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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
USA DIGITAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 59-3560920
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
USA DIGITAL, INC.
P.O. BOX 172574
TAMPA, FL 33672
(Address of principal executive offices)
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Registrant's telephone number, including area code (813) 230-9100
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class to be so registered Name of exchange on which
each class is to be registered
NONE NOT APPLICABLE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
On March 5, 1999, USA Digital, Inc. (the "Company") was incorporated in
the State of Nevada. The Company is a holding company whose mission is to build
a highly integrated convergent communications company. The Company seeks to
acquire Internet service providers, telephone interconnect companies,
computer/network integrators, and switchless resellers.
On March 4, 1999, Blazoon Systems Incorporated ("Blazoon"), a Colorado
corporation, consummated an Agreement and Plan of Reorganization (the
"Acquisition") with Diverse Capital Corp. ("Diverse"), a private corporation,
whereby Blazoon issued 1,235,000 shares of its common stock to the stockholders
of Diverse in exchange for 100% of the issued and outstanding common stock of
Diverse, and 625,000 shares of its Class A Preferred Stock in exchange for 100%
of the issued and outstanding preferred stock of Diverse. The preferred stock is
convertible to common stock at a one-for-one ratio beginning February 2, 2000 to
a maximum of 9.0% of the then outstanding common stock, has dividend preference,
is non-voting, and is subject to redemption at a $4.00 liquidation value at the
Company's option beginning February 2, 2004. Subsequent to the Acquisition, the
prior shareholders of Diverse owned approximately 55% of the voting common stock
of Blazoon.
On March 9, 1999 the Company consummated a merger agreement with
Blazoon to effect a redomicile and name change of Blazoon, with the Company as
the surviving entity.
BUSINESS DESCRIPTION
The Company is building a highly integrated, facility-based convergent
communications company that will address the rapidly expanding communication
demands of small to medium size businesses. The Company plans to achieve this
goal primarily through the acquisition of strategic partners that have a
recognized presence and customer base in its particular market and region, and
by offering these newly acquired customers its complete package of products and
services. These include, but are not limited to:
o High-speed Internet Access
o Internet Solutions
o Electronic Commerce
o Voice over Internet
o Internet Telephony
o Co-Location
o Local and Long Distance Telephone Services
o Communications Equipment Sales and Service
o Computer and Network Integration and Wireless Solutions
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The Company believes that a convergence is occurring in the
communication industry as more traditional Internet providers become
communications companies and communication companies become Internet companies.
These factors are creating an environment in which individuals and businesses
and other organizations perceive a need to establish Internet access and an
Internet presence. Furthermore, many businesses have Internet requirements that
go beyond the simple access that most Internet service providers offer. These
Internet requirements include security, network consulting, high-bandwidth
managed access and data services. These services are most efficiently provided
by a vendor that has a local presence so as to ensure these businesses that
their Internet requirements will receive priority treatment. The Company
believes that its status as a full-service communications company will enable it
to capitalize on this convergence.
In addition, the Telecommunications Act of 1996 (the "Telecom Act"),
the first comprehensive rewrite of the Communications Act of 1934, has
dramatically changed the ground rules for competition and regulation in
virtually all sectors of the communications industry, from local and
long-distance telephone services, to cable television, broadcasting and
equipment manufacturing. One of the market sectors that has been adversely
affected by passage of The Telecom Act is the switchless resellers. Previously,
these companies had occupied a very profitable niche in the market place
following the AT&T Divestiture in the mid-'80's, but due to The Telecom Act's
preferential treatment of facility based carriers, these switchless resellers
have watched their valuation drop from a high of 10 times monthly revenues to
their current valuation of 1-3 times monthly revenues, and thus creating an
excellent opportunity to enter the communications arena at an undervalued price
point.
The Company intends to grow through the continuation of its acquisition
program. In most instances, acquisitions will be consummated solely in exchange
for the Company's stock. Simultaneously, the Company intends to develop its
Internet infrastructure and Super Pop, a facility designed to provide access for
the co-location, for the co-location of independent ISPs and Inter-Exchange
Carriers to allow for the integration of High-Speed Internet access and Internet
Telephony utilizing fiber and broad-band connectivity. The ultimate goal is for
The Company to provide the following communications solutions and convergent
technologies to its newly acquired customer base:
o Dedicated high-speed broad band services to the small and
medium size business user, such as ATM, ADSL, ISDN, T1's,
Fractional T1's and DS3's.
o Dial up access service to the residential community, focused
on easy user interface and access to information on the World
Wide Web.
o IP Telephony with the ability to offer price competitive
service to both the commercial and residential users.
o Comprehensive long distance services including 800/888, One
Plus, WATS, international, calling cards, debit cards and
operator services. This unit would also provide digital
private line services, including ATM, Frame Relay, VPN, as
well as traditional private line services.
o Web Services, including production, hosting, marketing and E
Commerce solutions.
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o Computer/Network Integration, Technology and Engineering
Services for small and medium size businesses including fire
wall installations, local area networks ("LAN") and wide area
network ("WAN") installation along with maintenance and
management of those facilities.
The Company is currently in the process of applying for its license to
operate as a Competitive Local Exchange Carrier (CLEC), to do business in the
nine Bell South states. That combined with its Siemens DCO-CS (Digital Central
Office Switch) will qualify The Company as a facility based carrier under The
Telecom Act and, will further help provide the foundation on which the Company
will grow. This fully equipped switch will provide a full compliment of Local,
Centrex, ISDN, and Long Distance services, and is expected to be operational by
the beginning of the third quarter 1999.
MARKET AREA
The Company's target market is small to medium size businesses that
need assistance moving into the information age so that they can take advantage
of new markets as well as rapidly changing technologies. These businesses are
generally accustomed to working with a local communication vendor to ensure that
its communication needs receive the highest priority. Through the acquisition of
various strategic vendors, and Internet Service Providers ("ISP"), as well as
switchless resellers, The Company will build a customer base that will purchase
its business solutions and applications. Initially, the Company will concentrate
its activities in the nine state BellSouth region which includes Florida,
Georgia, North Carolina, South Carolina, Alabama, Tennessee, Mississippi,
Louisiana and Kentucky.
COMPETITION
The market for telecommunications products and services is highly
competitive and characterized by the frequent introduction of new products based
upon rapidly changing technologies. The Company competes with numerous
well-established manufacturers and suppliers of telecommunications products,
some of which dominate certain market segments. Most of the Company's
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company, have established reputations relating to
product design, development, manufacture, marketing and service of
telecommunications products and have significant budgets to permit them to
implement extensive advertising and promotional campaigns to market new products
in response to competitors.
PERSONNEL
As of August 20, 1999, the Company had 24 full-time employees. The
employees are not represented by a collective bargaining unit and the Company
considers its relationship with its employees to be good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and related notes included elsewhere in this Form
10-SB. This discussion contains forward-looking statements based on current
expectations, which involve risks and uncertainties. Actual results and the
timing of certain events could differ materially from the forward-looking as a
result of a number of factors.
OVERVIEW
The Company was incorporated under the laws of Nevada on March 5, 1999
and is a holding company that intends to build a highly integrated, facility
based, convergent communications company. The Company intends to grow primarily
through the acquisition of Internet service providers, telephone interconnect
companies, computer/network integrators, and switchless resellers, and then
selling its products and services to its newly acquired customer base. These
products and service will include : high-speed Internet access, Internet
solutions, electronic commerce, voice over Internet, Internet telephony,
co-location, local and long distance telephone services, communications
equipment sales and servicing, computer and network integration and wireless
solutions.
The Company has entered into a lease agreement with Siemens for the
lease of DCO telephone switch. This switch will be located in Orlando, Florida
and is expected to be operational by the 4th quarter 1999. The operation of this
switch will qualify the Company as facility-based under the Telecommunications
Act of 1996. Further, the Company is currently in negotiations with Siemen's for
the lease of three additional remote switches that will be used to link its
network in the State of Florida.
On June 2, 1999, the Company purchased a secured interest in Syncom,
Inc., a Florida corporation that owns and operates Gator.net. Gator.net is a
Gainesville, Florida Internet service provider that currently has a customer
base of 2,500 subscribers. Syncom, Inc. is currently operating under the
protection of Chapter 11 of the United States Bankruptcy Code in the Northern
District of Florida. Through the operation of its Siemen's DCO switch and/or
with its BellSouth reseller agreement, the Company possesses the ability to
reduce Gator.net's monthly telephone circuit expenses by nearly 70%, and thus
make Gator.net profitable at its current operating levels. Syncom has recently
submitted a plan of reorganization to the Bankruptcy Court that if accepted will
enable the Company to purchase 100% of Syncom.
On July 12, 1999 the Company completed the acquisition of DSA
Computers, Inc., a Sunrise, Florida based computer and network integrator. DSA
will operate as a wholly-owned subsidiary of the Company. In 1998 DSA generated
more than $1.3 million in revenues with gross profit margins of approximately
25%. The purchase price of the acquisition was 40,000 shares of the Company's
Class B Convertible Preferred Stock, Series 2.
On August 5, 1999 the Company completed its acquisition of Telephone
Engineering and Maintenance, Inc. (T.E.A.M.), a Tampa, Florida based telephone
interconnect company that has been in business since 1986. T.E.A.M. will operate
as a wholly-owned subsidiary of the Company. During its 1998 fiscal year,
T.E.A.M. generated nearly $800,000 in operating revenues with gross profit
margins in excess
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of 20%. The purchase price of the acquisition is 50,000 shares of the Company's
Class B Convertible Preferred Stock, Series 1.
STATEMENT OF OPERATIONS
The Company did not generate any revenues for the three months ended
June 30, 1999, as it was in the process of establishing the necessary
infrastructure that will enable it to meet its acquisition goals over the next
24 months. During the above period the Company incurred $160,349 in expenses
that were mainly associated with the development of the aforementioned
infrastructure. The Company sustained a net loss of $0.06 per share for the
period.
CASH FLOW ACTIVITY
During the period ended June 30, 1999, the Company received proceeds of
$72,000 from the sale of common stock pursuant to Regulation D, Rule 504 of the
Securities Act of 1933, as amended. Additionally, $160,349 in expenses that were
incurred as a result of various consulting fees were exchanged for common stock
in the Company. The net result to the Company for the period was a decrease in
its cash position of $61,327.
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategy is to acquire established Internet service
providers, computer/network integrators, telephone interconnect companies, and
switchless resellers mostly in exchange for stock in USA Digital. As such, the
Company does not anticipate requiring large sums of money to consummate its
anticipated acquisitions. However, the Company does anticipate incurring
expenses relating to the completion of future acquisitions, required deposits,
and switching activities. To that end, the Company has currently initiated a
Private Placement to raise an additional $1 million in capital. As of the date
of this Registration Statement, $498,000 has been raised in the private
placement.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive income
and its components, and is effective for fiscal years beginning after December
15, 1997. Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and its effective for financial
statements for periods beginning after December 15, 1997. Statement No. 132,
"Employers' Disclosure About Pensions and Other Postretirement Benefits" revises
employers' disclosure requirements about pension and other postretirement
benefit plans and in effective for fiscal years beginning after December 15,
1997. Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for derivative
instruments and related contracts and hedging activities. This statement is
effective for all fiscal quarters and fiscal years beginning after June
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15, 1999. The Company believes that its adoption of these pronouncements will
not have a material effect on the Company's financial position or results of
operations.
YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit year value to 00.
The issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company uses standard off the shelf accounting software package for
all of its accounting requirements. Management has contacted the software vendor
and determined that the accounting software is Microsoft based and management
continually monitors the Year 2000 status of such software. Management has
verified Year 2000 status with is primary vendors, including Siemens, as it
relates to its telephone switches, and has not identified any Year 2000 issues
with those vendors. Costs of investigating internal and external Year 2000
compliance issues have not been material to date. As a result, management
believes that the effect of investigating and resolving Year 2000 compliance
issues on the Company will not have a material effect on the Company's future
financial position or results of operations.
In addition to the effect of Year 2000 issues on the Company's
accounting and management systems, year 2000 issues may effect the Company's
products and programs as they are primarily computer related. The Company's
products have been developed and tested with regard to year 2000 compliance. All
products were deemed to be Year 2000 compliant. The costs of such development
and testing and validating were minimal and absorbed as part of the Company's
normal quality control procedures.
The Company has funded its Y2K plan from available cash and has not
separately accounted for these costs in the past. To date, these costs have not
been material. Any additional costs that may be incurred are not anticipated to
be material. The Company may experience material problems and costs with Y2K
compliance that could adversely affect its business, results of operations and
financial condition.
The Company has not yet fully developed a contingency plan to address
situations that may result if it is unable to achieve Y2K readiness of its
critical operations. Finally, the Company is also subject to external forces
that might generally affect industry and commerce, such as utility or
transportation company Y2K compliance failures and related service
interruptions.
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ITEM 3. DESCRIPTION OF PROPERTY
The following table sets forth certain information at June 30, 1999
regarding the Company's office facilities, which are leased by the Company and
certain other information relating to its property at that date.
