts and contracts
receivable existing that in its judgment would be uncollectible.
(k) Tax Matters. DIGITAL represents that, except as set forth in
Schedule 4.1(k) to this Agreement, all federal, foreign, state and local
tax returns, reports and information statements required to be filed by
or with respect to the activities of DIGITAL have been timely filed.
Since June 30, 1998, DIGITAL has not incurred any liability with respect
to any federal, foreign, state or local taxes except in the ordinary and
regular course of business. Such returns, reports and information
statements are true and correct in all material respects insofar as they
relate to the activities of DIGITAL. On the date of this Agreement,
DIGITAL is not delinquent in the payment of any such tax or assessment,
and no deficiencies for any amount of such tax have been proposed or
assessed. Any tax sharing agreement among or between DIGITAL and any
affiliate thereof shall be terminated as of the Closing Date.
(l) Continuation of Key Management. To the best knowledge of DIGITAL,
all key management personnel of DIGITAL intend to continue their
employment with DIGITAL after the Closing. For purposes of this
subsection 4.1(l), "key management personnel" shall include Peter Dunn,
Michael Snead, and Allen Dunn.
(m) Books and Records. The books and records of DIGITAL are complete and
correct, are maintained in accordance with good business practice and
accurately present and reflect, in all material respects, all of the
transactions therein described, and there have been no material
transactions involving DIGITAL which properly should have been set forth
therein and which have not been accurately so set forth.
(n) Authority to Execute Agreement. The Board of Directors of DIGITAL,
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pursuant to the power and authority legally vested in it, has duly
authorized the execution and delivery by DIGITAL of this Agreement, and
has duly authorized each of the transactions hereby contemplated.
DIGITAL has the power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to
take all other actions required to be taken by it pursuant to the
provisions hereof. DIGITAL has taken all actions required by law, its
Articles of Incorporation, as amended, or otherwise to authorize the
execution and delivery of this Agreement. This Agreement is valid and
binding upon DIGITAL and those Shareholders listed in Exhibit A hereto
in accordance with its terms. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will constitute a violation or breach of the Articles of Incorporation,
as amended, or the Bylaws, as amended, of DIGITAL, or any agreement,
stipulation, order, writ, injunction, decree, law, rule or regulation
applicable to DIGITAL.
4.2 Disclosure. At the date of this Agreement, DIGITAL and those
Shareholders listed in Exhibit A have, and at the Closing Date they will have,
disclosed all events, conditions and facts materially affecting the business and
prospects of DIGITAL. DIGITAL and such Shareholders have not now and will not
have at the Closing Date, withheld knowledge of any such events, conditions or
facts which they know, or have reasonable grounds to know, may materially affect
DIGITAL's business and prospects. Neither this Agreement nor any certificate,
exhibit, schedule or other written document or statement, furnished to ADVANCED
by DIGITAL and/or by such Shareholders in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to be
stated in order to make the statements contained herein or therein not
misleading.
SECTION 5
REPRESENTATIONS AND WARRANTIES BY ADVANCED
5.1 Subject to the schedule of exceptions, attached hereto and incorporated
herein by this reference, (which schedules shall be acceptable to DIGITAL),
ADVANCED represents and warrants to DIGITAL and those Shareholders listed in
Exhibit A as follows:
(a) Organization and Good Standing. ADVANCED is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to own or
lease its properties and to carry on its business as now being conducted
and as proposed to be conducted. Further, ADVANCED is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing. The Articles of
Incorporation of ADVANCED and all amendments thereto as presently in
effect, certified by the Secretary of State of Delaware, and the Bylaws of
ADVANCED as presently in effect, certified by the President and Secretary
of ADVANCED, have been delivered to DIGITAL and are complete and correct
and since the date of such delivery, there has been no amendment,
modification or other change thereto.
(b) Capitalization. ADVANCED's authorized capital stock consists of
25,000,000 shares of $.001 par value Common Stock (defined above as
"ADVANCED Common Stock"), approximately 53,487 of which will be issued and
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outstanding, prior to Closing Date and 1,000,000 shares of $.01 par value
Preferred Stock, of which no shares will be issued and outstanding at the
Closing Date. All authorized and/or outstanding options and warrants are
set forth on Schedule 5.1(b). Except as set forth in Schedule 5.1(b), no
other equity securities, securities convertible into equity securities or
debt obligations of ADVANCED are authorized, issued or outstanding and as
of the Closing, there will be no other outstanding options, warrants,
agreements, contracts, calls, commitments or demands of any character,
preemptive or otherwise, other than this Agreement, relating to any of the
ADVANCED Common Stock, and there will be no outstanding security of any
kind convertible into ADVANCED Common Stock or Preferred Stock. The shares
of ADVANCED Common Stock are free and clear of all liens, charges, claims,
pledges, restrictions and encumbrances whatsoever of any kind or nature
that would inhibit, prevent or otherwise interfere with the transactions
contemplated hereby. All of the outstanding shares of ADVANCED Common Stock
are validly issued, fully paid and nonassessable and there are no voting
trust agreements or other contracts, agreements or arrangements restricting
or affecting voting or dividend rights or transferability with respect to
the outstanding shares of ADVANCED Common Stock;
(c) Issuance of Exchange Stock. All of the ADVANCED Common Stock to be
issued to or transferred to DIGITAL Shareholders pursuant to this
Agreement, when issued, transferred and delivered as provided herein, will
be duly authorized, validly issued, fully paid and nonassessable, and will
be free and clear of all liens, charges, claims, pledges, restrictions and
encumbrances whatsoever of any kind or nature, except those restrictions
imposed by State or Federal corporate and securities regulations.
(d) Subsidiaries. ADVANCED has no subsidiaries and no other
investments, directly or indirectly, or other financial interest in any
other corporation or business organization, joint venture or partnership of
any kind whatsoever.
(e) ADVANCED will use its best efforts to forthwith obtain any
approval of the transaction set forth in this Agreement by its outstanding
shares if required by the General Corporation Law of Delaware;
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by
ADVANCED with any of the provisions hereof will:
(1) violate or conflict with, or result in a breach of any
provisions of, or constitute a default ( or an event which, with
notice or lapse of time or both, would constitute a default)
under, any of the terms, conditions or provisions of the Articles
of Incorporation or Bylaws of ADVANCED or any note, bond,
mortgage, indenture, deed of trust, license, agreement or other
instrument to which ADVANCED is a party, or by which it or its
properties or assets may be bound or affected; or
(2) violate any order, writ, injunction or decree, or any
statute, rule, permit, or regulation applicable to ADVANCED or
any of its properties or assets.
(g) Financial Statements. ADVANCED will deliver to DIGITAL prior to
Closing, a copy of ADVANCED's audited financial statements for the eight
months ended August 31, 1998, all of which are true and complete and have
been prepared in accordance with generally accepted accounting principles.
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(h) Absence of Undisclosed Liabilities. Except as disclosed in
ADVANCED's Financial Statements, ADVANCED did not have, as of the Closing
Date, any liabilities (secured or unsecured and whether accrued, absolute,
direct, indirect or otherwise) which were incurred after August 31, 1998
and would be individually or, in the aggregate, materially adverse to the
results of operation or financial condition of ADVANCED.
(i) Litigation. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory
body or arbitration tribunal against ADVANCED or its properties. There are
no actions, suits or proceedings pending, or, to the knowledge of ADVANCED,
threatened against or relating to ADVANCED. ADVANCED is not, and on the
Closing Date will not be, in default under or with respect to any judgment,
order, writ, injunction or decree of any court or of any federal, state,
municipal or other governmental authority, department, commission, board,
agency or other instrumentality; and ADVANCED has, and on the Closing Date
will have, complied in all material respects with all laws, rules,
regulations and orders applicable to it, if any.
(j) Compliance with Laws. To the best of its knowledge, the operations
and affairs of ADVANCED do not violate any law, ordinance, rule or
regulation currently in effect, or any order, writ, injunction or decree of
any court or governmental agency, the violation of which would
substantially and adversely affect the business, financial conditions or
operations of ADVANCED.
(k) Absence of Certain Changes. Except as set forth in Schedule
5.1(k), or otherwise disclosed in writing to DIGITAL, since June 30, 1998,
(i) ADVANCED has not entered into any material transaction not in the
ordinary course of business; (ii) there has been no change in the condition
(financial or otherwise), business, property, prospects, assets or
liabilities of ADVANCED as shown on the ADVANCED Financial Statement, other
than changes that both individually and in the aggregate do not have a
consequence that is materially adverse to such condition, business,
property, prospects, assets or liabilities; (iii) there has been no damage
to, destruction of or loss of any of the properties or assets of ADVANCED
(whether or not covered by insurance) materially and adversely affecting
the condition (financial or otherwise), business, property, prospects,
assets or liabilities of ADVANCED; (iv) ADVANCED has not declared, or paid
any dividend or made any distribution on its capital stock, redeemed,
purchased or otherwise acquired any of its capital stock, granted any
options to purchase shares of its stock, or issued any shares of its
capital stock; (v) there has been no material adverse change, except in the
ordinary course of business, in the contingent obligations of ADVANCED by
way of guaranty, endorsement, indemnity, warranty or otherwise; (vi) there
have been no loans made by ADVANCED to its employees, officers or
directors; (vii) there has been no waiver or compromise by ADVANCED of a
valuable right or of a material debt owed to it; (viii) there has been no
extraordinary increase in the compensation of any of ADVANCED's employees;
(ix) there has been no agreement or commitment by ADVANCED to do or perform
any of the acts described in this Section 5.1(k); and (x) there has been no
other event or condition of any character which might reasonably be
expected either to result in a material and adverse change in the condition
(financial or otherwise) business, property, prospects, assets or
liabilities of ADVANCED or to impair materially the ability of ADVANCED to
conduct the business now being conducted.
(l) Employees. There are, except as disclosed in Schedule 5.1(l), no
collective bargaining, bonus, profit sharing, compensation, or other plans,
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agreements or arrangements between ADVANCED and any of its directors,
officers or employees and there is no employment, consulting, severance or
indemnification arrangements, agreements or understandings between ADVANCED
on the one hand, and any current or former directors, officers or employees
of ADVANCED on the other hand.
(m) Assets. All of the assets reflected on the June 30, 1998, ADVANCED
Financial Statements or acquired and held as of the Closing Date, will be
owned by ADVANCED on the Closing Date. Except as set forth in Schedule
5.1(m), ADVANCED owns outright and has good and marketable title, or holds
valid and enforceable leases, to all of such assets. None of ADVANCED's
equipment used by ADVANCED in connection with its business has any material
defects and all of them are in all material respects in good operating
condition and repair, and are adequate for the uses to which they are being
put; none of ADVANCED's equipment is in need of maintenance or repairs,
except for ordinary, routine maintenance and repair. ADVANCED represents
that, except to the extent disclosed in Schedule 5.1(m) to this Agreement
or reserved against on its balance sheet as of June 30, 1998, it is not
aware of any accounts and contracts receivable existing that in its
judgment would be uncollectible.
(n) Tax Matters. Except as set forth in Schedule 5.1(n), all federal,
foreign, state and local tax returns, reports and information statements
required to be filed by or with respect to the activities of ADVANCED have
been filed for all the years and periods for which such returns and
statements were due, including extensions thereof. Since August 31, 1998,
ADVANCED has not incurred any liability with respect to any federal,
foreign, state or local taxes except in the ordinary and regular course of
business. Such returns, reports and information statements are true and
correct in all material respects insofar as they relate to the activities
of ADVANCED. On the date of this Agreement, ADVANCED is not delinquent in
the payment of any such tax or assessment, and no deficiencies for any
amount of such tax have been proposed or assessed. ADVANCED is not a party
to any tax sharing agreement among or between ADVANCED and any affiliate
thereof shall be terminated as of the Closing Date.
(o) Authority to Execute Agreement. The Board of Directors of
ADVANCED, pursuant to the power and authority legally vested in it, has
duly authorized the execution and delivery by ADVANCED of this Agreement
and the Exchange Stock, and has duly authorized each of the transactions
hereby contemplated. ADVANCED has the power and authority to execute and
deliver this Agreement, to consummate the transactions hereby contemplated
and to take all other actions required to be taken by it pursuant to the
provisions hereof. ADVANCED has taken all the actions required by law, its
Certificate of Incorporation, as amended, its Bylaws, as amended, or
otherwise to authorize the execution and delivery of the Exchange Stock
pursuant to the provisions hereof. This Agreement is valid and binding upon
ADVANCED in accordance with its terms. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated
hereby will constitute a violation or breach of the Certificate of
Incorporation, as amended, or the Bylaws, as amended of ADVANCED, or any
agreement, stipulation, order, writ, injunction, decree, law, rule or
regulation applicable to ADVANCED.
(p) Finder's Fees. ADVANCED is not, and on the Closing Date will not
be liable or obligated to pay any finder's, agent's or broker's fee arising
out of or in connection with this Agreement or the transactions
contemplated by this Agreement.
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(q) Books and Records. The books and records of ADVANCED are
materially complete and correct, are maintained in accordance with good
business practice and accurately present and reflect in all material
respects, all of the transactions therein described and there have been no
material transactions involving ADVANCED which properly should have been
set forth therein and which have not been accurately so set forth.
(r) From the date of this Agreement until the Closing Date, ADVANCED
will give DIGITAL and its counsel, accountants, and other representatives
upon reasonable notice full access, during normal business hours, to all of
the properties, books, records, and files of ADVANCED and will furnish
DIGITAL and such representatives during such period with all such
information and data concerning the affairs of ADVANCED and DIGITAL or such
representatives reasonably may request.
(s) Except for the representations and warranties on the part of
ADVANCED set out herein, DIGITAL in entering into this Agreement has not
relied upon or been induced by any warranty, representation, statement, or
description made by or on behalf of ADVANCED, whether or not made orally or
in writing.