<TABLE>
<CAPTION>
ANNUAL RENT LEASE EXPIRES SQUARE FOOTAGE
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<S> <C> <C> <C>
6702 Benjamin Road, Suite 300
Tampa, FL 33634 $66,000 December 31, 1999 2,400
10001 N.W. 50th Street, Suite 105
Sunrise, Florida 33351 $30,000 November 30, 1999 3,400
</TABLE>
At June 30, 1999, the net book value of the Company's computer
equipment and other furniture, fixtures and equipment at its existing offices
totaled $752,873. For more information, see Note 2 of the Notes to Consolidated
Financial Statements.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock beneficially owned by each person known to be the beneficial owner of 5%
of the company's common stock, each director and executive officer, and all
directors and executive officers of the Company as a group, as of August 20,
1999. Except as otherwise indicated, each person and each group shown in the
table has sole voting and investment power with respect to the shares of Common
Stock listed next to their name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
NAME POSITION OWNERSHIP(1) OUTSTANDING(2)
- ------------------------ ------------------------------- ----------------------- ---------------
<S> <C> <C> <C>
Bell Entertainment, Inc. Consultant 270,500(3) 9.4%
John D. Brasher, Jr. Shareholder 220,000 7.9%
Dunn Capital Corp. Consultant 843,000(4) 27.6%
J.R. Nelson Shareholder 247,500 8.8%
Mark D. Cobb Director, President and
Chief Executive Officer 850,000(5) 27.9%
Donald E. Darden Director 45,000 1.6%
Peter J. Lyons Director 50,000 1.8%
Kenneth D. Allen Vice President 50,000 1.4%
H. Ralph Cole President (T.E.A.M.) -(6) *
David Seal President (DSA Computers) -(7) *
All directors and executive officers
as a group (6 persons) 9,450 31.0%
</TABLE>
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* Less than one percent of outstanding Common Stock.
(1) All persons shown in the above table have sole voting and investment power,
except as otherwise indicated.
(2) Percentages with respect to each person or group of persons have been
calculated on the basis of 2,802,000 shares of Common Stock, the total
number of shares of the Company's common stock outstanding as of August 20,
1999, plus the number of shares of Common Stock which such person or group
has the right to acquire within 60 days after August 20, 1999.
(3) Includes options to purchase 62,500 shares of the Company's Common Stock at
$1.00 per share. Does not include options to purchase 187,500 shares of the
Company's Common Stock at prices ranging from $1.00 per share to $3.00 per
share.
(4) Includes options to purchase 250,000 shares of the Company's Common Stock
at $1.00 per share. Does not include options to purchase 500,000 shares of
the Company's Common Stock at prices ranging from $1.50 per share to $3.00
per share.
(5) Includes options to purchase 250,000 shares of the Company's Common Stock
at $1.00 per share . Does not include options to purchase 500,000 shares of
the Company's Common Stock at prices ranging from $1.50 per share to $3.00
per share.
(6) Does not include: 50,000 shares of voting Class B Convertible Preferred
Stock, Series 1 with each convertible into five shares of the Company's
Common Stock beginning on August 5, 2000.
(7) Does not include 40,000 shares of voting Class B Convertible Preferred
Stock, Series 2 with each share convertible into five shares of the
Company's Common Stock beginning on July 12, 2000. All shares of Class B
Convertible Preferred Stock have a liquidation value of $4.00 per share and
are subject to cash redemption at the liquidation value at the election of
either the Company or the holder beginning three years from the date of
issuance upon thirty days written demand for redemption by either party.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Mark D. Cobb, age 50, has been the President and Chief Executive
Officer of the Company since its inception. Mr. Cobb, has more than 20 years of
telecommunications experience. From 1996-1998 he was employed as Chief Operating
Officer by TSC, a full service facility based carrier, located in Tampa,
Florida. Under Mr. Cobb's leadership TSC grew from billing $100,000 monthly to
$2.5 million a month in just a 12-month period. Prior to that he was Vice
President Sales & Marketing for Phone One, Inc. which was acquired by Intermedia
Communications, Inc. in December of 1994, where he pioneered a wholesale
division and generated more than $23 million in contracts in less than six
month. Mr. Cobb has also held management positions with AT&T, ITT, ATC/Microtel,
Southern Bell and Metromedia. In addition to his successful career in the
telecommunications industry, Mr. Cobb enjoyed a distinguished career as a U.S.
Army officer and helicopter pilot, flying 2,000 hours of combat time in Vietnam.
Mr. Cobb left active duty as a Captain at the age of 23 having earned the
following military awards: Distinguished Flying Cross, Bronze Star, 38 Air
Medals, Air Medal with Combat V for Valor, Navy Commendation Medal with Combat
V, Vietnamese Cross of Gallantry/Bronze Star, Army Commendation Medal, Good
Conduct Ribbon and National Defense Ribbon.
Donald E. Darden, age 53, has been a director of the Company since its
inception. From 1973 to present, Mr. Darden has run an architectural firm.
Peter J. Lyons, age 54, has been a director of the Company since July
1, 1999. Mr. Lyons has more than 35 years of telecommunications experience, and
is currently an independent telecommunications consultant. From 1998-June 1,
1999 Mr. Lyons was the President & General Manager of the Broad Band Carrier
Division of Siemens ICN. From 1996-1998 he was Vice-President of DCO & AIN
Business Units for Siemens Telecom Networks, where he was credited with bringing
in $31 million net profit from previously abandoned Narrowband Switching
Product. From 1988-1996 Mr. Lyons was Director of OCC/CAP Sales at Siemens
Stromberg-Carlson.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Kenneth D. Allen, age 43, has served as Vice President of Switch
Operations of the Company since its inception. Mr. Allen has more than 21 years
of managerial experience in the telecommunications industry with an emphasis on
operations, MIS and technical support. From 1996- 1998 he was Vice President of
Operations/Business Development at Melbourne International Communications Ltd.,
Melbourne, Florida where his duties included responsibility for all operations
including MIS, Switching, Network Management, Technical and Customer Service.
Prior to that Mr. Allen was employed at Ameritech Communications, Inc.,
Rosemont, Illinois as a Director of Product Marketing Manager where he designed
and managed a network that handled a $75 million customer base. Additionally,
Mr. Allen has held managerial positions with Phonetel Technologies, Inc., LCI
International and MCI Communications. Mr. Allen has the following
certifications: DSC 400/600 switch, SS7 signaling, DMS-250 switch, DCO Siemens
switch, SAT 565 1.8 and 2.4, FiberOptic Transmission Systems.
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H. Ralph Cole, age 54, has served as the President of T.E.A.M., Inc.
since 1986. Mr. Cole formed T.E.A.M. in 1986 a premier interconnect company
servicing Tampa, florida and its outlying areas. From 1984-1986 Mr. Cole was an
executive for Telplus, a large nationwide interconnect company located in Tampa.
From 1974-1984 Mr. Cole functioned as a top consultant to United Technologies.
Prior to joining United Technologies, Mr. Cole was employed by GTE for more than
4 1/2 years designing land and microwave transmission systems.
David Seal, age 43, has served as President DSA Computers, Inc. since
1991. In 1991 Mr. Seal formed DSA Computers, Inc., a full service hardware and
network sales and service company. Eight years later DSA services all of
Florida, as well as some parts of the Caribbean.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the
Company for services rendered in all capacities during the three months ended
March 31, 1999 to the President and Chief Executive Officer of Company. No other
executive officer of the Company had annual salary and bonus during the three
months ended March 31, 1999 aggregating in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
--------------------------------------------- ------ -------
(A) (B) (C) (D) (E) (G) (H) (I)
OTHER
ANNUAL LTIP
SALARY COMPENSATION OPTIONS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR ($) BONUS($) ($)(1) (#)(2) ($) COMPENSATION($)(3)
- ---------------------------------------- ---- ---------- -------- ------------ ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark D. Cobb
President and Chief Executive Officer... 1999 $108,000 $ --- --- 750,000 --- ---
</TABLE>
(1) For fiscal year 1999, there were no: (a) perquisites with an aggregate
value for any named individual in excess of the lesser of $50,000 or 10%
of the total of the individual's salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred compensation;
(c) payments of earnings with respect to long-term incentive plans prior
to settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock.
(2) Includes 750,000 shares of Common Stock subject to options granted to Mr.
Cobb pursuant to the employment agreement between the Company and Mr.
Cobb dated January 5, 1999. The options granted under the employment
agreement are intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code, as amended (the "Code") to the
maximum extent possible, and any options that do not qualify will
constitute non-qualified stock options. Of these options, 125,000 became
exercisable on January 5, 1999 with the remaining options becoming
exercisable at annual increments beginning on January 15, 1999 to January
15, 2002 at varying exercise prices ranging from $1.50 per share to $3.00
per share. Such options generally remain exercisable until the tenth
anniversary of the grant date. In the case of a change in control, as
defined in the Stock Option Plan, all options granted become immediately
exercisable.
(3) Includes (i) the dollar value of premiums, if any, paid by the Company
with respect to term life insurance (other than group term insurance
coverage under a plan available to substantially all salaried employees)
for the benefit of the executive officer.
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CERTAIN EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
Employment Agreement. On January 5, 1999 the Company entered into an
employment agreement with its President. The effective date of this agreement is
November 10, 1998, and it for a period of five years at which time it can be
renewed by mutual agreement of both parties. The agreement may be terminated at
any time by mutual written agreement by the parties. The consideration is
$96,000 annually paid at regular payroll periods. As additional compensation,
the Company is issuing a total of 750,000 options vesting and becoming
exercisable at annual intervals ranging from January 5, 1999 to January 15, 2002
at varying exercise prices ranging from $1.00 per share to $3.00 per share. All
options expire five years following their initial vesting date.
Consulting Agreements. On January 5, 1999, effective November 10, 1998,
the Company entered into a five year consulting agreement with Dunn Capital
Corporation whereby the Company will be provided with advice with regard to
corporate finance, evaluations of business partners, mergers and acquisitions
and such other matters as requested. This agreement may be extended by mutual
written agreement of the parties. As consideration for the services provided,
the Company issued 150,000 shares of the Company's common stock as a signing
bonus. The Company pays a monthly fee of $8,000 in semi-monthly installments. As
additional compensation, the Company issued a total of 750,000 options,
exercisable at annual intervals ranging from January 5, 1999 to February 15,
2002 at varying exercise prices from $1.00 to $3.00. The Company also agreed to
pay the organization a 2% finders fee, payable in cash or stock at the Company's
election, on the total value of any acquisition, merger, reverse-merger and/or
equity or debt financing introduced to the Company, excluding Orlando Digital
Telephone and Blazoon Systems, Incorporate. In addition, the Company shall
provide the organization with a monthly unaccounted for expense allowance of
$2,500.
On January 5, 1999, effective November 10, 1998, the Company entered
into a two year consulting agreement with Bell Entertainment, Inc. whereby the
Company will be provided with advice with regard to corporate finance,
evaluations of business partners, mergers and acquisitions and such other
matters as requested. This agreement may be extended by mutual written agreement
of the parties. As consideration for the services provided the Company shall pay
a monthly fee of $5,000, plus $200/hour for any time in excess of 50 hours in
any calendar month. As additional compensation, the Company issued a total of
437,500 options, exercisable at annual intervals ranging from January 5, 1999 to
February 15, 2002 at varying exercise prices between $1.00 to $3.00.
1998 Compensatory Stock Option Plan. The Stock Option Plan ("Stock
Option Plan") has been adopted by the Board of Directors of the Company and
approved by the Company's stockholders. The purpose of the Stock Option Plan is
to promote the growth of the Company and its affiliates by linking the incentive
compensation of officers, key executives and directors with the profitability of
the Company. The Stock Option Plan is not subject to ERISA and is not a
tax-qualified plan. The Company has reserved an aggregate of 1,500,000 shares of
Common Stock for issuance upon the exercise of stock options granted under the
Plan.
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<PAGE>
The Stock Option Plan is administered by the members of the Board's
Compensation Committee who are disinterested directors ("Option Committee"). The
Stock Option Plan does not provide for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and provides only for the grant of non-qualified stock
options to purchase Common Stock of the Company ("Options") to eligible
employees. The Option Committee has discretion under the Stock Option Plan to
establish certain material terms of the Options granted to officers and
employees provided such grants are made in accordance with the Plan's
requirements.
All costs of the Stock Option Plan are borne by the Company. The
Company has reserved the right to amend or terminate the Plan, in whole or in
part, subject to the requirements of all applicable laws.
The following table summarizes the grants that were made to the Named
Executive Officer during fiscal 1999.