5.2 Disclosure. ADVANCED has and at the Closing Date it will have,
disclosed all events, conditions and facts materially affecting the business and
prospects of ADVANCED. ADVANCED has not now and will not have at the Closing
Date, withheld knowledge of any such events, conditions and facts which it
knows, or has reasonable grounds to know, may materially affect ADVANCED's
business and prospects. Neither this Agreement, nor any certificate, exhibit,
schedule or other written document or statement, furnished to DIGITAL or the
DIGITAL Shareholders by ADVANCED in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to be
stated in order to make the statements contained herein or therein not
misleading.
SECTION 6
ACCESS AND INFORMATION
6.1 As to DIGITAL. Subject to the protections provided by subsection 9.4
herein, DIGITAL shall give to ADVANCED and to ADVANCED's counsel, accountants
and other representatives full access during normal business hours throughout
the period prior to the Closing, to all of DIGITAL's properties, books,
contracts, commitments, and records, including information concerning products
and customer base, and patents held by, or assigned to, DIGITAL, and furnish
ADVANCED during such period with all such information concerning DIGITAL's
affairs as ADVANCED reasonably may request.
6.2 As to ADVANCED. Subject to the protections provided by subsection 9.4
herein, ADVANCED shall give to DIGITAL, the DIGITAL Shareholders and their
counsel, accountants and other representatives, full access, during normal
business hours throughout the period prior to the Closing, to all of ADVANCED's
properties, books, contracts, commitments, and records, if any, and shall
furnish DIGITAL and the DIGITAL Shareholders during such period with all such
information concerning ADVANCED's affairs as DIGITAL and the DIGITAL
Shareholders reasonably may request.
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SECTION 7
COVENANTS OF DIGITAL AND CERTAIN SHAREHOLDERS
7.1 No Solicitation. DIGITAL and those Shareholders listed on Exhibit A, to
the extent within each Shareholder's control, will use their best efforts to
cause its officers, employees, agents and representatives not, directly or
indirectly, to solicit, encourage, or initiate any discussions with, or
indirectly to solicit, encourage, or initiate any discussions with, or negotiate
or otherwise deal with, or provide any information to, any person or entity
other than ADVANCED and its officers, employees, and agents, concerning any
merger, sale of substantial assets, or similar transaction involving DIGITAL, or
any sale of any of its capital stock or of the capital stock held by such
Shareholders in excess of 10% of such Shareholder's current stock holdings
except as otherwise disclosed in this Agreement. DIGITAL will notify ADVANCED
immediately upon receipt of an inquiry, offer, or proposal relating to any of
the foregoing. None of the foregoing shall prohibit providing information to
others in a manner in keeping with the ordinary conduct of DIGITAL's business,
or providing information to government authorities.
7.2 Conduct of Business Pending the Transaction. DIGITAL and those
Shareholders listed on Exhibit A, to the extent within each Shareholder's
control, covenant and agree with ADVANCED that, prior to the consummation of the
transaction called for by this Agreement, and Closing, or the termination of
this Agreement pursuant to its terms, unless ADVANCED shall otherwise consent in
writing, and except as otherwise contemplated by this Agreement, DIGITAL and
those Shareholders listed on Exhibit A, to the extent within each Shareholder's
control, will comply with each of the following:
(a) Its business shall be conducted only in the ordinary and usual
course. DIGITAL shall use reasonable efforts to keep intact its business
organization and good will, keep available the services of its respective
officers and employees, and maintain good relations with suppliers,
creditors, employees, customers, and others having business or financial
relationships with it, and it shall immediately notify ADVANCED of any
event or occurrence which is material to, and not in the ordinary and usual
course of business of, DIGITAL;
(b) It shall not declare, set aside, or pay any dividend or other
distribution on any of its outstanding securities.
(c) It shall not (i) issue or agree to issue any additional shares of,
or rights of any kind to acquire any shares of, its capital stock of any
class, or (ii) enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing, except as set forth in
this Agreement;
(d) It shall not create, incur, or assume any long-term or short-term
indebtedness for money borrowed or make any capital expenditures or
commitment for capital expenditures, except in the ordinary course of
business and consistent with past practice;
(e) It shall not (i) adopt, enter into, or amend any bonus, profit
sharing, compensation, warrant, pension, retirement, deferred compensation,
employment, severance, termination or other employee benefit plan,
agreement, trust fund, or arrangement for the benefit or welfare of any
officer, director, or employee, or (ii) agree to any material (in relation
to historical compensation) increase in the compensation payable or to
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become payable to, or any increase in the contractual term of employment
of, any officer, director or employee except, with respect to employees who
are not officers or directors, in the ordinary course of business in
accordance with past practice, or with the written approval of ADVANCED;
(f) It shall not sell lease, mortgage, encumber, or otherwise dispose
of or grant any interest in any of its assets or properties except for: (i)
sales, encumbrances, and other dispositions or grants in the ordinary
course of business and consistent with past practice; (ii) liens for taxes
not yet due; (iii) liens or encumbrances that are not material in amount or
effect and do not impair the use of the property, or (iv) as specifically
provided for or permitted in this Agreement;
(g) It will continue properly and promptly to file when due all
federal, state, local, foreign, and other tax returns, reports, and
declarations required to be filed by it, and will pay, or make full and
adequate provision for the payment of, all taxes and governmental charges
due from or payable by it;
(h) It will comply with all laws and regulations applicable to it and
its operations;
SECTION 8
COVENANTS OF ADVANCED
8.1 No Solicitation. ADVANCED will not discuss or negotiate with any other
corporation, firm or other person or entertain or consider any inquiries or
proposals relating to the possible disposition of its shares of capital stock,
or its assets, and will conduct business only in the ordinary course.
Notwithstanding the foregoing, ADVANCED shall be free to engage in activities
mentioned in the preceding sentence which are designed to further the mutual
interests of the parties to this Agreement.
8.2 Conduct of ADVANCED Pending Closing. ADVANCED covenants and agrees with
DIGITAL that, prior to the consummation of the transactions called for by this
Agreement, and Closing, or the termination of this Agreement pursuant to its
terms, unless DIGITAL shall otherwise consent in writing, and except as
otherwise contemplated by this Agreement, ADVANCED will comply with each of the
following:
(a) No change will be made in ADVANCED's Certificate of Incorporation
or Bylaws or in ADVANCED's authorized or issued shares of stock, except as may
be first approved in writing by DIGITAL.
(b) No dividends shall be declared, no stock options granted and no
employment agreements shall be entered into with officers or directors in
ADVANCED, except as may be first approved in writing by DIGITAL.
SECTION 9
ADDITIONAL COVENANTS OF THE PARTIES
9.1 Cooperation. Both DIGITAL and ADVANCED will cooperate with each other
and their respective counsel, accountants and agents in carrying out the
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<PAGE>
transaction contemplated by this Agreement, and in delivering all documents and
instruments deemed reasonably necessary or useful by the other party.
9.2 Expenses. Each of the parties hereto shall pay all of its respective
costs and expenses (including attorneys' and accountants' fees, costs and
expenses) incurred in connection with this Agreement and the consummation of the
transactions contemplated herein.
9.3 Publicity. Prior to the Closing, any written news releases or public
disclosure by either party pertaining to this Agreement shall be submitted to
the other party for its review and approval prior to such release or disclosure,
provided, however, that (a) such approval shall not be unreasonably withheld,
and (b) such review and approval shall not be required of disclosures required
to comply, in the judgment of counsel, with federal or state securities or
corporate laws or policies.
9.4 Confidentiality. While each party is obligated to provide access to and
furnish information in accordance with Sections 4 and 5 herein, it is understood
and agreed that such disclosure and information subsequently obtained as a
result of such disclosures are proprietary and confidential in nature. Each
party agrees to hold such information in confidence and not to reveal any such
information to any person who is not a party to this Agreement, or an officer,
director or key employee thereof, and not to use the information obtained for
any purpose other than assisting in its due diligence inquiry precedent to the
Closing. Upon request of any party, a confidentiality agreement, acceptable to
the disclosing party, will be executed by any person selected to receive such
proprietary information, prior to receipt of such information.
SECTION 10
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
10.1 The representations, warranties and covenants of DIGITAL and those
Shareholders listed in Exhibit A contained herein shall survive the execution
and delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement. The representations, warranties and
covenants of ADVANCED contained herein shall survive the execution and delivery
of this Agreement, the Closing and the consummation of the transactions called
for by this Agreement.
SECTION 11
CONDITIONS PRECEDENT TO
OBLIGATIONS OF PARTIES
11.1 The obligations of ADVANCED, DIGITAL and those Shareholders listed in
Exhibit A under this Agreement shall be subject to the fulfillment, on or prior
to the Closing, of all conditions elsewhere herein set forth, including, but not
limited to, receipt by the appropriate party of all deliveries required by
Sections 4 and 5 herein, and fulfillment, prior to Closing, of each of the
following conditions:
(a) All representations and warranties made by DIGITAL, Shareholders
listed in Exhibit A and ADVANCED in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the
same effect as if such representations and warranties had been made on and
14
<PAGE>
as of the Closing Date;
(b) DIGITAL, Shareholders listed in Exhibit A and ADVANCED shall have
performed or complied with all covenants, agreements and conditions
contained in this Agreement on their part required to be performed or
complied with at or prior to the Closing.
(c) All material authorizations, consents or approvals of any and all
governmental regulatory authorities necessary in connection with the
consummation of the transactions contemplated by this Agreement shall have
been obtained and be in full force and effect.
(d) The Closing shall not violate any permit or order, decree or
judgment of any court or governmental body having competent jurisdiction
and there shall not have been instituted any legal or administrative action
or proceeding to enjoin the transaction contemplated hereby or seeking
damages from any party with respect thereto.
(e) Each DIGITAL Shareholder acquiring Exchange Stock will be
required, at Closing, to submit an agreement confirming that all the
Exchange Stock received will be acquired for investment and not with a view
to, or for sale in connection with, any distribution thereof, and agreeing
not to transfer any of the Exchange Stock unless such transfer is pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Act"), or unless such transfer falls within an exemption from
registration under the Act and any applicable state securities laws. Each
DIGITAL Shareholder acquiring Exchange Stock will be required to transfer
to ADVANCED at the Closing his/her respective DIGITAL Shares, free and
clear of all liens, mortgages, pledges, encumbrances or changes, whether
disclosed or undisclosed.
(f) All schedules, prepared by DIGITAL or ADVANCED shall be current or
updated as necessary as of the Closing Date.
(g) Each party shall have received favorable opinions from the other
party's counsel on such matters in connection with the transactions
contemplated by this Agreement as are reasonable.
(h) Each party shall have satisfied itself that since the date of this
Agreement the business of the other party has been conducted in the
ordinary course. In addition, each party shall have satisfied itself that
no withdrawals of cash or other assets have been made and no indebtedness
has been incurred since the date of this Agreement, except in the ordinary
course of business or with respect to services rendered or expenses
incurred in connection with the Closing of this Agreement, unless said
withdrawals or indebtedness were either authorized by the terms of this
Agreement or subsequently consented to in writing by the parties.
(i) Each party covenants that, to the best of its knowledge, it has
complied in all material respects with all applicable laws, orders and
regulations of federal, state, municipal and/or other governments and/or
any instrumentality thereof, domestic or foreign, applicable to their
assets, to the business conducted by them and to the transactions
contemplated by this Agreement.
(j) ADVANCED shall have provided to DIGITAL through August 31, 1998,
audited financial statements prepared in accordance with generally accepted
accounting principles.
15
<PAGE>
(k) DIGITAL shall have provided to ADVANCED unaudited financial
statements of DIGITAL for the six months ended June 30, 1998, prepared in
accordance with generally accepted accounting principles.
(l) Each party shall have granted to the other party (acting through
its management personnel, counsel, accountants or other representatives
designated by it) full opportunity to examine its books and records,
properties, plants and equipment, proprietary rights and other instruments,
rights and papers of all kinds in accordance with Sections 4 and 5 hereof,
and each party shall be satisfied to proceed with the transactions
contemplated by this Agreement upon completion of such examination and
investigation.
(m) If Shareholders, who in the aggregate own more than ten percent
(10%) of the DIGITAL Shares, dissent from the proposed share exchange, or
are unable or for any reason refuse to transfer any or all of their DIGITAL
Shares to ADVANCED in accordance with Section 1 of this Agreement,
ADVANCED, at its option, may terminate this Agreement.
(n) Each party shall have satisfied itself that all transactions
contemplated by this Agreement, including those contemplated by the
exhibits and schedules attached hereto, shall be legal and binding under
applicable statutory and case law of the State of California, including,
but not limited to California securities laws and all other applicable
state securities laws.
(o) DIGITAL and ADVANCED shall agree to indemnify each other against
any liability to any broker or finder to which that party may become
obligated.
(p) The Exchange shall be approved by the Boards of Directors of both
DIGITAL and ADVANCED. Furthermore, the Exchange shall be approved by the
shareholders of DIGITAL and ADVANCED, if deemed necessary or appropriate by
counsel for the same, within thirty (30) days following execution of this
Agreement. If such a meeting is deemed necessary, the management of DIGITAL
and ADVANCED agree to recommend approval to their respective Shareholders
and to solicit proxies in support of the same.
(q) ADVANCED and DIGITAL and their respective legal counsel shall have
received copies of all such certificates, opinions and other documents and
instruments as each party or its legal counsel may reasonably request
pursuant to this Agreement or otherwise in connection with the consummation
of the transactions contemplated hereby, and all such certificates,
opinions and other documents and instruments received by each party shall
be reasonably satisfactory, in form and substance, to each party and its
legal counsel.
(r) Both DIGITAL and ADVANCED shall have the right to waive any or all
of the conditions precedent to its obligations hereunder not otherwise
legally required; provided, however, that no waiver by a party of any
condition precedent to its obligations hereunder shall constitute a waiver
by such party of any other condition.
SECTION 12
TERMINATION, AMENDMENT, WAIVER
12.1 This Agreement may be terminated at any time prior to the Closing, and
the contemplated transactions abandoned, without liability to either party,
16
<PAGE>
except with respect to the obligations of ADVANCED, DIGITAL and the DIGITAL
Shareholders under Section 9.4 hereof:
(a) By mutual agreement of ADVANCED and DIGITAL;
(b) If the Closing (as defined in Section 3) shall not have taken
place on or prior to October 31, 1998, this Agreement can be terminated
upon written notice given by ADVANCED or DIGITAL which is not in material
default.
(c) By ADVANCED, if in its reasonable belief there has been a material
misrepresentation or breach of warranty on the part of any Shareholder in
the representations and warranties set forth in the Agreement.
(d) By DIGITAL or a majority of those Shareholders listed in Exhibit A
(as measured by their equity interest) if, in the reasonable belief of
DIGITAL or any such Shareholders, there has been a material
misrepresentation or breach of warranty on the part of ADVANCED in the
representations and warranties set forth in the Agreement;
(e) By ADVANCED if, in its opinion or that of its counsel, the
Exchange does not qualify for exemption from registration under applicable
federal and state securities laws;
(f) By ADVANCED, if, in its opinion or that of its counsel, the
Exchange cannot be consummated under Delaware or other relevant state
corporate law;
(g) By ADVANCED or by a majority of those Shareholders listed in
Exhibit A (as measured by their equity interest) if either party shall
determine in its sole discretion that the Exchange has become inadvisable
or impracticable by reason of the institution or threat by state, local or
federal governmental authorities of material litigation or proceedings
against any party [it being understood and agreed that a written request by
a governmental authority for information with respect to the Exchange,
which information could be used in connection with such litigation or
proceedings, may be deemed to be a threat of material litigation or
proceedings regardless of whether such request is received before or after
the signing of this Agreement];
(h) By ADVANCED if the business or assets or financial condition of
DIGITAL, taken as a whole, have been materially and adversely affected,
whether by the institution of litigation or by reason of changes or
developments or in operations in the ordinary course of business or
otherwise; or, by a majority of those Shareholders listed in Exhibit A (as
measured by their equity interest) if the business or assets or financial
condition of ADVANCED, taken as a whole, have been materially and adversely
affected, whether by the institution of litigation or by reason of changes
or developments or in operations in the ordinary course of business or
otherwise;
(i) By ADVANCED if holders of more than ten percent (10%) of the
DIGITAL Shares fail to tender their stock at the Closing of the Exchange;
(j) By DIGITAL if ADVANCED fails to perform material conditions set
forth in Section 11 herein;
(k) By DIGITAL if examination of ADVANCED's books and records pursuant
to Section 5 herein uncovers a material deficiency;
17
<PAGE>
(l) By ADVANCED if DIGITAL fails to perform material conditions set
forth in Section 11 herein; and
(m) By ADVANCED if examination of DIGITAL's books and records pursuant
to Section 4 herein uncovers a material deficiency.
SECTION 13
MISCELLANEOUS
13.1 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) contains the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersedes all negotiations,
representations, warranties, commitments, offers, contracts, and writings prior
to the date hereof. No waiver and no modification or amendment of any provision
of this Agreement shall be effective unless specifically made in writing and
duly signed by the party to be bound thereby.
13.2 Binding Agreement.
(a) This Agreement shall become binding upon the parties when, but
only when, it shall have been signed on behalf of all parties.
(b) Subject to the condition stated in subsection (a), above, this
Agreement shall be binding upon, and inure to the benefit of, the
respective parties and their legal representatives, successors and assigns.
This Agreement, in all of its particulars, shall be enforceable by the
means set forth in subsection 13.9 for the recovery of damages or by way of
specific performance and the terms and conditions of this Agreement shall
remain in full force and effect subsequent to Closing and shall not be
deemed to be merged into any documents conveyed and delivered at the time
of Closing. In the event that subsection 13.9 is found to be unenforceable
as to any party for any reason or is not invoked by any party, and any
person is required to initiate any action at law or in equity for the
enforcement of this Agreement, the prevailing party in such litigation
shall be entitled to recover from the party determined to be in default,
all of its reasonable costs incurred in said litigation, including
attorneys' fees.
13.3 Shareholders Owning at Least Five Percent (5%) of the Outstanding
Common Stock of DIGITAL. The Shareholders owning at least 5% of the outstanding
common stock of DIGITAL (see Exhibit A hereto) are only executing this Agreement
with respect to sections 3.4, 4, 7, 9.4, 10, 11, 12.1(d and g ), 13.2, 13.3,
13.4, 13.8, and 13.9.
13.4 Counterparts. This Agreement may be executed in one or more
counterparts, via facsimile signature, each of which may be deemed an original,
but all of which together, shall constitute one and the same instrument.
13.5 Severability. If any provisions hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof.
13.6 Assignability. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties hereto; provided, that
neither this Agreement nor any right hereunder shall be assignable by DIGITAL or
18
<PAGE>
ADVANCED without prior written consent of the other party.
13.7 Captions. The captions of the various Sections of this Agreement have
been inserted only for convenience of reference and shall not be deemed to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
13.8 Governing Law. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of California.
13.9 Dispute Resolution. In the event of a dispute between the parties
hereto involving a claim of breach of representation or warranty hereunder, or
to enforce a covenant herein (either or both of which are referred to hereafter
as a "Claim"), if it is the desire of any party for quick resolution, the rights
and obligations of the parties hereto arising under the terms of this Agreement
with respect to such Claims and/or resolution of such disputes will be by the
means of the judgment of an independent third party ("Rent-A-Judge") who has
been selected and hired through the mutual agreement of the parties. The
utilization of this subsection 13.9, if invoked by any party hereto, shall be
the exclusive remedy for resolving a Claim regardless of whether legal action
has or has not been otherwise instituted. If legal action has been instituted by
any party, and this subsection 13.9 is invoked in a timely manner, any such
legal action shall be void ab initio and immediately withdrawn.
(a) In the event of a Claim by any party, any party may make a written
request upon the other parties for a "Rent-A- Judge." A request by any
party for the employment of a "Rent- A-Judge" to resolve the Claim shall be
binding on all other parties to this Agreement in accordance with the terms
hereof.
The parties may agree upon one "Rent-A-Judge," but in the event that
they cannot agree, there shall be three, one named in writing by each of
the parties within twenty (20) days after the initial demand for employment
of a "Rent-A- Judge," and a third chosen by the two appointed. Should
either party refuse or neglect to join in the appointment of the
"Rent-A-Judge(s)" or to furnish the "Rent-A-Judge(s) with any papers or
information demanded, the "Rent-A-Judge(s)" are empowered by all parties to
this Agreement to proceed ex parte.
(b) Claim resolution proceedings shall take place in the City or
County of Los Angeles, State of California, and the hearing before the
"Rent-A-Judge(s)" of the matter to be arbitrated shall be at the time and
place within said city or county as is selected by the "Rent-A-Judge(s)."
The "Rent-A-Judge(s)" shall select such time and place promptly after
appointment and shall give written notice thereof to each party at least
thirty (30) days prior to the date so fixed. At the hearing, any relevant
evidence may be presented by either party, and the formal rules of evidence
applicable to judicial proceedings shall not govern. Evidence may be
admitted or excluded in the sole discretion of the "Rent-A- Judge(s)." Said
"Rent-A-Judge(s)" shall hear and determine the matter and shall execute and
acknowledge their award in writing and cause a copy thereof to be delivered
to each of the parties.
(c) If there is only one (1) "Rent-A-Judge," his or her decision shall
be binding and conclusive on the parties, and if there are three (3)
"Rent-A-Judge(s)" the decision of any two (2) shall be binding and
conclusive.
(d) If three (3) "Rent-A-Judge(s)" are selected under the foregoing
procedure, but two (2) of the three (3) fail to reach an agreement in the
19
<PAGE>
determination of the matter in question, the matter shall be decided by
three (3) new "Rent- A-Judge(s)" who shall be appointed and shall proceed
in the same manner, and the process shall be repeated until a decision is
finally reached by two (2) of the three (3) "Rent- A-Judge(s)" selected.
(e) The costs of such Claim resolution shall be borne by the parties
equally and each party shall pay its own attorneys' fees, provided,
however, that in the event either party challenges or in any way seeks to
have the Rent-A- Judge's decision or award vacated or corrected or
modified, if the challenge is denied or the original decision or award is
affirmed, the challenging party shall pay the costs and fees, including
reasonable attorneys' fees, of the non-challenging party, both for the
challenge and for the original Claim resolution process.
13.10 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and delivered in person or sent by
certified mail, postage prepaid and properly addressed as follows:
To DIGITAL:
Peter Dunn, President
Digital Corporate Profiles, Inc.
17337 Ventura Boulevard, Suite 2
Encino, CA 91316
With a Copy to:
William B. Barnett, Esq.
15233 Ventura Boulevard Suite 1110
Sherman Oaks, CA 91403
To ADVANCED:
Robert P. Atwell, President
Advanced Laser Products, Inc.
1665 So. Brookhurst Street, Suite V
Anaheim, CA 92804
With a Copy to:
Stephen A. Zrenda, Jr., Esq.
1520 Bank One Center
100 North Broadway
Okalhoma City. OK 73102
Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
respective party hereto.
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this Section 13.10 if delivered
personally, shall be effective upon delivery; and, if delivered by mail, shall
be effective three days following deposit in the United States mail, postage
prepaid.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ADVANCED LASER PRODUCTS, INC.
a Delaware corporation
By: ________________________
Robert P. Atwell
President
DIGITAL CORPORATE PROFILES, INC.
a California corporation
By: _________________________
Peter Dunn
President
FIVE PERCENT SHAREHOLDERS OF
DIGITAL CORPORATE PROFILES, INC.
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
21
<PAGE>
EXHIBIT LIST
Exhibit A: Five Percent Shareholders of Digital Corporate
Profiles, Inc.
Exhibit B: Consent of Board of Directors of Digital Corporate
Profiles, Inc.
Exhibit C: Consent of Board of Directors of Advanced Laser
Products, Inc.
SCHEDULE LIST
Schedule 4.1(b): DIGITAL Common Stock Outstanding
Schedule 4.1(f): Litigation Involving DIGITAL
Schedule 4.1(h): Absence of Certain Changes - DIGITAL
Schedule 4.1(i): DIGITAL Employee Benefit Plans
Schedule 4.1(j): Asset Ownership Exceptions - DIGITAL
Schedule 4.1(k): DIGITAL Tax Matters
Schedule 5.1(b): ADVANCED Options and Warrants Outstanding
Schedule 5.1(k) Absence of Certain Changes - ADVANCED
Schedule 5.1(l) ADVANCED Employee Benefit Plans
Schedule 5.1(m) Asset Ownership Exceptions - ADVANCED
Schedule 5.1(n): ADVANCED Tax Matters
22
<PAGE>
EXHIBIT A
FIVE PERCENT SHAREHOLDERS OF DIGITAL
Shareholder No. of Shares Percentage
Dunn Family Trust 443,500 25.6
Allen Kelsey Grammer Trust 150,000 8.7
First Capital Network 146,664 8.5
Worldwide Insurance Consulting
Services 146,664 8.5
David Stremic 100,000 5.8
23
<PAGE>
EXHIBIT "B"
CONSENT OF DIRECTORS OF DIGITAL CORPORATE PROFILES, INC.
A special meeting of the Directors of Digital Corporate Profiles, Inc.
(the "Corporation"), a California corporation, was held by consent and without
an actual meeting. The undersigned, being all of the Directors, do hereby waive
notice of the time, place and purpose of this meeting of the Directors of the
Corporation and, in lieu thereof, hereby agree and consent to the adoption of
the following corporate actions.
WHEREAS, the Corporation entered into a verbal agreement with Advanced
Laser Products, Inc. ("ADVANCED") whereby the Corporation intends to exchange
approximately all of the issued and outstanding capital stock of the Corporation
for a specified number of ADVANCED common shares;
WHEREAS, a formal agreement has been prepared consistent with the
terms of the verbal agreement, which "Plan and Agreement of Reorganization" is
attached hereto;
WHEREAS, it is in the Corporation's best interests to approve the
terms and execution of the Plan and Agreement of Reorganization on behalf of the
Corporation;
NOW, THEREFORE, BE IT RESOLVED, that -the terms and conditions of the
exchange as set forth in the Plan and Agreement of Reorganization be, and the
same hereby are, ratified and confirmed, and the President and Secretary of the
Corporation are authorized to execute the same on behalf of the Corporation.
GENERAL AUTHORIZATION
BE IT RESOLVED that the President and Secretary of the Corporation be,
and they hereby are, authorized, directed and empowered to prepare or cause to
be prepared, execute and deliver all such documents and instruments and to
undertake all such actions as they deem necessary or advisable in order to carry
out and perform any or all of the matters contemplated by the Plan and Agreement
of Reorganization and as authorized in the foregoing resolution.
IN WITNESS WHEREOF, each of the undersigned has executed this written
consent, which shall be effective as of September 28, 1998.
Peter B. Dunn
Allen Dunn
David Fleming
24
<PAGE>
EXHIBIT "C"
UNANIMOUS WRITTEN CONSENT OF DIRECTORS OF DIGS, INC.
Pursuant to Section 141(f) of the General Corporation Law of the State
of Delaware, which provides that any action permitted to be taken at a meeting
of the directors of a corporation may be taken without a meeting, if the
directors sign an instrument which states the action was so taken, the sole
director of DIGS, Inc. (the "Corporation"), a Delaware corporation, does hereby
adopt the following preambles and resolution:
WHEREAS, the Corporation entered into a verbal agreement with Digital
Corporate Profiles, Inc. ("DIGITAL") whereby the Corporation intends to exchange
5,191,968 of the Corporation's common shares for approximately all of the issued
and outstanding capital stock of DIGITAL;
WHEREAS, a formal agreement has been prepared consistent with the
terms of the verbal agreement, which "Plan and Agreement of Reorganization" is
attached hereto;
WHEREAS, it is in the Corporation's best interests to approve the
terms and execution of the Plan and Agreement of Reorganization on behalf of the
Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the terms and conditions of the
exchange as set forth in the Plan and Agreement of Reorganization be, and the
same hereby are, ratified and confirmed, and the President and Secretary of the
Corporation are authorized to execute the same on behalf of the Corporation.
GENERAL AUTHORIZATION
BE IT RESOLVED that the President and Secretary of the Corporation be,
and they hereby are, authorized, directed and empowered to prepare or cause to
be prepared, execute and deliver all such documents and instruments and to
undertake all such actions as they deem necessary or advisable in order to carry
out and perform any or all of the matters contemplated by the Plan and Agreement
of Reorganization and as authorized in the foregoing resolution.