OPTION/SAR GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED IN EXERCISE OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (#)(1) (%) ($ PER SHARE) (2) DATE
- ---- ------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Mark D. Cobb
President and Chief Executive Officer 750,000 40.0 2.17 1/15/2007
</TABLE>
- -------------
(1) The options granted under the employment agreement are intended to
qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code, as amended (the "Code") to the maximum extent possible,
and any options that do not qualify will constitute non-qualified stock
options. Of these options, 125,000 became exercisable on January 5,
1999 with the remaining options becoming exercisable at annual
increments beginning on January 15, 1999 to January 15, 2002 at varying
exercise prices ranging from $1.50 per share to $3.00 per share. Such
options generally remain exercisable until the fifth anniversary of the
vesting date. In the case of a change in control, as defined in the
Stock Option Plan, all options granted become immediately exercisable.
(2) Represents the weighted-average exercise price of options granted.
Actual exercise prices range from $1.00 per share to $3.00 per share.
1998 Employee Stock Compensation Plan. The 1998 Employee Stock
Compensation Plan (the "Compensation Plan") is intended to further the growth of
the Company and its affiliates by supporting and increasing the Company's
ability to attract, retain and compensate officers and key employees of the
Company. The Compensation Plan is not subject to ERISA and is not a
tax-qualified plan. The Company has reserved 1,000,000 shares of Common Stock
for issuance under the Compensation Plan.
The Compensation Committee of the Board of Directors ("Committee") will
be responsible for the administration of the Compensation Plan and will have
sole power to award Common Stock under the Compensation Plan. Subject to the
express provisions of the Compensation Plan, the Committee shall have full
authority and sole and absolute discretion to interpret the Compensation Plan,
to prescribe, amend and rescind rules and regulations relating to it, and to
make all other
-12-
<PAGE>
determinations which it believes to be necessary or advisable in administering
this Plan. The determination of those eligible to receive an award shall rest in
the sole discretion of the Committee, subject to the provisions of the
Compensation Plan. Awards may be made as compensation for services rendered,
directly or in lieu of other compensation payable, as a bonus in recognition of
past service or performance or may be sold to an employee as herein provided.
The following table provides the value for "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options and the fiscal year-end price of the Common Stock, which
was $3.25 per share. The first installment of options became exercisable on
January 5, 1999. The Named Executive Officer did not exercise any vested options
during the fiscal year ended March 31, 1999.
AGGREGATED OPTIONS IN 1999 FISCAL YEAR AND 1999 FISCAL YEAR END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END YEAR-END(1)
(#) ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Mark D. Cobb
President and Chief Executive Officer....... 250,000 / 500,000 500,000 / 312,500
</TABLE>
- ---------------------
(1) The closing price per share of Common Stock on March 31, 1999 was
$3.25, and options have exercise prices ranging from $1.00 to $3.00 per
share, which equals spreads of $2.25 per share to $0.25 per share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 5, 1999, effective November 10, 1998, the Company entered
into a five year consulting agreement with Dunn Capital Corporation whereby the
Company will be provided with advice with regard to corporate finance,
evaluations of business partners, mergers and acquisitions and such other
matters as requested. This agreement may be extended by mutual written agreement
of the parties. As consideration for the services provided, the Company issued
150,000 shares of the Company's common stock as a signing bonus. The Company
pays a monthly fee of $8,000 in semi-monthly installments. As additional
compensation, the Company issued a total of 750,000 options, exercisable at
annual intervals ranging from January 5, 1999 to February 15, 2002 at varying
exercise prices from $1.00 to $3.00. The Company also agreed to pay the
organization a 2% finders fee, payable in cash or stock at the Company's
election, on the total value of any acquisition, merger, reverse-merger and/or
equity or debt financing introduced to the Company, excluding Orlando Digital
Telephone and Blazoon Systems, Incorporate. In addition, the Company shall
provide the organization with a monthly unaccounted for expense allowance of
$2,500.
On January 5, 1999, effective November 10, 1998, the Company entered
into a two year consulting agreement with Bell Entertainment, Inc. whereby the
Company will be provided with advice with regard to corporate finance,
evaluations of business partners, mergers and acquisitions and such other
matters as requested. This agreement may be extended by mutual written agreement
-13-
<PAGE>
of the parties. As consideration for the services provided the Company shall pay
a monthly fee of $5,000, plus $200/hour for any time in excess of 50 hours in
any calendar month. As additional compensation, the Company issued a total of
437,500 options, exercisable at annual intervals ranging from January 5, 1999 to
February 15, 2002 at varying exercise prices between $1.00 to $3.00.
On March 22, 1999, June 25, 1999 and August 18, 1999, respectively, the
Company issued 25,000, 25,000 and 25,000 shares of common stock, respectively,
to Bell Entertainment, Inc. at $1.00 per share in connection with private
placements of the Company's common stock pursuant to Rule 504 of Regulation D of
the Securities Act of 1933, as amended. Bell Entertainment paid for the shares
by converting accrued, but unpaid consulting fees to equity in the Company.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company is authorized to issue 50,000,000 shares of common stock,
$.001 par value per share; 5,000,000 shares of Class A preferred stock, $.001
par value per share; and 5,000,000 of Class B preferred stock, $.001 par value
per share. As of the date of this Registration Statement, there were 2,802,000
shares of common stock outstanding held by 49 holders of record. In addition,
there were 40,000 shares of outstanding, 50,000 shares of Class B Convertible
Preferred Stock, Series 1 Class B Convertible Preferred Stock, Series 1
outstanding as of the date of this registration statement and no shares of Class
A Preferred Stock outstanding. See "Part II Item 2 - Legal Proceedings."
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors.
The holders of shares of common stock are entitled to receive dividends
when, as and if declared by the Board of Directors in its discretion, out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in the assets of the Company, if any, legally available for distribution
to them after payment of debts and liabilities of the Company after provision
has been made for each class of stock, if any, having liquidation preference
over the common stock.
The holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption or sinking fund provisions
applicable to the common stock. All of the outstanding shares of common stock
are fully paid and non-assessable.
PREFERRED STOCK
In connection with an acquisition transaction (see "Legal
Proceedings"), the Company may be required to issue 625,000 shares of Class A
Preferred Stock.
A series of Class B Preferred Stock was designated as "Class B
Convertible Redeemable Preferred Stock, Series 1" and consists of 50,000 shares,
$.001 par value per share. These shares are redeemable any time after April 20,
2002 upon 30 days written notice to the Company, and such shares are designated
at $4.00 per share. The Company also has the right of redemption under rights
similar to the preferred shareholders. The shares have the right, at the option
of the holder at any time after July 9, 2000, to convert each outstanding share
of Class B Preferred Stock, Series 1 into five fully paid and nonassessable
shares of the Company's common stock. Additionally, each holder of these shares
shall be entitled to vote at all meetings of the shareholders and shall have one
vote for each share held (see Note 7 to "Financial Statements").
A series of Class B Preferred Stock was designated as "Class B
Convertible Redeemable Preferred Stock, Series 2" and consists of 40,000 shares,
$.001 par value per share. At any time after July 2, 2002, upon 30 days written
notice to the Company, holders of shares of Class B Preferred Stock, Series 2
may, at the option of the holder thereof, require that the Company redeem in
whole or in part, such shares as designated at $4.00 per share. The Company also
has the right of redemption under rights similar to the preferred shareholders.
The holders of these shares have the right, at their option at any time after
July 9, 2000, to convert each outstanding share of Class B Preferred Stock,
Series 2 into five fully paid and nonassessable shares of the Company's common
stock. Additionally, each holder of these shares shall be entitled to vote at
all meetings of the shareholders and shall have one vote for each share held
(see Note 7 to "Financial Statements").
-14-
<PAGE>
PART II
ITEM 1. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Electronic Bulletin
Board under the symbol "UDIG." The table below shows the high and low sales
price during the periods indicated. The Company's common stock began trading on
March 26, 1999. At March 31, 1999, the last trading date in the Company's fiscal
year, the Company's common stock closed at $3.25. At August 20, 1999, there were
2,802,000 shares of the Company's common stock outstanding, which were held of
record by approximately 49 stockholders, not including persons or entities who
hold the stock in nominee or "street" name through various brokerage firms.
<TABLE>
<CAPTION>
PRICE RANGE
-------------------------------
QUARTER ENDED HIGH LOW
- -------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Fiscal year ended March 31, 1999:
Fourth Quarter ended March 31, 1999(1)............................... $3.50 $3.000
Fiscal year ended March 31, 2000:
First Quarter ended June 30, 1999(1)................................. $6.50 $3.000
Second Quarter ended September 30, 1999(2)........................... $4.75 $0.875
</TABLE>
- -----------------
(1) Fourth quarter data is for the period of March 26, 1999 to March 31, 1999.
(2) Second quarter data is for the period of July 1, 1999 to September 14, 1999.
The Company did not pay dividends in fiscal year 1999 and does not
intend to do so for the foreseeable future. The Board of Directors considers
paying dividends, dependent on the results of operations and financial condition
of the Company, tax considerations, industry standards, economic conditions,
regulatory restrictions and other factors.
-15-
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
On February 2, 1999 Diverse Capital Corporation ("Diverse") acquired
Orlando Digital Telephone Corporation ("ODT") in exchange for 325,000 shares of
Diverse common stock and 625,000 shares of Diverse Convertible Preferred A
Stock. The 325,000 shares of common stock were issued to ODT shareholders.
Diverse reserved the right at the time of the closing to obtain an appraisal
substantiating that the approximate value of ODT was $2.8 million. Subsequently,
USA Digital, Inc., the successor to Diverse, obtained an appraisal which did not
substantiate such value, and, on May 14, 1999, in the Circuit Court in and for
Hillsborough county, Florida, filed a complaint against ODT and its former
shareholders seeking rescission of the ODT acquisition. The Defendants filed a
Motion to Dismiss, which was served on the Company on June 19, 1999. A hearing
on defendants' motion is set for September 27, 1999. Defendants have not yet
filed an Answer or asserted any counterclaims or defenses. In addition to such
other relief that the Court may grant in the event that the Company does not
prevail, including enforcement of the acquisition agreement, the Company may be
required to issue 625,000 shares of Class A Convertible Preferred Stock to the
ODT shareholders.
Other than described above, the Company is not involved in any pending
legal proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings in the aggregate are believed
by management to be immaterial to the Company's financial condition and results
of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were issued by the Company since its inception
on March 5, 1999 without registering the securities under the Securities Act.
There were no underwriting discounts or commissions paid in connection with the
issuance of any of said securities, except as noted.
On March 9, 1999, the Company issued 2,235,000 shares of its common
stock and 625,000 shares of Series A Convertible Preferred Stock to the
shareholders of Blazoon Systems, Inc., a Colorado corporation, in a one for one
share exchange pursuant to a Merger Agreement by and among Blazoon Systems, Inc.
and the Company dated March 9, 1999. The shares of Series A Convertible
Preferred Stock were subsequently canceled by the Company. See "Legal
Proceedings."
The sales of the securities described in the following table were made
in reliance upon Regulation D, Rule 504 of the Securities Act, which provides
exemptions for transactions not involving a public offering. With regard to the
Company's reliance upon the exemption from registration provided by Regulation
D, Rule 504 of the Securities Act of the sale of securities described below,
certain inquiries were made by the Company to establish that such sales
qualified
-16-
<PAGE>
for such exemption. In particular, for issuances occurring after April 7, 1999,
the Company confirmed that with respect to the exemption claimed under
Regulation D, Rule 504 of the Securities Act (i) each investor made
representations that he or she was an "accredited investor" within the meaning
of Regulation D of the Securities Act in relation to such investments.
<TABLE>
<CAPTION>
Number of
Shares of
Common Consideration
Purchaser Date Stock per Share
- --------- ---- ----- ---------
<S> <C> <C> <C>
Bell Entertainment, Inc. March 22, 1999 25,000 $ 1.00
Jim Brant March 24, 1999 5,000 $ 1.00
Jonathan Chapman March 25, 1999 5,000 $ 1.00
Newton R. Cobb March 24, 1999 5,000 $ 1.00
Dominic T. Dinicola March 25, 1999 15,000 $ 1.00
Donald E. Darden March 25, 1999 10,000 $ 1.00
Mark F. Darden March 25, 1999 10,000 $ 1.00
Equitable Research & Development, Inc. March 26, 1999 60,000 $ 1.00
Victor Fronk March 24, 1999 2,500 $ 1.00
K&M Associates March 25, 1999 12,000 $ 1.00
Jeff Krisan March 24, 1999 7,500 $ 1.00
William E. Miracle March 26, 1999 2,500 $ 1.00
David Seal March 25, 1999 5,000 $ 1.00
Jeffre Walker March 24, 1999 2,500 $ 1.00
Mark Sand March 26, 1999 10,000 $ 1.00
Carol R. Buccino March 26, 1999 25,000 $ 1.00
Louis V. Buccino March 26, 1999 50,000 $ 1.00
Francesco Marchesini March 25, 1999 5,000 $ 1.00
Equitable Research & Development, Inc. August 18, 1999 75,000 $ 1.00
Bell Entertainment, Inc. August 19, 1999 25,000 $ 1.00
Funding USA Corp. September 10, 1999 36,000 $ 1.00
David Miller March 24, 1999 2,500 $ 1.00
Denise Miller March 24, 1999 2,500 $ 1.00
Bell Entertainment May 28, 1999 25,000 $ 1.00
Equitable Research Development, Inc. June 25, 1999 75,000 $ 1.00
------- --------
TOTAL 498,000 $498,000
======= ========
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada General Corporation Law ("NGCL"), empowers a Nevada
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgements fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of any such threatened, pending or completed action or suit if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and provided further
that (unless a court of competent jurisdiction otherwise provides) such person
shall not have been adjudged liable to the corporation. Any such indemnification
may be made only as authorized in each specific case upon a determination by the
stockholders or disinterested directors or by independent legal counsel in a
written opinion that indemnification is proper because the indemnitee has met
the applicable standard of conduct.
The NGCL further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
of a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under the NGCL.
The Company's bylaws provide that the Company shall indemnify its
officers and trustees to the fullest extent permitted by law.
-17-
<PAGE>
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of USA Digital, Inc. as of June 30, 1999 are
included in pages F-1 through F-19 of this report.
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
3.1 Certificate of Incorporation of USA Digital, Inc...........................................
3.2 Bylaws of USA Digital, Inc.................................................................
4.3 Specimen of Stock Certificate of USA Digital, Inc..........................................
10.1 Employment Agreement between USA Digital, Inc. and
Mark D. Cobb...............................................................................
10.2 Consulting Agreement between USA Digital, Inc. and
Dunn Capital Corporation...................................................................
10.3 Consulting Agreement between USA Digital, Inc. and Bell
Entertainment, Inc.........................................................................
10.4 1998 Compensatory Stock Option Plan........................................................
10.5 1998 Employee Stock Compensation Plan......................................................
10.6 Agreement and Plan of Reorganization by and among
Blazoon Systems, Inc. and Diverse Capital Corporation
dated February 26, 1999....................................................................
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.7 Acquisition Agreement made and entered into as of July 2,
1999 by and among USA Digital, Inc., DSA Computer,
Inc., and David Seal.......................................................................
10.8 Amendment to Acquisition Agreement by and among
USA Digital, Inc., DSA Computers, Inc. and David Seal......................................
10.9 Employment Agreement by and between DSA Computers, Inc. and
David Seal.................................................................................
10.10 Acquisition Agreement made and entered into as of June 7,
1999, by and among, USA Digital, Inc., Telephone
Engineering and Maintenance, Inc., and H. Ralph Cole.......................................
10.11 Employment Agreement by and between Telephone Equipment
Maintenance, Inc., and H. Ralph Cole.......................................................
21.1 Subsidiaries of the Registrant.............................................................
23.1 Consent of Weinberg & Company, P.A. .......................................................
27.1 Financial Data Schedule (Submitted only with filing in electronic
format)....................................................................................
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation of USA Digital, Inc.
3.2 Bylaws of USA Digital, Inc.*
4.3 Specimen of Stock Certificate of USA Digital, Inc.*
10.1 Employment Agreement between USA Digital, Inc. and
Mark D. Cobb.
10.2 Consulting Agreement between USA Digital, Inc. and
Dunn Capital Corporation
10.3 Consulting Agreement between USA Digital, Inc. and Bell
Entertainment, Inc.
10.4 1998 Compensatory Stock Option Plan
-19-
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5 1998 Employee Stock Compensation Plan
10.6 Agreement and Plan of Reorganization by and among
Blazoon Systems, Inc. and Diverse Capital Corporation
dated February 26, 1999
10.7 Acquisition Agreement made and entered into as of July 2,
1999 by and among USA Digital, Inc., DSA Computer,
Inc., and David Seal
10.8 Amendment to Acquisition Agreement by and among
USA Digital, Inc., DSA Computer, Inc. and David Seal
10.9 Employment Agreement by and between DSA Computers,
Inc. and David Seal
10.10 Acquisition Agreement made and entered into as of June 7,
1999, by and among, USA Digital, Inc., Telephone
Engineering and Maintenance, Inc., and H. Ralph Cole
10.11 Employment Agreement by and between Telephone
Equipment Maintenance, Inc., and H. Ralph Cole
21.1 Subsidiaries of the Registrant
23.1 Consent of Weinberg & Company, P.A.
27.1 Financial Data Schedule (Submitted only with filing in
electronic format)
________________
* To be filed by amendment.
-20-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
USA DIGITAL, INC.
By: /s/ Mark D. Cobb
---------------------------------
Mark D. Cobb
President and Chief Executive Officer
Dated: September 16, 1999
<PAGE>
USA DIGITAL, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
<PAGE>
USA DIGITAL, INC.
CONTENTS
PAGE 1 - ACCOUNTANTS' REVIEW REPORT
PAGE 2 - BALANCE SHEET AS OF JUNE 30, 1999
PAGE 3 - STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE THREE MONTHS ENDED
JUNE 30, 1999
PAGE 4 - STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
PAGE 5 - STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
PAGES 6 - 18 - NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of:
USA Digital, Inc.
We have reviewed the accompanying balance sheet of USA Digital, Inc. as of June
30, 1999 and the related statements of operations, changes in stockholders'
deficiency and cash flows for the three months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of USA
Digital, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
August, 3, 1999
<PAGE>
USA DIGITAL, INC.
BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,676
Loans receivable - current 38,943
Note receivable - current portion 32,000
Prepaid expenses 68,840
----------
Total Current Assets 143,459
----------
PROPERTY AND EQUIPMENT - NET 752,873
----------
OTHER ASSETS
Deferred interest - capitalized leases 197,910
Note and loans receivable - noncurrent 71,600
----------
Total Other Assets 269,510
----------
TOTAL ASSETS $1,165,842
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 212,110
Capitalized lease obligation-current 98,970
----------
Total Current Liabilities 311,080
OTHER LIABILITIES
Capitalized lease obligation-non current 890,715
----------
Total Liabilities 1,201,795
----------
STOCKHOLDERS' DEFICIENCY
Preferred stock-Class A, $.001 par value
5,000,000 shares authorized, none
issued and outstanding --
Preferred stock-Class B, $.001 par value
5,000,000 shares authorized, none issued
and outstanding --
Common stock, $0.001 par value, 50,000,000
shares authorized, 2,722,000 shares issued
and outstanding 2,722
Additional paid-in capital 335,664
Accumulated deficit (374,339)
----------
Total Stockholders' Deficiency (35,953)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,165,842
==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
USA DIGITAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 2,649,500 $ 2,650 $ 263,236 $ (213,969) $ 51,917
Stock Issued For:
Cash 72,500 72 72,428 72,500
Net loss for the
three months ended
June 30, 1999 -- -- -- (160,370) (160,370)
---------- ------- ---------- ---------- ---------
BALANCE, June 30, 1999 2,722,000 $ 2,722 $ 335,664 $ (374,339) $ (35,953)
========== ======= ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
USA DIGITAL, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Income $ --
-----------
Expenses
Executive compensation 24,844
Consulting fees 88,800
Professional fees 32,163
Office and other operational expenses 9,162
Auto expenses 3,000
Telephone 1,114
Insurance 884
Travel and entertainment 285
Depreciation (64)
Bank charges 161
-----------
Total Expenses 160,349
-----------
LOSS FROM OPERATIONS (160,349)
INTEREST EXPENSE (21)
-----------
NET LOSS $ (160,370)
===========
NET LOSS PER COMMON SHARE $ (0.06)
===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,675,022
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
USA DIGITAL, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(160,370)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization (64)
Changes in assets and liabilities
(Increase) decrease in:
Prepaid expenses 30,000
Increase (decrease) in:
Accounts payable and accrued expenses 27,892
---------
Net cash used in operating activities (102,542)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (553)
Acquisition of note receivable (20,000)
Increase in loans receivable (10,732)
---------
Net cash used in investing
activities (31,285)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 72
Proceeds from additional paid in capital 72,428
---------
Net cash provided by financing
activities 72,500
---------
DECREASE IN CASH AND CASH EQUIVALENTS (61,327)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 65,003
---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,676
=========
Cash paid during the year for:
Interest $ 21
=========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The Company acquired notes and loans receivable for cash and short-term debt of
$87,500.
See accompanying notes to financial statements.
5
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Business Organization And Activity
USA Digital, Inc. (the Company), incorporated under the laws of Nevada
on March 5, 1999, is a holding company whose mission is to build a
highly integrated convergent communications company. The Company seeks
to acquire Internet service providers, telephone interconnect
companies, computer/network integrators, and switchless resellers.
(B) Business Combinations
On March 4, 1999, Blazoon Systems Incorporated (Blazoon), a public
shell, consummated an Agreement and Plan of Reorganization (the
Acquisition) with Diverse Capital Corp. (Diverse), a private
corporation incorporated on July 9, 1998, whereby Blazoon issued
1,235,000 shares of its common stock to the stockholders of Diverse in
exchange for 100% of the issued and outstanding common stock of
Diverse, and 625,000 shares of its Class A Preferred Stock in exchange
for 100% of the issued and outstanding preferred stock of Diverse. The
preferred stock is convertible to common stock at a one-for-one ratio
for a one year period beginning February 2, 2000, has dividend
preference, is non-voting, and is subject to redemption at a $4.00
liquidation value at the Company's option beginning February 2, 2004.
Subsequent to the Acquisition, the prior shareholders of Diverse owned
approximately 55% of the voting common stock of Blazoon. Under
Generally Accepted Accounting Principles, a Company whose stockholders
receive over 50% of the stock of the legal acquirer in a business
combination is considered the acquirer for accounting purposes.
Accordingly, the transaction is accounted for as an acquisition of
Blazoon by Diverse, and a recapitalization of Diverse. The balance
sheet subsequent to the acquisition includes the net assets of Blazoon
and Diverse at historical costs and the operations of diverse since its
inception and the operations of Blazoon since the date of acquisition.
On March 9, 1999 the Company consummated a merger agreement with
Blazoon, a State of Colorado corporation, to effect a redomicile and
name change of Blazoon, with the Company as the surviving entity.
6
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
(C) Use of Estimates
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(D) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchases with an original maturity of
three months or less to be cash equivalents.
(E) Earnings Per Share
Earnings per share are computed using the weighted average of common
shares outstanding as defined by Financial Accounting Standards No.
128, "Earnings per Shares".
(F) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future events
other than enactments of changes in the tax law or rates. Any available
deferred tax assets arising from net operating loss carryforwards has
been offset by a deferred tax valuation allowance on the entire amount.
7
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
(G) Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk or cash and cash equivalents.
(H) Stock Options
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting For Stock Based Compensation", the Company has elected to
account for Stock Options under Accounting Principles Board Opinion No.
25 "(APB Opinion No. 25)" and related interpretations.
(I) New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and display
of comprehensive income and its components, and is effective for fiscal
years beginning after December 15, 1997. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers, and is effective for financial statements for periods
beginning after December 15, 1997. Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" revises
employers' disclosure requirements about pension and other
postretirement benefit plans and is effective for fiscal years
beginning after December 15, 1997. Statement No 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting
and reporting standards for derivative instruments and related
contracts and hedging activities. This statement is effective for all
fiscal quarters and fiscal years
8
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
(I) New Accounting Pronouncements - (CONT'D)
beginning after June 15, 1999. The Company believes that its adoption
of these pronouncements will not have a material effect on the
Company's financial position or results of operations.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
declining balance method over the estimated economic useful life of 5
to 7 years when placed in service. Maintenance and repairs are charged
to expense as incurred. Major improvements are capitalized.
Property and equipment at June 30, 1999 consisted of the following:
<TABLE>
<S> <C>
Computer equipment $ 3,059
Equipment held under
capital lease 750,000
---------
753,059
Less: Accumulated depreciation (186)
---------
Total property and equipment $ 752,873
=========
</TABLE>
Depreciation expense for the three months ended June 30, 1999 was
$(64). (See Note 3)
NOTE 3 - CAPITAL LEASE OBLIGATION
The Company is the lessee of telephone switching equipment under a
capital lease expiring during 2004. The assets and liabilities under
the capital lease are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The asset will
be depreciated using the declining balance method over the estimated
economic useful life, and is expected to be placed in service in late
1999. Hence no depreciation has been provided for as of June 30, 1999.
The value of the property held under capital lease as of June 30, 1999
was $750,000.
9
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 3 - CAPITAL LEASE OBLIGATION - (CONT'D)
Minimum future lease payments under the capital lease as of June 30,
1999 are as follows:
<TABLE>
<S> <C>
For the year ended June 30, 2000 $ 98,970
2001 197,940
2002 197,940
2003 197,940
2004 197,940
Subsequent to 2005 98,955
---------
Total minimum lease payments 989,685
Less: Amount representing interest (239,685)
---------
Present value of net minimum
lease payment $ 750,000
=========
</TABLE>
The interest rate on the capital lease is approximately 11.5% and is
imputed at the inception of the lease and included in prepaid expenses
and other assets. The lease payments do not begin until 90 days after
the installation and subsequent operation of the equipment, expected to
be in late 1999.