IN WITNESS WHEREOF, the undersigned has executed this written
consent, which shall be effective as of September 28, 1998.
Charles McGuirk
Sole Director
25
<PAGE>
SCHEDULE 4.1(b)
Digital Common Stock Outstanding
Shareholder Number of Shares
Dunn Family Trust 443,500
Allen Kelsey Grammer Trust 150,000
First Capital Network 146,664
Worldwide Insurance Consulting Services 146,664
David Stremic 100,000
Jamie Mazur 73,332
Trent Mazur 73,332
Jennifer Mazur 73,332
Emily Mazur 73,332
Richard Kipper 72,000
Donald John Miod 60,000
Allen Dunn 55,000
Steve Burgin 50,000
David Fleming 40,000
Robert Rossberg 40,000
Jim Jennings 32,000
Catherine Dunn 30,000
U.S. Stock Transfer Corp. 21,250
Martin Fink 21,250
Let It Ride Investment Corp. 20,000
Clifton G. Lamb, Jr. & Nancy S. Baker, JTWRS 10,000
Total: 1,731,656
26
<PAGE>
SCHEDULE 4.1(f)
Litigation Involving DIGITAL
None.
27
<PAGE>
SCHEDULE 4.1(h)
Absence of Certain Changes - Digital
None.
28
<PAGE>
SCHEDULE 4.1(i)
Employee Benefit Plans - Diital
None.
29
<PAGE>
SCHEDULE 4.1(j)
Asset Ownership Exceptions - Digital
None.
30
<PAGE>
SCHEDULE 4.1(k)
Digital Tax Matters
None.
31
<PAGE>
SCHEDULE 5.1(b)
Advanced Options and Warrants Outstanding
None.
32
<PAGE>
SCHEDULE 5.1(h)
Absence of Certain Changes - Advanced
None.
33
<PAGE>
SCHEDULE 5.1(i)
Advanced Employee Benefit Plans
None.
34
<PAGE>
SCHEDULE 5.1(j)
Asset Ownership Exceptions - Advanced
None.
35
<PAGE>
SCHEDULE 5.1(k)
Advanced Tax Matters
None.
36
EXHIBIT 3.1
- ------------
State of Delaware
Page 1
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF INCORPORATION OF "PHD SKIN RESEARCH
LABORATORIES, LTD.", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH
DAY OF JUNE, A.D. 1986, AT 9 O'CLOCK A.M.
(Seal of the State of Delaware) (Signature)
--------------------------------------------
Edward J. Freel, Secretary of State
2094892 8100 AUTHENTICATION: 9746591
991193980 DATE: 05-14-99
<PAGE>
106178013
Certificate of Incorporation
(FILED JUN 27, 1986)
OF
(Signatures)
PHD SKIN RESEARCH LABORATORIES, LTD.
______________________________________________________________________________
FIRST: The name of the Corporation is PHD SKIN RESEARCH LABORATORIES,
LTD.
SECOND: Its registered office and place of business in the State of
Delaware is to be located at 410 South State Street in the City of Dover, County
of Kent. The Registered Agent in charged thereof is XL CORPORATE SERVICES, INC.
THIRD: The nature of the business and the objects and purposes
proposed to be transacted, promoted and carried on are to do any or all thing
herein mentioned , as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
The purpose of the corporation is to engage in any
lawful act or activity for which corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation shall be authorized to issue Twenty-five
Million Shares at $.001 Par Value
FIFTH: The name and address of the incorporator is as follows:
Barbara O. Cramer, 410 South State Street, Dover, DE 9901
SIXTH: The Directors shall have power to make and to alter or
amend the By-Laws: to fix the amount to be reserved as working capital, and to
authorize and cause to be executed, mortgages and liens without limit as to the
amount, upon the property and franchise of this Corporation.
With the consent in writing, and pursuant to a vote of
the holders of a majority of the capital stock issued and outstanding, the
Directors shall have authority to dispose, in any manner, of the whole property
of this corporation.
The By-Laws shall determine whether and to what extent
the account and books of this corporation, or any of them, shall be open to the
inspection of the stockholders; no stockholder shall have any right of
inspecting any account, or book, or document of this Corporation, except as
conferred by the law or the By-Laws, or by resolution of the stockholders.
<PAGE>
The stockholders and directors shall have power to hold
their meetings and keep the books, documents and papers of the corporation
outside of the State of Delaware, at such places as may be, from time to time,
designated by the By-Laws or by resolution of the stockholders or directors,
except as otherwise required by the laws of Delaware.
It is the intention that the objects, purposes and powers
specified in the THIRD paragraph hereof shall, except where otherwise
specified in said paragraph, be nowise limited or restricted by reference to or
inference from the terms of any other clause or paragraph in this certificate of
incorporation, but that the objects, purposes and powers specified in the THIRD
paragraph and in each of the clauses or paragraphs of this charter shall be
regarded as independent objects, purposes and powers.
SEVENTH: The corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
27th day of June, 1986
Dated at Dover, Delaware (Barbara O. Cramer (SEAL)
--------------------
BARBARA 0. CRAMER
19
In the presence of ___________________________________
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
_______________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF RENEWAL OF "PHD SKIN RESEARCH
LABORATORIES, LTD.", FILED IN THIS OFFICE ON THE FOURTH DAY OF
SEPTEMBER, A.D. 1990, AT 9 O'CLOCK A.M.
(Seal of Delaware) (Signature)
------------------------------------
Edward J. Freel, Secretary of State
2094892 8100 AUTHENTICATION: 9746592
991193980 DATE: 05-14-99
<PAGE>
CERTIFICATE FOR
RENEWAL AND REVIVAL OF CHARTER
OF
PHD SKIN RESEARCH LABORATORIES, LTD.
PHD Skin Research Laboratories, Ltd., a corporation organized under the
laws of Delaware, the certificate of incorporation of which was filed in the
office of the Secretary of State on the 27th day of June, 1986, and recorded in
the office of the Recorder of Deeds for Kent county, the charter of which was
voided for non-payment of taxes, now desires to procure a restoration, renewal
and revival of its charter, and hereby certified as follows:
1. The name of the corporation is PHD Skin Research Laboratories Ltd.
2. Its registered office in the State of Delaware is located at
United Corporate Services, Inc., 15 E. North Street, in the City of Dover,
County of Kent, State of Delaware 19901. The name of its registered agent at
that address is United Corporate Services, Inc.
3. The date when the restoration, renewal, and revival of the
charter of this company is to commence is February 26, 1989. Same being prior
to the date of the expiration of the charter. This renewal and revival of the
charter of this corporation is to be perpetual.
4. This corporation was duly organized and carried in the
business authorized by its charter until March 1, 1990, at which time its
charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312
of the General Corporation Law of the State of Delaware, as amended, providing
for the renewal, extension and restoration of charters.
By (Signature)
-----------
Gerald J. Piffath
PRESIDENT
By (Signature)
-----------
Gerald J. Piffath
SECRETARY
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09-04-1990
902475265 - 2094692
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "PHD SKIN RESEARCH
LABORATORIES, LTD", CHANGING ITS NAME FROM "PHD SKIN RESEARCH
LABORATORIES, LTD." TO "MEDIPAK CORPORATION", FILED IN THIS
OFFICE ON THE TWENTY-FIFTH DAY OF SEPTEMBER, A.D. 1990, AT 1:31
O'CLOCK P.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
2094892 8100 AUTHENTICATION: 9746593
991193980 DATE: 05-14-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:31 PM 09/25/1990
902685153 - 2094892
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * *
PHD Skin Research Laboratories, Ltd., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of PHD Skin
Research Laboratories, Ltd. resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, That the certificate of incorporation of this
corporation be amended by changing the First article thereof so that, as amended
said Article shall be and read as follows:
The name of the Corporation is MEDIPAK CORPORATION
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said PHD Skin Research Laboratories, Ltd. has caused
this certificate to be signed by Vincent James Putignano, its President and
attested by Dominick Zaccoli, its Secretary this 19th day of September, 1990.
PHD Skin Research Laboratories, Ltd.
----------------------------------------
By: (Signature -Vincent James Putignano
--------------------------------------
President
ATTEST:
By: (Signature Dominick Zaccoli)
------------------------------
Secretary
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF RENEWAL OF "MEDIPAK CORPORATION"
FILED IN THIS OFFICE ON THE THIRTY-FIRST DAY OF JANUARY, A.D.
1995, AT 12:30 O'CLOCK P.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
2094892 8100 AUTHENTICATION: 9746594
991193980 DATE: 05-14-99
<PAGE>
Certificate STATE OF DELAWARE
SECRETARY OF STATE
for Renewal and Revival of Charter DIVISION OF CORPORATIONS
FILED 12:30 PM 01/31/1995
950023726 - 2094892
MEDIPAK CORPORATION , a corporation
- ----------------------------------------------------------
organized under the laws of Delaware, the charter of which was voided for
non-payment of taxes, now desires to procure a restoration, renewal and revival
of its charter, and hereby certifies as follows:
1. The name of this corporation is MEDIPAK CORPORATION
-------------------------
2. Its registered office in the State of Delaware is located at 15 EAST
---------
NORTH Street, City of Dover Zip Code 19901 County of KENT The name
- ----- ------- ------- -------------
and address of its registered agent is UNITED CORPORATE SERVICES, INC.,
-----------------------------------
15 EAST NORTH STREET, DOVER, DE 19901
- -------------------------------------------
3. The date of filing of the original Certificate of Incorporation in
Delaware was JUNE 27, 1986
-----------------
4. The date when restoration, renewal and revival of the charter of this
company is to commence is the FIRST Day of MARCH, 1992 , Same
------------ ---------------------
being prior to the date of the expiration of the charter. This renewal and
revival of the charter of this corporation is to be perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the FIRST day of MARCH A.D. 1992, at
-------- -------- ----
which time its charter became inoperative and void for non-payment of taxes and
this certificate for renewal and revival is filed by authority of the duly
elected directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312
of the general Corporation Law of the State of Delaware, as amended, providing
for the renewal, extension and restoration of charters. STEVE D.
-----------------
GELLASthe last and acting President, and FRANK J. LANDI, SR. , the last
---------------------------
and acting secretary of MEDIPAK CORPORATION , have hereunto set their
----------------------------
hands to this certificate this 23rd Day of JANUARY, 1995
---------- -----------------
(Signature)
--------------------
STEVE D. GELLAS
ATTEST:
(Signature)
--------------------
FRANK J. LANDI, SR.
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "MEDIPAK CORPORATION",
CHANGING ITS NAME FROM "MEDIPAK CORPORATION" TO "ADVANCED LASER
PRODUCTS, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
FEBRUARY, A.D. 1995, AT 9 O'CLOCK A.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
2094892 8100 AUTHENTICATION: 9746595
991193980 DATE: 05-14-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:30 PM 01/31/1995
950023726 - 2094892
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
MEDIPAK CORPORATION
The undersigned, being the duly elected and empowered President and
Secretary, respectively, of Medipak Corporation, a Delaware corporation, and
acting to the provisions of SS 242 and 228 of the General Corporation Law of
Delaware, do affirm that resolutions amending the articles of incorporation in
the following particulars were duly adopted by a majority of the outstanding
shares of the corporation in the manner which shall hereinafter be set forth.
ARTICLE I
The name of the corporation shall be Advanced Laser Products, Inc.
ARTICLE IV
The authorized capital stock of the corporation shall consist of Fifty
Million common shares of One Mil ($.001) par value. There are presently Twenty
three Million, seven hundred forty one thousand, five hundred eighty
(23,741,580) common shares of the corporation outstanding. Those shares are
hereby reverse split one (1) new share for every eight (8) common shares
presently outstanding so as to reduce to Two million, Nine Hundred Sixty seven
Thousand, Six Hundred Ninety seven (2,967,697) (omitting fractional shares) the
number of common shares outstanding. These shares shall be held by the
stockholders of the corporation pro rate to their ownership of the Twenty Three
Million, seven hundred forty one thousand, five hundred eighty (23,741,580)
shares previously outstanding.
The registered owners of Twelve Million four Hundred twelve Thousand, Nine
hundred Ninety (12,412,990) of the Twenty three Million, seven hundred forty one
thousand, five hundred eighty (23,741,580) common shares of the corporation
outstanding prior to the effective date of these amendments had entered their
written consent to the foregoing amendments to the Articles of Incorporation
prior to December 1, 1994, pursuant to S 228 of the General Corporation Law of
the State of Delaware, and thereby, in conformance with S 242 (b) of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF , we, Lawrence R. Hicks and Don Allen have executed this
Amendment to the Articles of Incorporation in duplicate this 1st day of
February, 1995 and say:
That we are the President and Secretary of Medipak Corporation; duly
empowered and instructed by the Board of Directors and Shareholders of Medipak
Corporation to execute this Amendment to the Article of Incorporation, that we
have read the foregoing Articles of Amendment to the Articles of Incorporation;
know the contents thereof and that the same is true to the best of our knowledge
and belief.
(Signature)
----------------------------
Lawrence R. Hicks, President
(Signature)
--------------------
Don Allen, Secretary
<PAGE>
2
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF RESIGNATION OF REGISTERED AGENT
WITHOUT APPOINTMENT OF "ADVANCED LASER PRODUCTS, INC.", FILED IN
THIS OFFICE ON THE SIXTH DAY OF DECEMBER, A.D. 1995, AT 9
O'CLOCK A.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
<PAGE>
2094892 8100 AUTHENTICATION: 9746596
991193980 DATE: 05-14-99
TATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/6/1995
950264368 - 2094892
RESIGNATION OF AGENT
--------------------
United Corporate Services, Inc., located at 15 East North Street, Dover,
Delaware 19901, was designated registered agent of MEDIPAK CORPORATION in
accordance with the General Corporation Law of the State of Delaware as amended.
In accordance with the provisions of Section 136 of said statute, said
United Corporate Services, Inc. has caused this certificate of Resignation to be
prepared and executed by its President this 4th day of December, 1995.