NOTE 4 - STOCKHOLDERS' EQUITY
(A) Common and Preferred Stock
The Company has authorized 50,000,000 shares of common stock, $.001 par
value; 5,000,000 of Class A Preferred Stock, $.001 par value; and
5,000,000 shares of Class B Preferred Stock, $.001 par value. The
preferred stock will have such rights and preferences as determined by
the Board of Directors.
In connection with an acquisition transaction (Note 5D), the Company
may be required to issue 625,000 shares of Class A Preferred Stock.
A series of Class B Preferred Stock was designated as "Class B
Convertible Redeemable Preferred Stock, Series 1" and consists of
50,000 shares, $.001 par value per share. These shares are redeemable
any time after April 20, 2002 upon 30 days written notice to the
Company, and such shares are
10
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 4 - STOCKHOLDERS' EQUITY (CONT'D)
(A) Common and Preferred Stock - (CONT'D)
designated at $4.00 per share. The Company also has the right of
redemption under rights similar to the preferred shareholders. The
shares have the right, at the option of the holder at any time after
July 9, 2000, to convert each outstanding share of Class B Preferred
Stock, Series 1 into five fully paid and nonassessable shares of the
Company's common stock. Additionally, each holder of these shares shall
be entitled to vote at all meetings of the shareholders and shall have
one vote for each share held (See Note 7).
A series of Class B Preferred Stock was designated as "Class B
Convertible Redeemable Preferred Stock, Series 2" and consists of
40,000 shares, $.001 par value per share. At any time after July 2,
2002, upon 30 days written notice to the Company, holders of shares of
Class B Preferred Stock, Series 2 may, at the option of the holder
thereof, require that the Company redeem in whole or in part, such
shares as designated at $4.00 per share. The Company also has the right
of redemption under rights similar to the preferred shareholders. The
holders of these shares have the right, at their option at any time
after July 9, 2000, to convert each outstanding share of Class B
Preferred Stock, Series 2 into five fully paid and nonassessable shares
of the Company's common stock. Additionally, each holder of these
shares shall be entitled to vote at all meetings of the shareholders
and shall have one vote for each share held (See Note 7).
(B) Stock Compensation
(i) Stock Option Plan
The 1998 Compensatory Stock Option Plan (the "Plan") has been adopted
by the Board of Directors of the Company and approved by the Company's
stockholders. The plan was developed to provide a means whereby
directors, officers, consultants, advisors or agents, employees or
professional service providers of the Company may be granted
non-qualified stock options to purchase common stock of the Company.
The Plan does not provide for the issuance of "incentive stock
11
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 4 - STOCKHOLDERS' EQUITY (CONT'D)
(B) Stock Compensation - (CONT'D)
(i) Stock Option Plan - (CONT'D)
options" within the meaning of Section 422 of the Internal Revenue
Code. As of June 30, 1999, the Company has reserved 1,500,000 shares of
common stock for issuance upon the exercise of options granted under
the Plan.
The exercise price of options granted under the Plan shall not be less
than 85% of the Fair Market Value of a share of common stock on the
date the option is granted. The exercise period, expiration date and
vesting period shall be determined by the Compensation Committee of the
Board of Directors, however, the vesting period may not exceed ten
years. If the vesting period is not stated in the granting resolution,
then the option shall vest immediately.
As of June 30, 1999, no options have been granted under the Plan.
(ii) Stock Options Granted Under Employment and Consulting
Agreements
During the year ended March 31, 1999 the Company issued 1,937,500
incentive stock options pursuant to certain employment and consulting
agreements. There were no stock options issued under employment or
consulting agreements for the three months ended June 30, 1999.
A summary of the options issued under the employment and consulting
agreements as of June 30, 1999 and changes during the three month
period ended June 30, 1999 is presented below:
12
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 4 - STOCKHOLDERS' EQUITY (CONT'D)
(B) Stock Compensation - (CONT'D)
(ii) Stock Options Granted Under Employment and Consulting
Agreements - (CONT'D)
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------- --------------
<S> <C> <C>
Stock Options
Balance at beginning of period 1,937,500 $ 2.13
Granted -- $ --
Exercised -- --
Forfeited -- $ --
--------- --------
Balance at end of period 1,937,500 $ 2.13
========= =======
Options exercisable at end
of period 687,500 $ 1.23
</TABLE>
The following table summarizes information about stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at June 30, Contractual Exercise At June 30 Exercise
Price 1999 Life Price 1999 Price
--------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$1.00-$3.00 1,937,500 6.00 Years $ 2.13 637,500 $ 1.23
</TABLE>
(iii) Employee Stock Compensation Plan
The 1998 Employee Stock Compensation Plan (the " Employee Compensation
Plan") has been adopted by the Board of Directors of the Company and
approved by the Company's stockholders. The plan was developed to
provide a means whereby directors, officers, consultants, advisors or
agents, employees or professional service providers of the Company may
be granted common stock of the Company. Grants under the Employee
Compensation Plan shall be determined by the Compensation Committee of
the Board of Directors. As of June 30, 1999, the
13
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 4 - STOCKHOLDERS' EQUITY (CONT'D)
(B) Stock Compensation - (CONT'D)
(iii) Employee Stock Compensation Plan - (CONT'D)
Company has reserved 1,000,000 shares of common stock for issuance
under the Employee Compensation Plan and no shares may be issued under
the Employee Compensation Plan after April 30, 2003. No shares have
been issued under the Employee Compensation Plan as of June 30, 1999.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
(A) Year 2000 Issue
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches.
The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will
properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The Company uses standard off the shelf accounting software package for
all of its accounting requirements. Management has contacted the
software vendor and determined that the accounting software is Year
2000 compliant. All internal management software is Microsoft based and
management continually monitors the Year 2000 status of such software.
Management has verified Year 2000 status with its primary vendors and
has not identified any Year 2000 issues with those vendors. Costs of
investigating internal and external Year 2000 compliance issues have
not been material to date. As a result, management believes that the
effect of investigating and resolving Year 2000 compliance issues on
the Company will not have a material effect on the Company's future
financial position or results of operations.
In addition to the effect of Year 2000 issues on the Company's
accounting and management systems, year 2000 issues may effect
14
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONT'D)
(A) Year 2000 Issue - (CONT'D)
the Company's products and programs as they are primarily computer
related. The Company's products have been developed and tested with
regard to year 2000 compliance. All products were deemed to be Year
2000 compliant. The costs of such development and testing and
validating were minimal and absorbed as part of the Company's normal
quality control procedures.
(B) Employment Agreement
On January 5, 1999 the Company entered into an employment agreement
with its President. The effective date of this agreement is November
10, 1998, and is for a period of five years at which time it can be
renewed by mutual agreement of both parties. The agreement may be
terminated at any time by mutual written agreement by the parties. The
consideration is $80,000 annually to paid at regular payroll periods.
As additional compensation, the Company is issuing a total of 750,000
options excisable at annual intervals ranging from Jan. 5, 1999 to
January 15, 2002 at varying exercise prices between $1.00 to $3.00.
(See Note 4(B))
(C) Consulting Agreements
On January 5, 1999 the Company entered into a six month consulting
agreement with an individual whereby the Company will be provided with
identification, and introduction to a public shell for the purposes of
effecting a reverse merger. As consideration for the services provided
the Company issued 10,000 shares of the Company's common stock in March
1999.
On January 5, 1999, effective November 10, 1998, the Company entered
into a five year consulting agreement with a consulting organization
whereby the Company will be provided with advice with regard to
corporate finance, evaluations of business partners, mergers and
acquisitions and such other matters as requested. This agreement may be
extended by mutual written agreement of the parties. As consideration
for the services provided, the Company issued 150,000 shares of the
Company's common stock as a signing bonus. The Company pays
15
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONT'D)
(C) Consulting Agreements - (CONT'D)
a monthly fee of $8,000 in semi-monthly installments. As additional
compensation, the Company issued a total of 750,000 options,
exercisable at annual intervals ranging from January 5, 1999 to
February 15, 2002 at varying exercise prices from $1.00 to $3.00. (See
Note 4(B)). The Company also agreed to pay the organization a 2%
finders fee, payable in cash or stock at the Company's election, on the
total value of any acquisition, merger, reverse-merger and/or equity or
debt financing introduced to the Company, excluding Orlando Digital
Telephone (See Note 5D) and Blazoon Systems, Incorporated (See Note
1A). In addition, the Company shall provide the organization with a
monthly unaccounted for expense allowance of $2,500.
On January 5, 1999, effective November 10, 1998, the Company entered
into a two year consulting agreement with another consulting
organization whereby the Company will be provided with advice with
regard to corporate finance, evaluations of business partners, mergers
and acquisitions and such other matters as requested. This agreement
may be extended by mutual written agreement of the parties. As
consideration for the services provided the Company shall pay a monthly
fee of $5,000, plus $200/hr for any time in excess of 50 hours in any
calendar month. As additional compensation, the Company issued a total
of 437,500 options, exercisable at annual intervals ranging from
January 5, 1999 to February 15, 2002 at varying exercise prices between
$1.00 to $3.00. (See Note 4(B)).
On March 22, 1999, the Company entered into a six month consulting
agreement with a public relations organization whereby the Company will
be provided with advice with regard to public relations, the
development and implementation of strategic plans, and such other
matters as requested. This agreement may be extended by mutual written
agreement of the parties. As consideration for the services provided,
the Company issued 60,000 shares of the Company's common stock.
16
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
(D) Litigation
On February 2, 1999 Diverse Capital Corporation (Diverse) acquired
Orlando Digital Telephone Corporation (ODT) in exchange for 325,000
shares of Diverse common stock and 625,000 shares of Diverse
Convertible Preferred A stock. The 325,000 shares of common stock were
issued to ODT shareholders. Diverse reserved the right at the time of
the closing to obtain an appraisal substantiating that the approximate
value of ODT was $2.8 million. Subsequently, USA Digital, Inc., the
successor to Diverse (See Note 1B), obtained an appraisal which did not
substantiate such value, and, on May 14, 1999, in the Circuit Court in
and for Hillsborough County, Florida, filed a complaint against ODT and
its former shareholders seeking rescission of the ODT acquisition. The
Defendants filed a Motion to Dismiss, which was served on the Company
on June 19, 1999. A hearing on defendants' motion is set for September
27, 1999. Defendants have not yet filed an Answer or asserted any
counterclaims or defenses. In addition to such other relief that the
Court may grant in the event that the Company does not prevail,
including enforcement of the acquisition agreement, the Company may be
required to issue 625,000 shares of Class A Convertible Preferred Stock
to the ODT shareholders.
NOTE 6 - ACQUISITION OF SECURED AND UNSECURED CLAIMS
On June 2, 1999 the Company entered into an agreement with Premium
Internet, Corp. (Premium) to purchase Premium's $160,000 secured claim
against Syncom, Inc., a Florida corporation currently doing business as
Gator.net, an Internet Service Provider in Gainesville, Florida.
Syncom, Inc. is currently under reorganization pursuant to Chapter 11
of the United States Bankruptcy Code. The purchase price for this
security interest was $80,000, payable over 6 months from the date of
the transaction. Under the terms of the agreement, Premium has assigned
its security interest in the name "Gator.net", the ISP's customer base,
and some equipment, to the Company. Additionally, as of June 2, 1999,
the Company entered into agreements with other parties to purchase
$130,000 in unsecured debt of Syncom, Inc. for the sum of $30,100.
17
<PAGE>
USA DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 6 - ACQUISITION OF SECURED AND UNSECURED CLAIMS - (CONT'D)
As of June 30, 1999, the Company has paid $20,000 to Premium and a
total of $2,600 to the sellers of the unsecured debt in accordance with
the agreements.
NOTE 7 - SUBSEQUENT EVENTS
On April 20, 1999 the Company entered into an agreement to acquire 100%
of the issued and outstanding stock of Telephone Engineering and
Maintenance, Inc. (T.E.A.M.), a Florida corporation engaged since 1986
in the business of selling and servicing telephone equipment, in
exchange for 50,000 shares of the Company's Convertible Preferred B,
Series 1 Stock. The transaction is scheduled to close on or before
August 5, 1999 (See Note 4(A)).
On July 9, 1999 the Company purchased all of the issued and outstanding
stock of DSA Computers, Inc. (DSA.), a Florida based computer
hardware/network integration company that has been in business since
1991. The purchase price for the acquisition was 40,000 shares of the
Company's Convertible Preferred B, Series 2 Stock (See Note 4(A)).
18
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
USA DIGITAL, INC.
--------------------------------------------
FIRST: The name of this corporation is:
USA DIGITAL, INC.
SECOND: Its principal office in the State of Nevada is located at 502
East John Street, Corona City, Nevada, 89706. The name and address of its
resident agent is CSC Services of Nevada, Inc., at the above address.
THIRD: The nature of the business or objects or purposes proposed may
be organized under the General Corporation Law of the State of Nevada;
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Nevada.