UNITED CORPORATE SERVICES, INC.
/S/RAY A. BARR
---------------
Ray A. Barr, President
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF RENEWAL OF "ADVANCED LASER PRODUCTS,
INC.", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF APRIL, A.D.
1998, AT 9 O'CLOCK A.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
<PAGE>
2094892 8100 AUTHENTICATION: 9746597
991193980 DATE: 05-14-99
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 4/15/1998
981143438 - 2094892
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CHARTER
OF
ADVANCED LASER PRODUCTS, INC.
ADVANCED LASER PRODUCTS, INC. ,
a corporation organized under the laws of the State of Delaware, the certificate
of incorporation of which was filed in the Office of the Secretary of State on
the twenty-seventh day of June, A. D. 1986, the charter was forfeited pursuant
to section 136 of the General Corporation Law of the State of Delaware, now
desires to procure a restoration, renewal and revival of its charter, and hereby
certifies as follows:
1. The name of this corporation is:
ADVANCED LASER PRODUCTS, INC.
2. Its registered office in the State of Delaware is located at 1013
Centre Road, in the City of Wilmington, County of New Castle and the name and
address of its registered agent is CORPORATION SERVICE COMPANY, 1013 Centre
Road, Wilmington, Delaware 19805.
3. The Date when the restoration, renewal, and revival of the charter of
this company is to commence is the fourth day of January, A.D. 1996, same being
prior to the date of the expiration of the charter. This renewal and revival of
the charter of this corporation is to be perpetual.
4. This corporation was duly organized and carried on the business
authorized by its charter until the day of fifth, A.D. 1996, at which time its
charter was forfeited for failure to designate new agent and this certificate
for renewal and revival is filed by authority of the duly elected directors of
the corporation in accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF and in compliance with the provisions of Section 312
of the General Corporation Law of the State of Delaware, as amended, ADVANCED
LASER PRODUCTS, INC. has caused this Certificate to be signed by Charles
McGuirk, the last Acting Authorized Officer, this 13th day of April A.D. 1998.
By: (Signature)
-------------
Charles McGuirk, President
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "ADVANCED LASER
PRODUCTS, INC.", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF
APRIL, A.D. 1998, AT 9 O'CLOCK A.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
<PAGE>
2094892 8100 AUTHENTICATION: 9746598
991193980 DATE: 05-14-99
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 04/15/1998
981143436 - 2094892
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
ADVANCED LASER PRODUCTS, INC.
The undersigned, being the duly elected and empowered President and
Secretary, respectively, of Medipak Corporation, a Delaware corporation, and
acting to the provisions of Sections 242 and 228 of the General Corporation Law
of Delaware, do affirm that resolutions amending the articles of incorporation
in the following particulars were duly adopted by a majority of the outstanding
shares of the corporation in the manner which shall hereinafter be set forth.
ARTICLE IV
The authorized capital stock of the corporation shall consist of Fifty Million
common shares of One Mil ($0.001) par value. There are presently 50,000,000
common shares of the corporation outstanding. Those shares are hereby reverse
split one (1) new share for every fifty (50) common shares presently outstanding
so as to reduce to 1,017,656 (omitting fractional shares) the number of common
shares outstanding. These shares shall be held by the stockholders of the
corporation pro rate to their ownership of 50,000,000 shares previously
outstanding.
The registered owners of 38,000,000 common shares of the corporation outstanding
prior to the effective date of this amendment has entered its written consent to
the foregoing amendment to the Articles of Incorporation prior to April 6, 1998,
pursuant to Section 228 of the General Corporation Law of the State of
Delaware, and thereby, in conformance with Section 242 (b) of the General
Corporation Law of the State of Delaware.
The reverse split shall become effective on April 20, 1998.
IN WITNESS WHEREOF, we, Don Allen and Kevin J. Quinn have executed this
Amendment to the Articles of Incorporation in duplicate this 6th day of April
1998 and say:
That we are the President and Secretary of Advanced Laser Products, Inc.;
duly empowered and instructed by the Board of Directors and Shareholders of
Advanced Laser Products, Inc. to execute this Amendment to the Article of
Incorporation, that we have read the foregoing Articles of Amendment to the
Articles of Incorporation; know the contents thereof and that the same is true
and to the best of our knowledge and belief.
(Signature) (Signature)
- -------------------- -------------------------
Don Allen, President Kevin J. Quinn, Secretary
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "ADVANCED LASER
PRODUCTS, INC.", CHANGING ITS NAME FROM "ADVANCED LASER
PRODUCTS, INC." TO "DIGS, INC.", FILED IN THIS OFFICE ON THE
EIGHTH DAY OF OCTOBER, A.D. 1998, AT 1:30 O'CLOCK P.M.
(Seal of the State of Delaware) (Signature)
-----------
Edward J. Freel, Secretary of State
<PAGE>
2094892 8100 AUTHENTICATION: 9746599
991193980 DATE: 05-14-99
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
ADVANCED LASER PRODUCTS, INC.
The undersigned, being the duly elected and empowered President and
Secretary, respectively, of Advanced Laser Products, Inc. , a Delaware
corporation, and acting to the provisions of Sections 242 and 228 of the
General Corporation Law of Delaware, do affirm that resolutions amending the
articles of incorporation in the following particulars were duly adopted by a
majority of the outstanding shares of the corporation in the manner which shall
hereinafter be set forth.
Article I of the Articles of Incorporation is amended in full to read as
follows:
ARTICLE I
The name of the corporation shall be DIGS, Inc.
ARTICLE IV
The total number of shares of stock which the corporation shall have the
authority to issue is 100,000,000 consisting of 80,000,000 shares of Common
Stock, $0.001 par value per share ( Common Stock), and 20,000,000 shares of
Preferred Stock, having a par value per share of $0.01 (the Preferred Stock).
The relative rights, preferences, privileges, limitations and restrictions
relating to the Preferred Stock are as set forth in the STATEMENT OF THE RIGHTS
AND PREFERENCES OF PREFERRED STOCK OF DIGS, INC., attached thereto as Exhibit A
and by this reference incorporated herein.
Dividends may be paid upon the Common Stock as and when declared by the Board of
Directors of the corporation out of any funds legally available therefor.
There are presently 1,069,744 common shares of the corporation outstanding.
Those shares are hereby reverse split one (1) new share for every twenty (20)
common shares presently outstanding, as to reduce to 53, 473 (omitting
fractional shares) the number of common shares outstanding. These shares shall
be held by the stockholders of the corporation pro rate to their ownership of
1,069,744 shares previously outstanding.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 1:30 PM 10/08/1998
98139035 - 2094892
The registered owners of 623,000 common shares of the corporation outstanding
prior to the effective date of this amendment have entered into a written
consent to the foregoing amendment to the Articles of Incorporation prior to
October 1, 1998, pursuant to Section 228 of the General Corporation Law of the
State of Delaware, and thereby, in conformance with Section 242 (b) of the
General Corporation Law of the State of Delaware.
The reverse split shall become effective on October 16, 1998.
<PAGE>
IN WITNESS WHEREOF, we, Charles McGuirk and Charles Peterson have executed
this Amendment to the Articles of Incorporation in duplicate this 6th day of
October, 1998 and say:
That we are the President and Secretary of Advanced Laser Products, Inc.; duly
empowered and instructed by the Board of Directors and Shareholders of Advanced
Laser Products, Inc. to execute this Amendment to the Article of Incorporation,
that we have read the foregoing Articles of Amendment to the Articles of
Incorporation; know the contents thereof and that the same is true and to the
best of our knowledge and belief.
(Signature) (Signature)
- -------------------------- ---------------------------
Charles McGuirk, President Charles Peterson, Secretary
<PAGE>
EXHIBIT A
STATEMENT OF THE RIGHTS AND PREFERENCES OF
PREFERRED STOCK OF DIGS, INC.
The Board of Directors shall have authority, by resolution, to divide any or all
of the shares of the Preferred Stock into, and to authorize the issuance of, one
or more series, and with respect to each such series to establish and, prior to
issuance to determine and fix:
(1) A distinguished designation for such series, the number of shares comprising
such series, and the par value thereof, which number may be increased or
decreased from time to time (but not below the number of shares then
outstanding) by action of the Board of Directors:
(2) The rate and times at which and the other conditions upon which dividends on
the shares may be declared and paid or set aside for payment, whether dividends
shall be cumulative, and the date from which any dividends shall accrue;
(3) Whether or not the shares shall be redeemable and, if so, the price and the
terms and conditions of such redemption;
(4) The amounts payable by preference or otherwise upon shares in the event of
voluntary or involuntary liquidation, dissolution, winding up or distribution of
the assets of the corporation;
(5) Whether the shares shall be convertible or exchangeable for shares of any
other class or series of securities of the corporation, and if so, the terms and
conditions of such conversion or exchange; and
(6) Whether or not the shares shall have voting rights, including the right to
vote as a class on designated matters such as, but not by way of limitation, the
merger, consolidation or sale of substantially all of the corporations assets,
or the approval of designated action by a greater than two-thirds (2/3rds)
affirmative vote, and if so, the terms and conditions thereof and nay
limitations thereon.
In the resolution establishing a new series of the Preferred stock, the Board of
Directors may provide for any other relative powers, preferences, rights,
qualifications, limitations and restrictions of such series as are consistent
with other terms of the corporations certificate of incorporation.
All shares of all series, if any, of the Preferred Stock shall be identical
except as to the above-mentioned rights and preferences which the Board of
Directors establishing a particular series shall otherwise provide, in the event
amounts payable upon liquidation preference shall participate ratably in any
distribution in accordance with the sums which would be payable on such
distribution if all sums payable thereon to holders of all shares of Preferred
Stock were discharged in full.
EXHIBIT 3.2
- ------------
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Nevada shall be at Monroe, Ltd., 300 South 4th Street, Suite 1111, Las Vegas,
Nevada 89101.
The registered Agent in charge thereof shall be Monroe, Ltd.
Section 2. The corporation may also have offices at such other places
as the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words Corporate Seal,
Nevada.
ARTICLE III - STOCKHOLDERS MEETINGS
Section 1. Meetings of stockholders shall be held at the registered
office of the corporation in this state or at such place, either within ir
without this state, as may be selected from time to time by the Board of
Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders
---------------
shall be held on the first of February in each year if not a legal holiday, and
if a legal holiday, then on the next secular day following at 10:00 oclock a.m.,
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of Directors is not held on the date designated therefore, the Directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the Directors of the
-----------------------
Corporation will not be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders
-----------------
may be called at any time by the President, or the Board of Directors, or
stockholders entitled to cast at least two-thirds of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
written request of any person or persons who have duly called a special meeting,
it shall be the duty of the Secretary to fix the date of the meeting, to be held
not more than thirty days after receipt of the request, and to give due notice
thereof. If the Secretary shall neglect or refuse to fix the date of the
meeting and give notice thereof, the person or persons calling the meeting may
do so.
Business transacted at the special meetings shall be confined to the
objects stated in the call and matter germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least [number] days before such meeting, unless a greater period of
notice is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the
------
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares entitled to vote is represented at a meeting, a majority
of the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder is entitled to vote at a
-------
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after tree years from
its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is an interest in
the stock itself or an interest in the corporation generally. All proxies shall
be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required
-------------------
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten or more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings; Any action required to be
----------------------------
taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than a unanimous written consent shall be given to those stockholders who have
not consented in writing.
Section 9. List of Stockholders: The officer who has charge of the
--------------------
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder. No share of stock upon which any installment is due and
unpaid shall be voted at any meeting. The list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
<PAGE>
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be
managed by its Board of Directors, three in number. The Directors need not be
residents of this state or stockholders in the corporation. They shall be
elected by the stockholders at the annual meeting of stockholders of the
corporation, and each director shall be elected for the term of one year, and
until his successor shall be elected and shall qualify or until his earlier
resignation or removal.
Section 2. Regular Meeting: Regular meetings of the Board shall be
---------------
held without notice at the registered office of the corporation, or at such
other time and place as shall be determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be
-----------------
called by the President on one days notice to each Director, either personally
or by mail or by telegram; Special Meetings shall be called by the President of
Secretary in like manner and on like notice on the written request of a majority
of the Directors in office.
Section 4. Quorum: A majority of the total number of Directors
------
shall constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or
-----------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting of all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceeding of the Board or committee.
The Board of Directors may hold its meetings, and have an office or offices,
outside of this state.
Section 6. Telephone Conference: One or more Directors may
---------------------
participate in a meeting of the Board, of a committee of the Board or of the
stockholders, by means telephone conference or similar communications equipment
by means of which all persons participating in the meeting can hear each other;
participation in this manner shall constitute presence in person at such
meeting.
Section 7. Compensation: Directors as such, shall not receive any
------------
stated salary for their services, but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board provided, that nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 8. Removal: Any Director or the entire Board of Directors
-------
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of Directors, except that when
cumulative voting is permitted, if less than the entire Board is to be removed,
no Director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors, or, if there be classes of directors, at an
election of the class of Directors of which he is a part.
ARTICLES V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the Directors and shall be a President, Secretary an Treasurer. The Board of
Directors may also choose a Chairman, one or more Vice Presidents and such other
officers as it shall deem necessary. Any number of offices may be held by the
same person.
Section 2. Salaries: Salaries of all officers and agents of the
--------
corporation shall be fixed by the Board of Directors.
<PAGE>
Section 3. Term of Office: The officers of the corporation shall
----------------
hold office for one year and until their successors are chosen and have
qualified. Any officer or agent elected aor appointed by the Board may be
removed by the Board of Directors whenever in its judgment the best interest of
the corporation will be served thereby.
Section 4. President: The President shall be the chief executive
---------
officer of the corporation; he shall preside at all meetings of the stockholders
and Directors; he shall have general and active management of the business of
the corporation, shall see that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the Directors to delegate
any specific powers, except such as may be by statute exclusively conferred on
the President, to any other officer or officers of the corporation. He shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the corporation. He shall be EX-OFFICIO a member of all committees, and shall
have the general power and duties of supervision and management usually vested
in the office of President of a corporation.
Section 5. Secretary: The Secretary shall attend all sessions of
---------
the Board and all meetings of the stockholders and act as clerk thereof, and
record all votes of the corporation and the minutes of all its transactions in a
book to be kept for that purpose, and shall perform like duties for all
committees of the Board of Directors when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, and under whose supervision he shall be. He shall
keep in safe custody the corporate seel of the corporation, and when authorized
by the Board, affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall keep
the moneys of the corporation in a separate account to the credit of the
corporation. He shall disburse the funds of the corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render to
the President and Directors, at the regular meetings of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no Directors in office, then any officer or
any stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
-------------------------------------
Directors shall resign from the Board, effective at a future date, a majority of
the Directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective,
<PAGE>
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporations stock ledger, and to make copies or extracts therefrom. A
proper purpose shall mean a purpose reasonably related to such persons interest
as a stockholder, In every instance where an attorney or other agent shall be
the person who seeks the right to inspection, the demand under oath shall be
directed to the corporation at its registered office in this state or at its
principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation as they
are issued. They shall bear the corporate seal and shall be signed by the
president and secretary.
Section 2. Transfers: Transfers of shares shall be made on the
---------
books of the corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue anew
-----------------
certificate of stock in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or its legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 4. Record Date: In order that the corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; providing, however, that the Board of Directors may fix a new record
date for the adjournment meeting.
Section 5. Dividends: The Board of Directors may declare and pay
---------
dividends upon the outstanding shares of the corporation, from time to time and
to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
<PAGE>
Section 6. Reserves: Before payment of any dividend there may be
--------
set aside out of the net profits of the corporation such sum a the Directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for the repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first
------------
day of January.
Section 3. Notice: Whenever written notice is required to be given
------
to any person, it may be given to such person, either personally or by sending a
coy thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegram, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such person shall specify the place, day and hour of the meeting and,
in the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any notice is required by
------------------
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance
of a person either in person or by proxy, at any meeting shall constitute a
waiver of notice of such meeting, except where a person attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an office
-----------------------
or employee of the corporation such as a salary, commission, bonus, interest,
rent, travel or entertainment expense incurred by him, which shall be disallowed
in whole or in part as a deductible expense by the Internal Revenue Service,
shall be reimbursed by such officer or employee to the corporation to the full
extent of such disallowance. It shall be the duty of the Directors, as a Board,
to enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the Directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign
------------
at anytime, such resignation to be in writing, and to take effect from the time
of its receipt by the corporation, unless some time be fixed in the resignation
and then from the date. The acceptance of a resignation shall be required to
make it effective.
<PAGE>
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholders of that
purpose.
<PAGE>
DIGS, INC.
1999 STOCK INCENTIVE PLAN
1. GENERAL PROVISIONS
1.1 Purpose.
The 1999 Stock Incentive Plan (the "Plan") is intended
to allow designated officers and employees (all of whom are sometimes
collectively referred to herein as "Employees") and certain Non-Employee
Directors of Digs, Inc. ("DIGS") and its Subsidiaries which it may have from
time to time (DIGS and such Subsidiaries are referred to herein as the
"Company") to receive certain options ("Stock Options") to purchase DIGS's
common stock, no par value ("Common Stock"), and to receive grants of Common
Stock subject to certain restrictions ("Awards"). As used in this Plan, the term
"Subsidiary" shall mean each corporation which is a "subsidiary corporation" of
DIGS within the meaning of Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code"). The purpose of this Plan is to provide Employees with
equity-based compensation incentives to make significant and extraordinary
contributions to the long-term performance and growth of the Company, and to
attract and retain Employees of exceptional ability.
1.2 Administration.
1.2.1 The Plan shall be administered by the Compensation
Committee (the "Committee") of, or appointed by, the Board of Directors of DIGS
(the "Board"). Each member of the Committee shall be a "disinterested person" as
that term is defined in Rule 16b-3 promulgated by the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934
(the "Exchange Act"), but no action of the Committee shall be invalid if this
requirement is not met. The Committee shall select one of its members as
Chairman and shall act by vote of a majority of a quorum, or by unani- mous
written consent. A majority of its members shall constitute a quorum. The
Commit- tee shall be governed by the provisions of DIGS's By-Laws and of
California law applicable to the Board, except as otherwise provided herein or
determined by the Board.
1.2.2 The Committee shall have full and complete
authority, in its discretion, but subject to the express provisions of the Plan:
to approve the Employees nominated by the management of the Company to be
granted Awards or Stock Options; to determine the number of Awards or Stock
Options to be granted to an Employee; to deter- mine the time or times at which
Awards or Stock Options shall be granted; to establish the terms and conditions
upon which Awards or Stock Options may be exercised; to remove or adjust any
restrictions and conditions upon Awards or Stock Options; to specify, at the
time of grant, provisions relating to exercisability of Stock Options and to
accelerate or otherwise modify the exercisability of any Stock Options; and to
adopt such rules and regulations and to make all other determinations deemed
necessary or desirable for the administration of the Plan. All interpretations
and constructions of the Plan by the Committee, and all of its actions
hereunder, shall be binding and conclusive on all persons for all purposes.
1.2.3 The Company hereby agrees to indemnify and hold
harmless each Committee member and each employee of the Company, and the estate
and heirs of such Committee member or employee, against all claims, liabilities,
expenses, penalties, damages or other pecuniary losses, including legal fees,
which such Committee member or employee, his or her estate or heirs may suffer
as a result of his or her responsibilities, obligations or duties in connection
with the Plan, to the extent that insurance, if any, does not cover the payment
<PAGE>
of such items. No member of the Committee or the Board shall be liable for any
action or determination made in good faith with respect to the Plan or any Award
or Stock Option granted pursuant to the Plan.
1.3 Eligibility and Participation.
Employees eligible under the Plan shall be approved by
the Committee from those Employees who, in the opinion of the management of the
Company, are in positions which enable them to make significant and
extraordinary contributions to the long- term performance and growth of the
Company. In selecting Employees to whom Stock Options or Awards may be granted,
consideration shall be given to factors such as employment position, duties and
responsibilities, ability, productivity, length of service, morale, interest in
the Company and recommendations of supervisors. No member of the Committee shall
be eligible to participate under the Plan or under any other Company plan if
such participation would contravene the standard of paragraph 1.2.1 above
relating to "dis- interested persons."
1.4 Shares Subject to the Plan.
The maximum number of shares of Common Stock that may be
issued pursuant to the Plan shall be 750,000, subject to adjustment pursuant to
the provisions of paragraph 4.1. If shares of Common Stock awarded or issued
under the Plan are reacquired by the Company due to a forfeiture or for any
other reason, such shares shall be cancelled and thereafter shall again be
available for purposes of the Plan. If a Stock Option expires, terminates or is
cancelled for any reason without having been exercised in full, the shares of
Common Stock not purchased thereunder shall again be available for purposes of
the Plan.
2. PROVISIONS RELATING TO STOCK OPTIONS
2.1 Grants of Stock Options.
The Committee may grant Stock Options in such amounts, at
such times, and to such Employees nominated by the management of the Company as
the Committee, in its discretion, may determine. Stock Options granted under the
Plan shall constitute "incentive stock options" within the meaning of Section
422 of the Code, if so designated by the Committee on the date of grant. The
Committee shall also have the discretion to grant Stock Options which do not
constitute incentive stock options, and any such Stock Options shall be
designated non-statutory stock options by the Committee on the date of grant.
The aggregate fair market value (determined as of the time an incentive stock
option is granted) of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any Employee during any one
calendar year (under all plans of the Company and any parent or Subsidiary of
the Company) may not exceed the maximum amount permitted under Section 422 of
the Code (currently $100,000.00). Non-statutory stock options shall not be
subject to the limitations relating to incentive stock options contained in the
preceding sentence. Each Stock Option shall be evidenced by a written agreement
(the "Option Agreement") in a form approved by the Committee, which shall be
executed on behalf of the Company and by the Employee to whom the Stock Option
is granted, and which shall be subject to the terms and conditions of this Plan.
In the discretion of the Committee, Stock Options may include provisions (which
need not be uniform), authorized by the Committee in its discretion, that
accelerate an Employee's rights to exercise Stock Options following a "Change in
Control," upon termination of such Employee employment by the Company without
"Cause" or by the Employee for "Good Reason," as such terms are defined in
paragraph 3.1 hereof. The holder of a Stock Option shall not be entitled to the
2
<PAGE>
privileges of stock ownership as to any shares of Common Stock not actually
issued to such holder.
2.2 Purchase Price.
The purchase price (the "Exercise Price") of shares of
Common Stock subject to each Stock Option ("Option Shares") shall equal the fair
market value ("Fair Market Value") of such shares on the date of grant of such
Stock Option. Notwithstanding the foregoing, the Exercise Price of Option Shares
subject to an incentive stock option granted to an Employee who at the time of
grant owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any parent or Subsidiary shall be at
least equal to 110% of the Fair Market Value of such shares on the date of grant
of such Stock Option. The Fair Market Value of a share of Common Stock on any
date shall be equal to the closing price (or if no closing price is reported,
the average of the last bid and asked prices) of the Common Stock for the last
preceding day on which DIGS's shares were traded, and the method for determining
the closing price shall be determined by the Committee.
2.3 Option Period.
The Stock Option period (the "Term") shall commence on
the date of grant of the Stock Option and shall be ten years or such shorter
period as is determined by the Committee. Notwithstanding the foregoing, the
Term of an incentive stock option granted to an Employee who at the time of
grant owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any parent or Subsidiary shall not
exceed five years. Each Stock Option shall provide that it is exercisable over
its term in such periodic installments as the Committee in its sole discretion
may determine. Such provisions need not be uniform. Notwithstanding the
foregoing, but subject to the provisions of paragraphs 1.2.2 and 2.1, Stock
Options granted to Employees who are subject to the reporting requirements of
Section 16(a) of the Exchange Act ("Section 16 Reporting Persons") shall not be
exercisable until at least six months and one day from the date the Stock Option
is granted.
2.4 Exercise of Options.
2.4.1 Each Stock Option may be exercised in whole or in
part (but not as to fractional shares) by delivering it for surrender or
endorsement to the Company, attention of the Corporate Secretary, at the
principal office of the Company, together with payment of the Exercise Price and
an executed Notice and Agreement of Exercise in the form prescribed by paragraph
2.4.2. Payment may be made (i) in cash, (ii) by cashier's or certified check,
(iii) by surrender of previously owned shares of the Company's Common Stock
valued pursuant to paragraph 2.2 (if the Committee authorizes payment in stock
in its discretion), (iv) by withholding from the Option Shares which would
otherwise be issuable upon the exercise of the Stock Option that number of
Option Shares having an aggregate fair market value (determined in the manner
prescribed by paragraph 2.2) as of the date of the exercise of the Stock Option
equal to the exercise price of the Stock Option, if such withholding is
authorized by the Committee in its discretion, or (v) in the discretion of the
Committee, by the delivery to the Company of the optionee's promissory note
secured by the Option Shares, bearing interest at a rate sufficient to prevent
the imputation of interest under Sections 483 or 1274 of the Code, and having
such other terms and conditions as may be satisfactory to the Committee.
2.4.2 Exercise of each Stock Option is conditioned upon
the agreement of the Employee to the terms and conditions of this Plan and of
3
<PAGE>
such Stock Option as evidenced by the Employee's execution and delivery of a
Notice and Agreement of Exercise in a form to be determined by the Committee in
its discretion. Such Notice and Agreement of Exercise shall set forth the
agreement of the Employee that: (a) no Option Shares will be sold or otherwise
distributed in violation of the Securities Act of 1933 (the "Securities Act") or
any other applicable federal or state securities laws, (b) each Option Share
certificate may be imprinted with legends reflecting any applicable federal and
state securities law restrictions and conditions, (c) the Company may comply
with said securities law restrictions and issue "stop transfer" instructions to
its Transfer Agent and Registrar without liability, (d) if the Employee is a
Section 16 Reporting Person, the Employee will furnish to the Company a copy of
each Form 4 or Form 5 filed by said Employee and will timely file all reports
required under federal securities laws, and (e) the Employee will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company.
2.4.3 No Stock Option shall be exercisable unless and
until any applicable registration or qualification requirements of federal and
state securities laws, and all other legal requirements, have been fully
complied with. The Company will use reasonable efforts to maintain the
effectiveness of a Registration Statement under the Securities Act for the
issuance of Stock Options and shares acquired thereunder, but there may be times
when no such Registration Statement will be currently effective. The exercise of
Stock Options may be temporarily suspended without liability to the Company
during times when no such Registration Statement is currently effective, or
during times when, in the reasonable opinion of the Committee, such suspension
is necessary to preclude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any Stock Option
would expire for any reason except the end of its term during such a suspension,
then if exercise of such Stock Option is duly tendered before its expiration,
such Stock Option shall be exercisable and exercised (unless the attempted
exercise is withdrawn) as of the first day after the end of such suspension. The
Company shall have no obligation to file any Registration Statement covering
resales of Option Shares.
2.5 Continuous Employment.
Except as provided in paragraph 2.7 below, an Employee
may not exercise a Stock Option unless from the date of grant to the date of
exercise such Employee remains continuously in the employ of the Company. For
purposes of this paragraph 2.5, the period of continuous employment of an
Employee with the Company shall be deemed to include (without extending the term
of the Stock Option) any period during which such Employee is on leave of
absence with the consent of the Company, provided that such leave of absence
shall not exceed three months and that such Employee returns to the employ of
the Company at the expiration of such leave of absence. If such Employee fails
to return to the employ of the Company at the expiration of such leave of
absence, such Employee's employment with the Company shall be deemed terminated
as of the date such leave of absence commenced. The continuous employment of an
Employee with the Company shall also be deemed to include any period during
which such Employee is a member of the Armed Forces of the United States,
provided that such Employee returns to the employ of the Company within 90 days
(or such longer period as may be prescribed by law) from the date such Employee
first becomes entitled to discharge. If an Employee does not return to the
employ of the Company within 90 days (or such longer period as may be prescribed
by law) from the date such Employee first becomes entitled to discharge, such
Employee's employment with the Company shall be deemed to have terminated as of
the date such Employee's military service ended.