FOURTH: The total authorized capital stock of the corporation is Fifty
Million (50,000,000) shares of common stock having a par value of $0.001,
amounting to $50,000.00, and Five Million (5,000,000) shares of Class A
Preferred stock having a par value of $0.001, amounting to $5,000.00, and Five
Million (5,000,000) shares of Class E Preferred stock having a par value of
$0.001, amounting to $5,000.00.
FIFTH: The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided in the by-laws of this
corporation, provided that the number of directors shall not be reduced less
than one unless there is less than one stockholder.
The name and post office address of the first board of directors, which shall be
three in number, is as follows;
NAME POST OFFICE ADDRESS
Mark D. Cobb 137 Strawberry Junction Lane
Valrico, FL 33594
Donald E. Darden 1134 Ox Bottom Road
Tallahassee, FL 32312
John J. White Jr. 7769 Apple Tree Circle
Orlando, FL 32819-4682
<PAGE>
SIXTH: The capital stock, after the amount of the subscription price,
or par value, has been paid in, shall not be subject to assessment to pay the
debts of the corporation.
SEVENTH: The name and post office address of the incorporator signing
the articles of incorporation is as follows:
NAME POST OFFICE ADDRESS
Marie Petrie 1013 Centre Road
Wilmington, DE 19805
EIGHTH: The corporation is to have perpetual existence.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized, subject to the by-laws,
if any, adopted by the shareholders, to make, alter or amend the by-laws of the
corporation.
TENTH: Meetings of stockholders may be held outside of the State of
Nevada at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
ELEVENTH: This corporation reserves the right to amend, alter, change
or repeal any provision contained in the articles of incorporation, in the
manner now or hereafter prescribed, and all rights conferred upon stockholders
herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the sole incorporator herein before named for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Nevada, do make and file those articles of incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this fourth day of March, A.D. 1999.
/s/ Marie Petrie
--------------------------
Marie Petrie, Incorporator
2
EXHIBIT 10.1
EMPLOYMENT CONTRACT
THIS AGREEMENT is made and entered into this 5th day of January 1999,
and effective November 10, 1998 for the term set forth herein, by and between
Diverse Capital Corp. (The "Company"), a Florida Corporation and Mark D. Cobb
(hereinafter referred to as the "Executive.")
WHEREAS, the Company wishes to employ Executive, and Executive desires
to be employed by the Company in accordance with the terms set forth below; and
WHEREAS, the Executive has been performing services in the development
of the Company for several months,
NOW, THEREFORE, in consideration of the premises and of the terms,
covenants, and conditions hereinafter contained, the parties hereto agree as
follows:
1. Employment, Duties and Authority
1.1 The Company hereby employs the Executive and the Executive
hereby accepts employment by the Company on the terms,
covenants and conditions herein contained.
1.2 The Company hereby employs the Executive as President and
Chief Executive Officer of the Company. The Executive shall
also serve as Secretary of the Company until a successor has
been appointed and qualifies. The Executive shall have such
duties, responsibilities and authority as the bylaws and the
Board of Directors of the Company shall from time to time
prescribe.
1.3 During the term of this Agreement, the Executive shall devote
his full energies, interest, abilities and productive time to
the performance of his duties and responsibilities under this
Agreement and agrees that he will perform such duties and
responsibilities faithfully and with reasonable care for the
welfare of the Company.
2 Compensation & Benefits
2.1 Basic Salary
2.1.1 The Company shall pay to Executive during the initial
term hereof and each renewal term, a basic salary at
the rate of eight thousand dollars ($8,000) per
month. Such Basic Salary shall be paid by the company
to the Executive bi-monthly in advance, on the first
(1st) and fifteenth (15th) of each month, less
amounts which the Company may be required to withhold
from such payments by applicable federal, state or
local laws or regulations.
2.1.2 The Company agrees that the rate of the basic salary
of the Executive hereunder shall be reviewed
periodically by the Board of Directors of the
Page 1 of 6
<PAGE>
Company, and may not be decreased, but may be
increased at their discretion.
2.2 Health Insurance
Company shall provide Executive Health Care Insurance as soon
as it is available through the Company. During the term of
this Agreement and until health insurance is available through
the Company, the Company shall reimburse Executive for all out
of pocket health insurance cost paid for by the Executive.
2.3 Automobile
Executive will be required to travel extensively on behalf of
the Company, therefore the Company shall provide the executive
at his option, an automobile allowance of $1,000 per month, or
an actual vehicle. If the Executive chooses an actual vehicle,
the monthly cost of the vehicle to the Company shall not
exceed $1,000 per month. This vehicle allowance is in addition
to the cost of fuel, maintenance and or insurance of the
vehicle.
2.4 Miscellaneous Benefits
In addition to the benefits set forth herein, the Executive
shall also be eligible for any other benefits afforded the
Executive management of the Company.
2.5 Options
As additional compensation, the company is issuing
simultaneously with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $1.00 per share. The Option Shares will be exercisable for
a period commencing from the effective date first written
above and terminating on the fifth anniversary of the date
hereof. Additionally, the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $1.50 per share. The Option Shares will be exercisable for
a period commencing from January 15, 1999 and terminating on
January 15, 2004, and the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $2.00 per share. The Option Shares will be exercisable for
a period commencing from January 15, 2000 and terminating on
January 15, 2005, and the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option
Page 2 of 6
<PAGE>
Shares") of the Company's common stock, par value $0.001 per
share (the "Common Stock"), for an exercise price of $2.50 per
share. The Option Shares will be exercisable for a period
commencing from January 15, 2001 and terminating on January
15, 2006, and the Company shall simultaneously issue to
Consultant with the execution and delivery of this Agreement,
options (the "Options") to purchase 250,000 shares (the
"Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $3.00 per share. The Option Shares will be exercisable for
a period commencing from January 15, 2002 and terminating on
January 15, 2007. Further, all of the Option Shares shall
contain cashless exercise and no dilution provisions, as well
as piggyback registration rights.
Example:
<TABLE>
<CAPTION>
EXERCISE DATE SHARES EXERCISE PRICE
------------- ------ --------------
<S> <C> <C>
January 5, 1999 125,000 $1.00
January 15, 1999 125,000 $1.50
January 15, 2000 125,000 $2.00
January 15, 2001 125,000 $2.50
January 15, 2002 250,000 $3.00
</TABLE>
All stock options shall be accelerated immediately in the
event the Board of Directors of the Company accepts a tender
offer for the outstanding share of the Company during the term
of this Agreement, including any renewal periods.
3. Term
This agreement shall be for a term commencing as of November 10, 1998,
and continuing for a period of five (5) years. This agreement may be
renewed by mutual agreement of the Company and Executive. Mutual
agreement to be reached within thirty days of the expiration of the
initial term.
4. Termination
4.1 This Employment Agreement, the employment of Executive by
Employer, and the remuneration payable to Executive, may be
terminated only as follows:
(a.) Sixty (60) months after the Commencement Date, or
(b.) By the earlier mutual written agreement of the
parties.
4.2 Early Termination of Employment Duties. Subject to the
conditions contained herein, Employer shall have the right and
discretion to terminate the employment duties of Executive.
Nothing contained herein shall relieve Employer of its duty
and obligation to pay and provide to Executive the full amount
of the Base Salary and all Benefits (collectively referred to
as "Remuneration") during the remaining
Page 3 of 6
<PAGE>
Term of this Employment Agreement, unless Executive commits an
act of intentional, gross malfeasance.
The parties hereby acknowledge and expressly agree that,
except in the event of gross malfeasance committed by
Executive, Executive shall continue to receive his or her full
remuneration through the entire Term hereof, regardless of
whether Executive renders any services hereunder, or whether
such services are deemed satisfactory by Employer, and
regardless of any other circumstances, event or act.
4.3 Executive shall be entitled to terminate his employment with
the Company under this Agreement prior to the expiration of
its term upon the occurrence of an event of default with
response to the Company.
4.4 For purposes of this Agreement an event of default with
respect to the Company shall include:
4.4.1 Any failure by the Company to perform its obligations
to executive under this Agreement and such default
continues for a period of no less than ten business
days.
4.4.2 The Company shall:
a) admit in writing its inability to pay its
debts generally as they become due.
b) file a petition for relief under any chapter
of Title 11 of the United States Code or
petition to take advantage of any insolvency
under the laws of the United States of
America or any State thereof,
c) make an assignment for the benefit of its
creditors,
d) consent to the appointment of a receiver of
itself or of the whole or any substantial
part of its property,
e) suffer the entry of an order for relief
under any chapter of Title 11 of the United
States Code, or
f) file a petition or answer seeking
reorganization under the Federal Bankruptcy
Laws or any other applicable law or statute
of the United States of America or any State
hereof.
4.5 In the event of termination of this Agreement and Executive's
employment pursuant to paragraphs 4.1 or 4.3 hereof section
4.2 shall apply.
5. Assignment
Page 4 of 6
<PAGE>
The rights and duties of a party hereunder shall not be assignable by
that party, except that the Company may assign this Agreement and all
rights and obligations hereunder to, and may require the assumption
hereof, by any corporation or any other business entity which succeeds
to all or substantially all the business of the Company through merger,
consolidation or corporate reorganization or by acquisition of all or
substantially all of the assets of the Company.
6. Binding Effect
This Agreement shall be binding upon the Parties hereto and their
respective successors in interest, heirs and personal representatives
and, to the extent permitted herein, the assigns of the Company.
7. Severability
If any provision of this Agreement or any part hereof or application
hereof to any person or circumstance shall be finally determined by a
court of competent jurisdiction to be invalid or unenforceable to any
extent, the remainder of this Agreement, or the remainder of such
provision or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby and each provision of this
Agreement shall remain in full force and effect to the fullest extent
permitted by law. The parties also agree that, if any portion of this
Agreement, or any part hereof or application hereof, to any person or
circumstance shall be finally determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, any court
may so modify the objectionable provision so as to make it valid,
reasonable and enforceable.
8. Notice
All notices, or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered personally or
mailed, certified mail, return receipt requested, postage prepaid, to
the parties as follows:
IF TO THE COMPANY: IF TO THE EXECUTIVE:
Diverse Capital Corp. Mark D. Cobb
P.O. Box 172574 137 Strawberry Junction Lane
Tampa, FL 33672 Valrico, FL 33594
Attention: President
Any notice mailed in accordance with the terms hereof shall be deemed
received on the third day following the date of mailing. Either party
may change the address to which notices to such party are to be sent.
9. Entire Agreement
This Agreement constitutes the entire Agreement between the parties
hereto with respect to
Page 5 of 6
<PAGE>
the subject matter thereof and supercedes all prior written or oral
negotiations, representations, agreements, commitments, contracts or
understanding with respect thereto and no modification, alteration or
amendment to this Agreement may be made unless the same shall be in
writing and signed by both parties hereto.
10. Waivers
No failure by either party to exercise any such party's right hereunder
or to insist upon strict compliance with respect to any obligation
hereunder, and no custom or practice of the parties at variance with
the terms hereof, shall constitute a waiver by either party to demand
exact compliance with the terms hereof. Waiver by either party of any
particular default by the other party shall not affect or impair such
party's rights in respect to any subsequent default of the same or of a
different nature, nor shall any delay or omission of either party to
exercise any rights arising from any default by the other party affect
or impair such party's rights as to such default or any subsequent
default.
11. Governing Law: Jurisdiction
11.1 For purposes of construction, interpretation and enforcement,
this Agreement shall be deemed to have been entered into under
the laws of the State of Florida, and its validity, effect,
performance, interpretation, construction and enforcement
shall be governed by and subject to the laws of the State of
Florida.
11.2 Any and all suits for any and every breach of this Agreement
may be instituted and maintained in any court of competent
jurisdiction in Hillsborough County, in the State of Florida,
, with venue therein, and the service of process by certified
mail to the address for the parties provided for notices
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DIVERSE CAPITAL CORP.
SEAL
By:
--------------------------------------
Authorized Officer
EXECUTIVE ACCEPTED AND AGREED:
By:
--------------------------------------
Mark D. Cobb
Page 6 of 6
EXHIBIT 10.2
CONSULTING AGREEMENT
Agreement made and entered into as of the 5th day of January 1999, and
effective November 10, 1998, by and between Diverse Capital Corp. a Florida
corporation whose mailing address is P.O. Box 172574 Tampa, Florida 33672 (the
"Company"), and Dunn Capital, Corp., a Delaware corporation having offices at
18133 Longwater Run Drive, Tampa, Florida 33647 (the "Consultant").
WITNESSETH:
WHEREAS, the Company desires to secure the services of the Consultant
to provide assistance with respect to corporate finance, evaluations of possible
business partners, introductions to broker/dealers for market making and
financing, and the Consultant desires to provide such services to the Company,
subject to and in accordance with the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, and for other valuable consideration,
the receipt of which is hereby acknowledged, it is hereby agreed as follows:
1. RETENTION. The Company hereby retains the Consultant and the
Consultant hereby accepts such retention by Company, for the
period and upon the terms and conditions set forth in this
Agreement.
2. DUTIES
(a) The Consultant shall serve the Company generally as a
consultant to assist the Company with regard to corporate
finance, evaluations of possible business partners,
mergers and acquisitions and such other matters relating
to the above as may be requested by the Company from time
to time. The Consultant will seek to find business
partners/acquisitions suitable for the Company, but it
will be the Company that will structure and negotiate the
financing of such transactions.
(b) The Consultant throughout the Term (as hereinafter
defined in Paragraph 3), shall devote its best efforts to
the performance of its duties hereunder in a manner which
will faithfully and diligently further the business
interests of the Company. It is anticipated that over the
Term the Consultant will devote such time to the
performance of its duties hereunder as is reasonably
requested by the Company from time to time.
Page 1 of 7
<PAGE>
3. TERM.This Agreement shall be in effect for a term (the "Term") of
five (5) years commencing as of the date hereof. Thereafter, this
Agreement may be extended by mutual written agreement of the
parties.
4. COMPENSATION.
a) SIGNING BONUS. Company shall issue to consultant One
Hundred Fifty Thousand (150,000) shares of the Company's
common stock, par value $.001 for entering into this
Agreement. The stock will be issued on or before March 31,
1999.
b) MONTHLY RETAINER. The Company will pay to the consultant
eight thousand ($8,000) dollars per month, due and payable in
two equal payments of $4,000 on the 1st and 15th of each
month.
c) OPTIONS. As compensation for services to be rendered by the
Consultant during the Term, the Company is issuing
simultaneously with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $1.00 per share. The Option Shares will be exercisable for
a period commencing from the effective date first written
above and terminating on the fifth anniversary of the date
hereof. Additionally, the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $1.50 per share. The Option Shares will be exercisable for
a period commencing from January 15, 1999 and terminating on
January 15, 2004, and the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $2.00 per share. The Option Shares will be exercisable for
a period commencing from January 15, 2000 and terminating on
January 15, 2005, and the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the "Options") to purchase 125,000 shares
(the "Option Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), for an exercise price
of $2.50 per share. The Option Shares will be exercisable for
a period commencing from January 15, 2001 and terminating on
January 15, 2006, and the Company shall simultaneously issue
to Consultant with the execution and delivery of this
Agreement, options (the
Page 2 of 7
<PAGE>
"Options") to purchase 250,000 shares (the "Option Shares") of
the Company's common stock, par value $0.001 per share (the
"Common Stock"), for an exercise price of $3.00 per share. The
Option Shares will be exercisable for a period commencing from
January 15, 2002 and terminating on January 15, 2007. Further,
all of the Option Shares shall contain cashless exercise and
no dilution provisions, as well as piggyback registration
rights.
Example:
<TABLE>
<CAPTION>
EXERCISE DATE SHARES EXERCISE PRICE
------------- ------ --------------
<S> <C> <C>
January 5, 1999 125,000 $1.00
January 15, 1999 125,000 $1.50
January 15, 2000 125,000 $2.00
January 15, 2001 125,000 $2.50
January 15, 2002 250,000 $3.00
</TABLE>
d) FINDERS FEE. In addition to the Options and Option Shares,
and as further compensation for services rendered by
Consultant, the Company agrees to pay to the Consultant,
simultaneously with the closing of any acquisition,
merger, reverse-merger and/or equity or debt financing
introduced to the Company by the Consultant, excluding
Orlando Digital Telephone, and Blazoon Systems,
Incorporated, a two (2%) percent fee, payable in cash or
stock at the Company's election, on the total value of the
acquisition, merger or financing.
5. EXPENSES
a) REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES. The Company
shall reimburse the Consultant for all reasonable expenses
incurred during the Term which are directly related to the
performance of its services hereunder. All expenses in
excess of $200, must be pre approved by an executive
officer of the Company. The Consultant shall be reimbursed
at such times and with such frequency as is the custom of
the Company with regard to reimbursement of employees for
expenses. For such purposes, the Consultant shall submit
to the Company periodic reports of such expenses,
including a statement of the related services performed by
the Consultant to which such expenses relate.
b) UNACCOUNTED EXPENSES. The Consultant shall be eligible for
reimbursement of $2,500.00 per month in Unaccounted
Expenses.
Page 3 of 7
<PAGE>
6. AUTHORITY TO BIND THE COMPANY. Nothing herein shall imply that the
Consultant is either an employee or agent of the Company, except
to such an extent as might be agreed upon in writing for a
specified purpose. Except as expressly agreed, the Consultant
shall not have the authority to obligate or commit the Company in
any manner whatsoever.
7. COMPANY PROPERTY. All advertising, sales, marketing and other
materials or articles or information, including without limitation
data processing reports, sales analyses, invoices, price lists or
information, or any other materials or data of any kind furnished
to the Consultant by the Company or developed by the Consultant
for the Company and at the Company's direction or for the
Company's use or otherwise in connection with the Consultant's
services hereunder, are and shall remain the sole and confidential
property of the Company, if the Company requests the return of
such materials at any time during or after the Term, the
Consultant shall immediately deliver the same to Company.
8. NON-COMPETITION, TRADE SECRETS.
a) During the Term as long as this Agreement is in effect and for
a period of two (2) years thereafter, the Consultant shall not
directly or indirectly induce or attempt to influence any employee
of the Company to terminate his employment with the Company or
solicit or divert any business or customer or supplier from the
Company.
b) During the Term and at all times thereafter, the Consultant
shall not use for its benefit, or disclose, communicate or divulge
to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material
referred to in Paragraph 7 above or any information regarding the
business methods, business policies, procedures, techniques, trade
secrets, or other knowledge or processes of or developed by the
Company or any names and addresses of the Company's customers or
clients or any data on or relating to past, present or prospective
customers or clients of the Company or any other confidential
information relating to or dealing with the business operations or
activities of the Company, made known to the Consultant or learned
or acquired by the Consultant while retained by the Company,
provided that this provision shall not be construed to restrict
the use or disclosure of any information which (i) is generally
publicly known at the time of its disclosure to, or use by, the
Consultant or (ii) is lawfully received by the Consultant from a
third party not bound in a confidential relationship to the
Company or any subsidiary or affiliate thereof.
Page 4 of 7
<PAGE>
c) Any and all writings, inventions, improvements, processes,
procedures and/or techniques which the Consultant may make,
conceive, discover or develop, either solely or jointly with any
person or persons, at any time during the Term, whether during
working hours or at any other time and whether at the request or
upon the suggestion of the Company or otherwise, which relate to
or are useful in connection with any business now or hereafter
carried on including developments or expansions of its present
fields of Operations, and are directly and specifically related to
Consultant's duties arising under this Agreement, and that are
reasonably related to a legitimate business interest of the
Company, shall be the sole and exclusive property of the Company.
The Consultant shall promptly make full disclosure to the Company
of all such writings, inventions, improvements, processes,
procedures and techniques and otherwise aid and assist the Company
so that the Company can prepare and present applications for
copyright or letters of patents therefore, can secure such
copyright or letter of patent whenever possible, as well as
reissues, renewals, and extension thereof, and can obtain the
record title to such copyright or patents so that the Company
shall be the sole and absolute owner thereof in all countries in
which it may desire to have copyright or patent protection. The
Consultant shall not be entitled to any additional or special
compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques,
unless agreed upon in writing by the parties.
d) The Consultant acknowledges that the restrictions contained in
the foregoing subparagraphs (a), (b) and (c), in view of the
nature of the business in which the Company is engaged, are
reasonable and necessary in order to protect the legitimate
interests of the Company and that any violation thereof would
result in irreparable injuries to the Company, and the Consultant
therefore acknowledges that, in the event of its violation of any
of these restrictions, the Company shall be entitled to obtain
from any court of competent jurisdiction preliminary and permanent
injunctive relief as well as damages and an equitable accounting
of all earnings, profits and other benefits arising form such
violation, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled.
e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the
period of time shall be reduced by such number of months or the
area shall be reduced by the elimination of such portion thereof
or both so that such restrictions may be enforced in such areas
and for such time as adjudged to be reasonable. If the Consultant
violates any of the restrictions contained in the forgoing
subparagraph (a), the restrictive period shall not run in favor of
the Consultant from the time of the commencement of any such
violation until such time as such violation shall be cured by the
Consultant to
Page 5 of 7
<PAGE>
the satisfaction of the Company.
9. INDULGENCES. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or of
any right, remedy, power or privilege with respect to any
occurrence. No waiver shall be effective unless it is in writing
and is signed by the party asserted to have granted such waiver.
10. ASSIGNMENT. Neither party may assign its rights or obligations
under the Agreement without the written consent of the other
party, except that the Company may assign this Agreement and all
rights and obligations hereunder to, and may require the
assumption hereof, by any corporation or any other business entity
which succeeds to all or substantially all the business of the
Company through merger, consolidation or corporate reorganization
or by acquisition of all or substantially all of the assets of the
Company.
11. NOTICE. All notices, requests, demands and other communications
required or permitted under this Agreement will be in writing and
will be deemed to have been duly given, made and received when
personally delivered, or three (3) days after deposited in the
United States mails, certified mail return receipt requested, or
one (1) day after send by a reputable overnight courier service,
addressed as set forth below:
IF TO THE COMPANY: IF TO THE CONSULTANT:
Diverse Capital Corp. Dunn Capital Corp.
P.O. Box 172574 18133 Longwater Run Drive
Tampa, FL 33672 Tampa, Florida 33647
Attn: Mark D. Cobb, President Attn: Rose Strohmeyer-Bosso
12. CONTROLLING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida,
notwithstanding any conflict-of-law doctrine of such state or
jurisdiction to the contrary.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties, may not be altered or modified, except in
writing signed by the party to be charged thereby, and supersedes
any and all previous agreements between the parties.
Page 6 of 7
<PAGE>
14. EXECUTION AND COUNTERPARTS. This Agreement may be executed by the
parties in separate counterparts, each of which when so executed
and delivered, will be deemed to be an original and all of which
taken together will be considered one and the same Agreement.
15. ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with this Settlement Agreement shall be determined
and settled by arbitration in the County of Hillsborough, State of
Florida, conducted by the American Arbitration Association in
accordance with its then existing rules, regulations, practices
and procedures. The arbitration proceedings shall be conducted
before a single neutral arbitrator selected by the Association in
accordance with its then existing rules, regulations, practices
and procedures. Any decision rendered by the arbitrator shall be
final, conclusive and binding upon the parties to the arbitration
and may be enforced by the judgment and order of a court of proper
jurisdiction in the State of Florida for Hillsborough County and
the parties hereto hereby waive any objection to such jurisdiction
or venue in any such proceeding commenced in such court. In any
proceeding between the parties hereto arising out of or in
connection with this Agreement, the prevailing party shall be
entitled to recover its reasonable legal fees and expenses from
the losing party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
COMPANY: CONSULTANT:
DIVERSE CAPITAL CORP. DUNN CAPITAL CORP.
By: By:
----------------------------------- ---------------------------------
Mark D. Cobb, President Rose Strohmeyer-Bosso, President
Page 7 of 7
EXHIBIT 10.3
CONSULTING AGREEMENT
Agreement made and entered into as of the 5th day of January, 1999
and effective November 10, 1998, by and between Diverse Capital, Inc. a
Florida corporation P.O. Box 172574, Tampa, Florida 33672 (the "Company"),
and Bell Entertainment, Inc., a Florida corporation having offices at 6100
Glades Road, Suite 314, Boca Raton, Florida 33434 (the "Consultant").
WITNESSETH:
WHEREAS, the Company desires to secure the services of the Consultant
to provide assistance with respect to corporate finance, evaluations of
possible business partners, and development and implementation of strategic
plans, and the Consultant desires to provide such services to the Company,
subject to and in accordance with the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, and for other valuable
consideration, the receipt of which is hereby acknowledged, it is hereby
agreed as follows:
1. RETENTION. The Company hereby retains the Consultant and the Consultant
hereby accepts such retention by Company, for the period and upon the
terms and conditions set forth in this Agreement.
2. DUTIES.
(a) The Consultant shall serve the Company generally as a consultant to
assist the Company with regard to corporate finance, evaluations of
possible business partners, mergers and acquisitions, the development
and implementation of strategic plans and such other matters relating
to the above as may be requested by the Company from time to time.
(b) The Consultant throughout the Term (as hereinafter defined in
Paragraph 3), shall devote its best efforts to the performance of its
duties hereunder in a manner which will faithfully and diligently
further the business interests of the
1
<PAGE>
Company. It is anticipated that over the Term the Consultant will
devote such time to the performance of its duties hereunder as is
reasonably requested by the Company from time to time.
3. TERM. This Agreement shall be in effect for a term (the "Term") of two
(2) years commencing as of the date hereof. Thereafter, this Agreement
may be extended by mutual written agreement of the parties.