2.6 Restrictions on Transfer.
Each Stock Option granted under this Plan shall be
transferable only by will or the laws of descent and distribution. No interest
of any Employee under the Plan shall be subject to attachment, execution,
garnishment, sequestration, the laws of bankruptcy or any other legal or
equitable process. Each Stock Option granted under this Plan shall be
exercisable during an Employee's lifetime only by such Employee or by such
Employee's legal representative.
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2.7 Termination of Employment.
2.7.1 Upon an Employee's Retirement, Disability or death,
(a) all Stock Options to the extent then presently exercisable shall remain in
full force and effect and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b) unless
otherwise provided by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of employment and shall not be exercisable thereafter.
2.7.2 Upon the termination of the employment of an
Employee with the Company for any reason other than the reasons set forth in
paragraph 2.7.1 hereof, (a) all Stock Options to the extent then presently
exercisable by such Employee shall remain exercisable only for a period of 90
days after the date of such termination of employment (except that the 90-day
period shall be extended to 12 months if the Employee shall die during such
90-day period), and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b) unless
otherwise provided by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of employment and shall not be exercisable thereafter.
2.7.3 For purposes of this Plan:
(a) "Retirement" shall mean an Employee's
retirement from the employ of the Company on or after the date on which such
Employee attains the age of sixty-five (65) years; and
(b) "Disability" shall mean total and permanent
incapacity of an Employee, due to physical impairment or legally established
mental incompetence, to perform the usual duties of such Employee's employment
with the Company, which disability shall be determined: (i) on medical evidence
by a licensed physician designated by the Committee, or (ii) on evidence that
the Employee has become entitled to receive primary benefits as a disabled
employee under the Social Security Act in effect on the date of such disability.
2.8 Grants of Options to Non-Employee Directors.
Each member of the Board who is not an Employee (a "Non-
Employee Director:), whether or not such member is a member of the Committee,
shall automatically be granted non-statutory Stock Options to purchase 5,000
shares of Common Stock on each anniversary of such Non-Employee Director's
continuous service on the Board. The term of each such Stock Option granted to a
Non-Employee Director shall commence on the date of grant and shall be for ten
years thereafter. Each such Stock Option granted to a Non-Employee Director
shall first be exercisable six months and one day from the later of the date of
grant or the date of shareholder approval of this Plan, thereafter shall be
exercisable at any time until the expiration of its term, whether or not the
Non-Employee Director is a member of the Board at the time of exercise or later
enters the employ of the Company. Notwithstanding the foregoing or any other
provision of this Plan, all unexercised Stock Options held by a Non-Employee
Director shall automatically terminate as of the date his or her directorship is
terminated, if such directorship is terminated on account of any act of fraud,
embezzlement, misappropriation or conversion of assets or opportunities of the
Company. Upon termination of such Stock Options, such Non-Employee Director
shall forfeit all rights and benefits under this Plan. Notwith- standing the
provisions of paragraph 4.4, the provisions of this paragraph 2.8 may not be
amended more than once every six months, other than to comport with changes in
the Code or the regulations thereunder. The Committee shall not grant any Awards
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to Non-Employee Directors and shall have no discretion as to (a) the selection
of Non-Employee Directors to whom Stock Options may be granted, (b) the number
of Stock Options granted to any Non- Employee Director, (c) the times at which
or the periods within which Stock Options may be granted to, or exercised by,
Non-Employee Directors, or (d) except to the limited extent provided in
paragraph 2.2, the price at which any Stock Option granted to a Non-Employee
Director may be exercised. Except as specifically set forth in this paragraph
2.8, Stock Options granted to Non-Employee Directors will be governed by all of
the other terms and provisions of this Plan.
3. PROVISIONS RELATING TO AWARDS
3.1 Grant of Awards.
Subject to the provisions of the Plan, the Committee
shall have full and complete authority, in its discretion, but subject to the
express provisions of this Plan, to (i) grant Awards pursuant to the Plan, (ii)
determine the number of shares of Common Stock subject to each Award ("Award
Shares"), (iii) determine the terms and conditions (which need not be identical)
of each Award, including the consideration (if any) to be paid by the Employee
for such Common Stock, which may, in the Committee's discretion, consist of the
delivery of the Employee's promissory note meeting the requirements of paragraph
2.4.1, (iv) establish and modify performance criteria for Awards, and (v) make
all of the determinations necessary or advisable with respect to Awards under
the Plan. Each award under the Plan shall consist of a grant of shares of Common
Stock subject to a restriction period (after which the restrictions shall
lapse), which shall be a period commencing on the date the award is granted and
ending on such date as the Committee shall determine (the "Restriction Period").
The Committee may provide for the lapse of restrictions in installments, for
acceleration of the lapse of restrictions upon the satisfaction of such
performance or other criteria or upon the occurrence of such events as the
Committee shall determine, and for the early expiration of the Restriction
Period upon an Employee's death, Disability or Retirement as defined in
paragraph 2.7.3, or, following a Change of Control, upon termination of an
Employee's employment by the Company without "Cause" or by the Employee for
"Good Reason," as those terms are defined herein. For purposes of this Plan:
"Change of Control" shall be deemed to occur (a) on the
date the Company first has actual knowledge that any person (as such term is
used in Sections 13(d) and 14(d) (2) of the Exchange Act) has become the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities, or (b) on
the date the shareholders of the Company approve (i) a merger of the Company
with or into any other corporation in which the Company is not the surviving
corporation or in which the Company survives as a subsidiary of another
corporation, (ii) a consolidation of the Company with any other corporation, or
(iii) the sale or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation.
"Cause," when used with reference to termination of the
employment of an Employee by the Company for "Cause," shall mean:
(a) the Employee's continuing wilful and material breach
of his or her duties to the Company after he or she receives a demand from the
Chief Executive of the Company specifying the manner in which he or she has
wilfully and materially breached such duties, other than any such failure
resulting from Disability of the Employee or his or her resignation for "Good
Reason," as defined herein; or
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(b) the conviction of the Employee of a felony; or
(c) the Employee's commission of fraud in the course of
his or her employment with the Company, such as embezzlement or other material
and intentional violation of law against the Company; or
(d) the Employee's gross misconduct causing material harm
to the Company.
"Good Reason" shall mean any one or more of the
following, occurring following or in connection with a Change of Control and
within 90 days prior to the Employee's resignation, unless the Employee shall
have consented thereto in writing:
(a) the assignment to the Employee of duties inconsistent
with his or her executive status prior to the Change of Control or a substantive
change in the officer or officers to whom he or she reports from the officer or
officers to whom he or she reported immediately prior to the Change of Control;
or
(b) the elimination or reassignment of a majority of the
duties and responsibilities that were assigned to the Employee immediately prior
to the Change of Control; or
(c) a reduction by the Company in the Employee's annual
base salary as in effect immediately prior to the Change of Control; or
(d) the Company's requiring the Employee to be based
anywhere outside a 35-mile radius from his or her place of employment
immediately prior to the Change of Control, except for required travel on the
Company's business to an extent substantially consistent with the Employee's
business travel obligations immediately prior to the Change of Control; or
(e) the failure of the Company to grant the Employee a
performance bonus reasonably equivalent to the same percentage of salary the
Employee normally received prior to the Change of Control, given comparable
performance by the Company and the Employee; or
(f) the failure of the Company to obtain a satisfactory
Assumption Agreement (as defined in paragraph 4.12 of the Plan) from a
successor, or the failure of such successor to perform such Assumption
Agreement.
3.2 Incentive Agreements.
Each Award granted under the Plan shall be evidenced by a
written agreement (an "Incentive Agreement") in a form approved by the Committee
and executed by the Company and the Employee to whom the Award is granted. Each
Incentive Agreement shall be subject to the terms and conditions of the Plan and
other such terms and conditions as the Committee may specify.
3.3 Waiver of Restrictions.
The Committee may modify or amend any Award under the
Plan or waive any restrictions or conditions applicable to such Awards;
provided, however, that the Committee may not undertake any such modifications,
amendments or waivers if the effect thereof materially increases the benefits to
any Employee, or adversely affects the rights of any Employee without his or her
consent.
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3.4 Terms and Conditions of Awards.
3.4.1 Upon receipt of an Award of shares of Common Stock
under the Plan, even during the Restriction Period, an Employee shall be the
holder of record of the shares and shall have all the rights of a shareholder
with respect to such shares, subject to the terms and conditions of the Plan and
the Award.
3.4.2 Except as otherwise provided in this paragraph 3.4,
no shares of Common Stock received pursuant to the Plan shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of during
the Restriction Period applicable to such shares. Any purported disposition of
such Common Stock in violation of this paragraph 3.4.2 shall be null and void.
3.4.3 If an Employee's employment with the Company
terminates prior to the expiration of the Restriction Period for an Award,
subject to any provisions of the Award with respect to the Employee's death,
Disability or Retirement, or Change of Control, all shares of Common Stock
subject to the Award shall be immediately forfeited by the Employee and
reacquired by the Company, and the Employee shall have no further rights with
respect to the Award. In the discretion of the Committee, an Incentive Agreement
may provide that, upon the forfeiture by an Employee of Award Shares, the
Company shall repay to the Employee the consideration (if any) which the
Employee paid for the Award Shares on the grant of the Award. In the discretion
of the Committee, an Incentive Agreement may also provide that such repayment
shall include an interest factor on such consideration from the date of the
grant of the Award to the date of such repayment.
3.4.4 The Committee may require under such terms and
conditions as it deems appropriate or desirable that (i) the certificates for
Common Stock delivered under the Plan are to be held in custody by the Company
or a person or institution designated by the Company until the Restriction
Period expires, (ii) such certificates shall bear a legend referring to the
restrictions on the Common Stock pursuant to the Plan, and (iii) the Employee
shall have delivered to the Company a stock power endorsed in blank relating to
the Common Stock.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Change in Capitalization.
4.1.1 The number and class of shares subject to each
outstanding Stock Option, the Exercise Price thereof (but not the total price),
the maximum number of Stock Options that may be granted under the Plan, the
minimum number of shares as to which a Stock Option may be exercised at any one
time, and the number and class of shares subject to each outstanding Award,
shall be proportionately adjusted in the event of any increase or decrease in
the number of the issued shares of Common Stock which results from a split-up or
consolidation of shares, payment of a stock dividend or dividends exceeding a
total of 5% for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that (i) upon exercise of the Stock Option, the Employee shall receive the
number and class of shares such Employee would have received had such Employee
been the holder of the number of shares of Common Stock for which the Stock
Option is being exercised upon the date of such change or increase or decrease
in the number of issued shares of the Company, and (ii) upon the lapse of
restrictions of the Award Shares, the Employee shall receive the number and
class of shares such Employee would have received if the restrictions on the
Award Shares had lapsed on the date of such change or increase or decrease in
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the number of issued shares of the Company.
4.1.2 Upon a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which DIGS is not the
surviving corporation or in which DIGS survives as a wholly-owned subsidiary of
another corporation, or upon a sale of all or substantially all of the property
of the Company to another corporation, or any dividend or distribution to
shareholders of more than 10% of the Company's assets, adequate adjustment or
other provisions shall be made by the Company or other party to such transaction
so that there shall remain and/or be substituted for the Option Shares and Award
Shares provided for herein, the shares, securities or assets which would have
been issuable or payable in respect of or in exchange for such Option Shares and
Award Shares then remaining, as if the Employee had been the owner of such
shares as of the applicable date. Any securities so substituted shall be subject
to similar successive adjustments.
4.2 Withholding Taxes.
The Company shall have the right at the time of exercise
of any Stock Option, the grant of an Award, or the lapse of restrictions on
Award Shares, to make adequate provision for any federal, state, local or
foreign taxes which it believes are or may be required by law to be withheld
with respect to such exercise ("Tax Liability"), to ensure the payment of any
such Tax Liability. The Company may provide for the payment of any Tax Liability
by any of the following means or a combination of such means, as determined by
the Committee in its sole and absolute discretion in the particular case: (i) by
requiring the Employee to tender a cash payment to the Company, (ii) by
withholding from the Employee's salary, (iii) by withholding from the Option
Shares which would otherwise be issuable upon exercise of the Stock Option, or
from the Award Shares on their grant or date of lapse of restrictions, that
number of Option Shares or Award Shares having an aggregate fair market value
(determined in the manner prescribed by paragraph 2.2) as of the date the
withholding tax obligation arises in an amount which is equal to the Employee's
Tax Liability or (iv) by any other method deemed appropriate by the Committee.
Satisfaction of the Tax Liability of a Section 16 Reporting Person may be made
by the method of payment specified in clause (iii) above only if the following
two conditions are satisfied:
(a) the withholding of Option Shares or Award Shares and
the exercise of the related Stock Option occur at least six months and one day
following the date of grant of such Stock Option or Award; and
(b) the withholding of Option Shares or Award Shares is
made either (i)pursuant to an irrevocable election ("Withholding Election") made
by such Employee at least six months in advance of the withholding of Options
Shares or Award Shares, or (ii) on a day within a ten-day "window period"
beginning on the third business day following the date of release of the
Company's quarterly or annual summary statement of sales and earnings.
Anything herein to the contrary notwithstanding, a Withholding Election may be
disapproved by the Committee at any time.
4.3 Relationship to Other Employee Benefit Plans.
Stock Options and Awards granted hereunder shall not be
deemed to be salary or other compensation to any Employee for purposes of any
pension, thrift, profit- sharing, stock purchase or any other employee benefit
plan now maintained or hereafter adopted by the Company.
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4.4 Amendments and Termination.
The Board of Directors may at any time suspend, amend or
terminate this Plan. No amendment, except as provided in paragraph 2.8, or
modification of this Plan may be adopted, except subject to stockholder
approval, which would: (a) materially increase the benefits accruing to
Employees under this Plan, (b) materially increase the number of securities
which may be issued under this Plan (except for adjustments pursuant to
paragraph 4.1 hereof), or (c) materially modify the requirements as to
eligibility for participation in the Plan.
4.5 Successors in Interest.
The provisions of this Plan and the actions of the
Committee shall be binding upon all heirs, successors and assigns of the Company
and of Employees.
4.6 Other Documents.
All documents prepared, executed or delivered in
connection with this Plan (including, without limitation, Option Agreements and
Incentive Agreements) shall be, in substance and form, as established and
modified by the Committee; provided, however, that all such documents shall be
subject in every respect to the provisions of this Plan, and in the event of any
conflict between the terms of any such document and this Plan, the provisions of
this Plan shall prevail.
4.7 No Obligation to Continue Employment.
This Plan and grants hereunder shall not impose any
obligation on the Company to continue to employ any Employee. Moreover, no
provision of this Plan or any document executed or delivered pursuant to this
Plan shall be deemed modified in any way by any employment contract between an
Employee (or other employee) and the Company.
4.8 Misconduct of an Employee.
Notwithstanding any other provision of this Plan, if an
Employee commits fraud or dishonesty toward the Company or wrongfully uses or
discloses any trade secret, confidential data or other information proprietary
to the Company, or intentionally takes any other action materially inimical to
the best interests of the Company, as determined by the Committee, in its sole
and absolute discretion, such Employee shall forfeit all rights and benefits
under this Plan.
4.9 Term of Plan.
This Plan was adopted by the Board effective January 2,
1999. No Stock Options or Awards may be granted under this Plan after December
31, 2008.
4.10 Governing Law.
This Plan shall be construed in accordance with, and
governed by, the laws of the State of California.
4.11 Shareholder Approval.
No Stock Option shall be exercisable, or Award granted,
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unless and until the Shareholders of the Company have approved this Plan and all
other legal requirements have been fully complied with.
4.12 Assumption Agreements.
The Company will require each successor, (direct or
indirect, whether by purchase, merger, consolidation or otherwise), to all or
substantially all of the business or assets of the Company, prior to the
consummation of each such transaction, to assume and agree to perform the terms
and provisions remaining to be performed by the Company under each Incentive
Agreement and Stock Option and to preserve the benefits to the Employees
thereunder. Such assumption and agreement shall be set forth in a written
agreement in form and substance satisfactory to the Committee (an "Assumption
Agreement"), and shall include such adjustments, if any, in the application of
the provisions of the Incentive Agreements and Stock Options and such additional
provisions, if any, as the Committee shall require and approve, in order to
preserve such benefits to the Employees. Without limiting the generality of the
foregoing, the Committee may require an Assumption Agreement to include
satisfactory undertakings by a successor:
(a) to provide liquidity to the Employees at the end of
the Restriction Period applicable to Common Stock awarded to them under the
Plan, or on the exercise of Stock Options;
(b) if the succession occurs before the expiration of any
period specified in the Incentive Agreements for satisfaction of performance
criteria applicable to the Common Stock awarded thereunder, to refrain from
interfering with the Company's ability to satisfy such performance criteria or
to agree to modify such performance criteria and/or waive any criteria that
cannot be satisfied as a result of the succession;
(c) to require any future successor to enter into an
Assumption Agreement; and
(d) to take or refrain from taking such other actions as
the Committee may require and approve, in its discretion.
The Committee referred to in this paragraph 4.12 is the Committee appointed by a
Board of Directors in office prior to the succession then under consideration.
4.13 Compliance With Rule 16B-3.
Transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3. To the extent that any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
IN WITNESS WHEREOF, this Plan has been executed effective as of the 2nd day
of January, 1999.
DIGS, INC.
By:________________________
Peter B. Dunn
President
11
STOCKNET, INC.
EMPLOYMENT AGREEMENT
Employment Agreement by and between PETER DUNN ("Executive"); and STOCKNET,
INC., a California corporation ("Employer"). This Agreement is effective as of
March 1, 1998.
RECITALS
Executive has acquired special skills and abilities and has an extensive
background in and knowledge of Employer's business. In order to retain the
benefit of Executive's experience, skills, abilities, background and knowledge,
Employer desires assurance of the continuation of this association and is
therefore willing to engage Executive on the terms and conditions set forth in
this Agreement. Executive desires to continue working for Employer, and is
willing to do so on these terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises and conditions in this Agreement, it is agreed as follows:
1. TERM. Subject to the earlier termination as provided in this Agreement,
Executive shall be employed for a term of two (2) years commencing March 1,
1998, and terminating February 28, 2000.
This term shall be automatically renewed upon expiration for successive
periods of the same length, subject to the same conditions, unless Executive is
notified to the contrary as provided in this Agreement.
2. PLACE OF EMPLOYMENT. Unless the parties otherwise agree in writing, and
except that Employer may from time to time require Executive to travel
temporarily to other locations on Employer's business, Executive shall perform
the services required under this Agreement at Employer's office located at 17337
Ventura Boulevard, #300, Encino, California 91316, or at such other office of
Employer in Los Angeles County.
3. DUTIES AND AUTHORITY. Executive shall be President, General Manager, and
Chief Executive Officer of Employer, with full power and authority to hire and
fire employees and to manage and conduct Employer's business, subject to
policies adopted by the Board of Directors.
Executive shall not, however, take any of the following actions on behalf
of Employer without the approval of the Board of Directors:
(1) Borrowing money,executing guarantees, or obtaining credit in any
amount;
(2) Expending funds for capital equipment in excess of budgeted
expenditures for any calendar month:
(3) Selling or transferring capital assets.
(4) Executing any contract or making any commitment for the purchase or
sale of Employer's products or facilities in any amount.
(5) Executing any lease of real or personal property.
(6) Hiring or firing any corporate officer.
(7) Exercising any discretionary authority or control over the management
of any employee welfare or pension benefit plan or over the disposition of the
assets of any such plan.
4. REASONABLE TIME AND EFFORT. During the term of this Agreement, Executive
shall devote such time, interest, and effort to the performance of this
Agreement as may be fairly and reasonably necessary. Employer is aware that
Executive renders and will continue to render services to U.S. STOCK TRANSFER
CORP., California corporation, during the term of this Agreement.
5. COVENANT NOT TO COMPETE DURING TERM OF AGREEMENT. During the term of
this Agreement, Executive shall not, directly or indirectly, whether as a
partner, employee, creditor, shareholder, or otherwise, promote, participate, or
engage in any activity or other business competitive with Employer's business.
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6. SALARY. Employer shall pay Executive, in equal monthly installments, the
following basic monthly salary: Eight Thousand Dollars ($8,000.00).
7. BONUS COMPENSATION. In addition to the compensation provided for above,
Employer may also from time to time issue bonus compensation based on
exceptional employment performance. The payment of a bonus or bonuses shall not
establish a precedent of future requirement, nor shall it constitute a permanent
modification of this Agreement.
8. ADDITIONAL BENEFITS. During the employment term, Executive shall be
entitled to receive all other benefits of employment generally available to
Employer's other executive and managerial employees when Executive becomes
eligible for them, including group health and insurance benefits and annual
vacation and sick leave.
9. ADDITIONAL BENEFITS. In its sole discretion, Employer may provide other
benefits in addition to the basic annual salary. Employer may institute or
revoke such benefits as it sees fit, and any such benefits shall not create a
precedent or a requirement, nor shall they constitute a permanent modification
of this Agreement.
10. EXPENSES. During the employment term, Employer shall reimburse
Executive One Thousand Dollars ($1,000.00) per month for reasonable
out-of-pocket expenses incurred in connection with Employee's business,
including travel expenses, food, and lodging while away from home, subject to
such policies as Employer may from time to time reasonably establish for its
employees.
11. AUTOMOBILE ALLOWANCE. During the employment term, Employer shall
reimburse Executive for the use of his automobile on behalf of Employer the sum
of Eight Hundred Dollars ($800.00) per month plus reimbursement for gasoline
usage.
12. EMPLOYER'S OWNERSHIP OF INTANGIBLES. Employer shall be the sole owner
of all processes, inventions, patents, copyrights, trademarks, and other
intangible rights conceived or developed by Executive, either alone or with
others, during the terms of Executive's employment, whether or not conceived or
developed during Executive's working hours, which (a) result from work performed
by Executive for Employer, (b) relate to Employer's business or Employer's
actual demonstrably anticipated research and development, or (c) have used
Employer' s equipment, supplies, facilities, or trade secrets. Executive shall
disclose to Employer all inventions conceived during the term of employment,
whether or not the property of Employer under the terms of the preceding
sentence, provided that such disclosure shall be received by Employer in
confidence. Executive shall execute all documents, including patent applications
and assignments, required by Employer to establish Employer's rights under this
paragraph.
13. INDEMNIFICATION BY EMPLOYER. Employer shall to the maximum extent
permitted by law, indemnify and hold Executive harmless against expenses,
including reasonable attorney's fees, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of Executive's employment by Employer. Employer shall advance
to Executive any expenses incurred in defending any such proceeding to the
maximum extent permitted by law.
14. TERMINATION FOR CAUSE. Employer may terminate this Agreement at any
time without notice if Executive commits any material act of dishonesty,
discloses confidential information, commits gross carelessness or misconduct,
unjustifiably neglects employment duties, or acts in any way that has a direct,
substantial, and adverse effect on Employer's reputation.
15. TERMINATION ON DISABILITY. Employer may terminate this Agreement
without notice if Executive is unable due to mental or physical illness or
injury to perform Executive's duties in a normal and regular manner for the
disability period specified below. The termination shall be effective as of the
end of the calendar month in which the disability period ends.
Disability Period: Six (6) months
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16. TERMINATION ON DEATH. If Executive dies during the initial term or
during any renewal terms of this Agreement, this Agreement shall be terminated
on the last day of the calendar month in which the death occurred.
17. EFFECT OF MERGER OR SALE OF ASSETS. This Agreement shall not be
terminated by any merger in which Employer is not the surviving entity or by any
transfer of all or substantially all of Employer' s assets. In the event of any
such merger or transfer of assets, this Agreement shall be binding on and inure
to the benefit of the surviving business entity or the business entity to which
the Employer's assets are transferred.
18. UNFAIR COMPETITION PROHIBITED. During the course of employment,
Executive will have access to trade secrets and confidential information about
Employer and Employer's products, customers, and methods of doing business. In
consideration of access to this information, Executive agrees that for the
period specified below following termination of employment, Executive will not
engage in direct or indirect competition with Employer in the field of activity
and locations listed below. Executive understands and agrees that direct and
indirect competition include but are not limited to the activities set forth
below.
Noncompetition Period: Three (3) years
Geographic Areas or Locations: United States
19. TRADE SECRETS AND CONFIDENTIAL INFORMATION. In the course of
employment, Executive may have access to trade secrets and confidential
information relating to Employer's business. Except as required in the course of
Executive's employment by Employer, Executive will not, without Employer's prior
consent, during the employment term and for the period specified below following
termination of employment, directly or indirectly disclose to any third party
any such trade secrets or confidential information.
Nondisclosure Period: Three (3) years
20. CUSTOMER INFORMATION; SOLICITATION OF OTHER EMPLOYEES. In the course of
employment, Executive will have access to confidential records and data
pertaining to Employer's customers and customer relations. Such information is
considered secret and is disclosed to Executive in confidence. Except in the
course of Executive's employment by Employer or with Employer' s prior consent,
Executive will not directly or indirectly disclose or use any such information
during the employment terms and during the period following termination of
employment specified below. In addition, during the specified period, Executive
will not induce or attempt to induce any of Employer's employees or
representatives to discontinue wording for or representing Employer in order to
work for or represent any of Employer's competitors.
Nondisclosure Period: Three (3) years
21. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or breach of this Agreement, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction. There shall be three (3) arbitrators,
one to be chosen directly by each party at will, and the third arbitrator to be
selected by the two arbitrators so chosen. Each party shall pay the fees of the
arbitrator selected by that party, the fees of the party's own attorneys, the
expenses of the party's own witnesses, and any other expenses connected with
presenting that party's case. All other costs of arbitration, including the cost
of any record or transcripts of the arbitration, administrative fees, the fee of
the third arbitrator, and all other fees and costs, shall be borne equally by
the parties.
22. INJUNCTIVE RELIEF. Executive is obligated under this Agreement to
render services of a special, unique, unusual, and intellectual character, which
give this Agreement peculiar value The loss of these services cannot be
reasonably or adequately compensated by damages in an action at law.
Accordingly, in addition to other remedies provided during the term or any
renewal term of this Agreement to obtain injunctive relief against the breach of
3
<PAGE>
this contract by Executive or the performance of services elsewhere by
Executive, or both. Services rendered by Executive to U.S. STOCK TRANSFER CORP.,
a California corporation, are specifically excluded from this Agreement.
23. NON-ASSIGNMENT BY EXECUTIVE. Executive' s rights and obligations under
this Agreement are personal and non-assignable.
24. INTEGRATION. This Agreement contains the entire agreement of the
parties and supersedes all prior oral and written agreements, understandings,
commitments, and practices between the parties, including all prior employment
agreements, whether or not fully performed by Executive before the date of this
Agreement. No amendments to this Agreement may be made except by a writing
signed by both parties.
25. CHOICE OF LAW. This Agreement shall be governed by California law.
26. NOTICES. Any notice to Employer required or permitted under this
Agreement shall be given in writing, either by personal service or by registered
or certified mail, postage prepaid, addressed to Employer's President or
Secretary at Employer' s principal place of business. Any such notice to
Executive shall be given in a like manner and, if mailed, shall be addressed to
Executive at Executive's home address then shown in Employer's files. Notices by
personal service are deemed given on the date of delivery; notices by mail ate
deemed given on the second business day after mailing.
27. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable, the other portions of the agreement shall nevertheless continue
in full force and effect. If any provision is held invalid or unenforceable With
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.
Executed by the parties as of the day and year first above written.
STOCKNET. INC.
By:
Allen Dunn, Vice President
PETER DUNN
4
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<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 314,918 515,920
<SECURITIES> 0 1,150
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<CURRENT-ASSETS> 517,929 520,253
<PP&E> 208,655 187,680
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0 0
0 0
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<INCOME-PRETAX> 23,068 (407,981)
<INCOME-TAX> 800 800
<INCOME-CONTINUING> 22,268 (408,781)
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