4. COMPENSATION.
a) Monthly Retainer. The Company will pay to the Consultant five
thousand ($5,000) dollars per month, due and payable on the 1st
day of each month.
b) Hourly Rate. The Company will pay to the Consultant two hundred
($200) per billable hour for any time in excess of 50 hours in any
calendar month that the Consultant spends working for the Company,
due and payable upon presentation of a detailed invoice.
c) Options. As compensation for services to be rendered by the
Consultant during the Term, the Company is issuing simultaneously
with the execution and delivery of this Agreement, options (the
"Options") to purchase 62,500 shares (the "Option Shares") of the
Company's common stock, par value $0.001 per share (the "Common
Stock"), for an exercise price of $1.00 per share. The Option
Shares will be exercisable for a period commencing from the
effective date first written above and terminating on the fifth
anniversary of the date hereof. Additionally, the Company shall
simultaneously issue to Consultant with the execution and delivery
of this Agreement, options (the "Options") to purchase 62,500
shares (the "Option Shares") of the Company's common stock, par
value $0.001 per share (the "Common Stock"), for an exercise price
of $1.50 per share. The Option Shares will be exercisable for a
period commencing from January 15, 1999 and terminating on January
15, 2004, and the Company shall simultaneously issue to Consultant
with the execution and delivery of this Agreement, options (the
"Options") to purchase 62,500 shares (the "Option Shares") of the
Company's common stock, par value $0.001 per share (the "Common
Stock"), for an exercise price of $2.00 per share. The Option
Shares will be exercisable for a period commencing from January
15, 2000 and terminating on January 15, 2005, and the Company
shall simultaneously issue to Consultant with the execution and
delivery of this Agreement, options (the "Options") to purchase
62,500 shares (the "Option Shares") of the Company's common stock,
par value $0.001 per share (the "Common Stock"), for an exercise
price of $2.50 per share. The Option Shares will be exercisable
for a period commencing
2
<PAGE>
from January 15, 2001 and terminating on January 15, 2006, and the
Company shall simultaneously issue to Consultant with the
execution and delivery of this Agreement, options (the "Options")
to purchase 125,000 shares (the "Option Shares") of the Company's
common stock, par value $0.001 per share (the "Common Stock"), for
an exercise price of $3.00 per share. The Option Shares will be
exercisable for a period commencing from January 15, 2002 and
terminating on January 15, 2007. Further, all of the Option Shares
shall contain cashless exercise and no dilution provisions, as
well as piggyback registration rights.
Example:
<TABLE>
<CAPTION>
EXERCISE DATE SHARES EXERCISE PRICE
------------- ------ --------------
<S> <C> <C>
January 5, 1999 62,500 $1.00
January 15, 1999 62,500 $1.50
January 15, 2000 62,500 $2.00
January 15, 2001 62,500 $2.50
January 15, 2002 125,000 $3.00
</TABLE>
5. REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES. The Company shall reimburse
the Consultant for all reasonable expenses incurred during the Term
which are directly related to the performance of its services
hereunder, provided that such expenses have been previously authorized
in writing by an executive officer of the Company. The Consultant shall
be reimbursed at such times and with such frequency as is the custom of
the Company with regard to reimbursement of employees for expenses. For
such purposes, the Consultant shall submit to the Company periodic
reports of such expenses, including a statement of the related services
performed by the Consultant to which such expenses relate.
6. AUTHORITY TO BIND THE COMPANY. Nothing herein shall imply that the
Consultant is either an employee or agent of the Company, except to
such an extent as might be agreed upon in writing for a specified
purpose. Except as expressly agreed, the Consultant shall not have the
authority to obligate or commit the Company in any manner whatsoever.
7. COMPANY PROPERTY. All advertising, sales, marketing and other materials
or articles or information, including without limitation data
processing reports, sales analyses, invoices, price lists or
information, or any other materials or data
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of any kind furnished to the Consultant by the Company or developed by
the Consultant for the Company and the Company's direction or for the
Company's use or otherwise in connection with the Consultant's services
hereunder, are and shall remain the sole and confidential property of
the Company, if the Company requests the return of such materials at
any time during or after the Term, the Consultant shall immediately
deliver the same to Company.
8. NON-COMPETITION, TRADE SECRETS
a) During the Term as long as this Agreement is in effect and for a period
of two (2) years thereafter, the Consultant shall not directly or
indirectly induce or attempt to influence any employee of the Company
to terminate his employment with the Company or solicit or divert any
business or customer or supplier from the Company.
b) During the Term and at all times thereafter, the Consultant shall not
use for its benefit, or disclose, communicate or divulge to, or use for
the direct or indirect benefit of any person, firm, association or
company other than the Company, any material referred to in Paragraph 7
above or any information regarding the business methods, business
policies, procedures, techniques, trade secrets, or other knowledge or
processes of or developed by the Company or any names and addresses of
the Company's customers or clients or any data on or relating to past,
present or prospective customers or clients of the Company or any other
confidential information relating to or dealing with the business
operations or activities of the Company, made known to the Consultant
or learned or acquired by the Consultant while retained by the Company,
provided that this provision shall not be construed to restrict the use
or disclosure of any information which (i) is generally publicly known
at the time of its disclosure to, or use by, the Consultant or (ii) is
lawfully received by the Consultant from a third party not bound in a
confidential relationship to the Company or any subsidiary or affiliate
thereof.
c) Any and all writings, inventions, improvements, processes, procedures
and/or techniques which the Consultant may make, conceive, discover or
develop, either solely or jointly with any person or persons, at any
time during the Term, whether during working hours or at any other time
and whether at the request or upon the suggestion of the Company or
otherwise, which relate to or are useful in connection with any
business now or hereafter carried on including developments or
expansions of its present fields of Operations, and are directly and
specifically related to Consultant's duties arising under this
Agreement, and that are reasonably related to a legitimate business
interest of the Company, shall be the sole and exclusive property of
the Company. The Consultant shall promptly make full disclosure to the
Company of all such writings, inventions, improvements, processes,
procedures and techniques and otherwise aid and assist the Company so
that the Company can prepare and present applications
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for copyright or letters of patents therefore, can secure such
copyright or letter of patent whenever possible, as well as reissues,
renewals, and extension thereof, and can obtain the record title to
such copyright or patents so that the Company shall be the sole and
absolute owner thereof in all countries in which it may desire to have
copyright or patent protection. The Consultant shall not be entitled to
any additional or special compensation or reimbursement regarding any
and all such writings, inventions, improvements, processes, procedures
and techniques, unless agreed upon in writing by the parties.
d) The Consultant acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (C), in view of the nature of the
business in which the Company is engaged, are reasonable and necessary
in order to protect the legitimate interests of the Company and that
any violation thereof would result in irreparable injuries to the
Company, and the Consultant therefore acknowledges that, in the event
of its violation of any of these restrictions, the Company shall be
entitled to obtain from any court of competent jurisdiction preliminary
and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising form
such violation, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled.
e) If the period of time or the area specified in subparagraph (a) above
should be adjudged unreasonable in any proceeding, then the period of
time shall be reduced by such number of months or the area shall be
reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such areas and for such time as
adjudged to be reasonable. If the Consultant violates any of the
restrictions contained in the forgoing subparagraph (a), the
restrictive period shall not run in favor of the Consultant from the
time of the commencement of any such violation until such time as such
violation shall be cured by the Consultant to the satisfaction of the
Company.
9. INDULGENCES. Neither the failure nor any delay on the part of either to
exercise any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same orof any right, remedy, power or privilege
with respect to any occurrence. No waiver shall be effective unless it
is in writing and is signed by the party to have granted such waiver.
10. ASSIGNMENT. Neither party may assign its rights or obligations under
the Agreement without the written consent of the other party.
11. NOTICE. All notices, requests, demands and other communications
required or permitted under this Agreement will be in writing and will
be deemed to have
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been duly given, made and received when personally delivered, or three
(3) days after deposited in the United States mails, certified mail
return receipt requested, or one (1) day after send by a reputable
overnight courier service, addressed as set forth below:
If to the Company: If to Consultant:
Diverse Capital Corp. Bell Entertainment, Inc.
Mark D. Cobb, President 6100 Glades Road, Suite 314
P.O. Box 172574 Boca Raton, Florida 33464
Tampa, Florida 33672 Attn: Elliot Bellen
12. CONTROLLING LAW. This Agreement shall be governed by andconstrued in
accordance with the laws of the State of Florida, notwithstanding any
conflict-of-law doctrine of such state or jurisdiction to the contrary.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties, may not be altered or modified, except in a writing signed
by the party to be charged thereby, and supersedes any and all previous
agreements between the parties.
14. EXECUTION AND COUNTERPARTS. This Agreement may be executed by the
parties in separate counterparts, each of which when so executed and
delivered, will be deemed to be an original and all of which taken
together will be considered one and the same Agreement.
15. ARBITRATION. Any dispute, controversy or claim arising out of or in
connection with this Settlement Agreement shall be determined and
settled by arbitration in the County of Hillsborough, State of Florida,
conducted by the American Arbitration Association in accordance with
its then existing rules, regulations, practices and procedures. The
arbitration proceedings shall be conducted before a single neutral
arbitrator selected by the Association in accordance with its then
existing rules, regulations, practices and procedures. Any decision
rendered by the arbitrator shall be final, conclusive and binding upon
the parties to the arbitration and may be enforced by the judgment and
order of a court of proper jurisdiction in the State of Florida for
Hillsborough County and the parties hereto hereby waive any objection
to such jurisdiction or venue in any such proceeding commenced in such
court. In any proceeding between the parties hereto arising out of or
in connection with this Agreement, the prevailing party shall be
entitled to recover its reasonable legal fees and expenses from the
losing party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
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COMPANY: Diverse Capital, Corp.
By:
-------------------------------
Mark D. Cobb, President
CONSULTANT: BELL ENTERPRISES, INC.
By:
--------------------------------
Elliot Bellen, President
7
EXHIBIT 10.4
GRAND CANYON VENTURES FIVE, INCORPORATED
1998 COMPENSATORY STOCK OPTION PLAN
1. PURPOSE OF THIS PLAN.
This Compensatory Stock Option Plan ("Plan") is intended as an
employment incentive, to aid in attracting and retaining in the employ or
service of GRAND CANYON VENTURES FIVE, INCORPORATED ("Company") a Colorado
corporation, and any Affiliated Company, persons of experience and ability and
whose services are considered valuable, to encourage the sense of proprietorship
in such persons, and to stimulate the active interest of such persons in the
development and success of the Company. This Plan provides for the issuance of
non-statutory stock options ("CSOs" or "Options") which are not intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Code"). Certain other terms also are
defined in Paragraph 17 and elsewhere of this Plan.
2. ADMINISTRATION OF THIS PLAN.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee ("Committee") of the Board
which shall consist of at least two members of the Board who are Non-Employee
Directors as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as
amended ("Exchange Act"). At any time that the Committee is not duly
constituted, the Board itself shall have and fulfill the duties herein allocated
to the Committee. The Committee shall have full power and authority to designate
Plan participants, to determine the provisions and terms of respective CSOs
(which need not be identical as to number of shares covered by any CSO, the
method of exercise as related to exercise in whole or in installments, or
otherwise), including the CSO price, and to interpret the provisions and
supervise the administration of this Plan. The Committee may in its discretion
provide that certain CSOs not vest (that is, become exercisable) until
expiration of a certain period after issuance or until other conditions are
satisfied, so long as not contrary to this Plan.
A majority of the members of the Committee shall constitute a quorum.
All decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. Each Option shall be evidenced by a written
agreement containing terms and conditions established by the Committee
consistent with the provisions of this Plan.
3. DESIGNATION OF PARTICIPANTS.
Only Employees shall be eligible for participation in this Plan. The
Committee shall have full power to designate, from among eligible individuals,
the persons to whom CSOs may be granted. A person who has been granted a CSO
hereunder may be granted an additional CSO or CSOs, if the Committee shall so
determine. Persons eligible under this Plan additionally may be
<PAGE>
granted one or more options under any other compensation or stock option plan or
awarded shares under any other benefit plan of the Company. No Option shall
confer any right upon the Optionee with respect to the continuation of his
employment (or his position as an officer, director, employee or consultant)
with the Company or any Affiliated Company, and shall not interfere with the
right of the Company or any Affiliated Company to terminate such relationship(s)
at any time in accordance with law and any agreements then in force.
4. STOCK RESERVED FOR THIS PLAN.
Subject to adjustment as provided in Paragraph 9 below, a total of
1,500,000 shares of Common Stock of the Company ("Option Stock" or "Option
Shares") shall be subject to this Plan. The Option Stock subject to this Plan
shall consist of unissued shares of Common Stock or previously issued shares of
Common Stock reacquired and held by the Company or any Affiliated Company, and
such number of Option Shares shall be and is hereby reserved for sale for such
purpose. Any Option Shares which may remain unsold and which are not subject to
outstanding CSOs at the termination of this Plan shall cease to be reserved for
the purpose of this Plan, but until termination of this Plan the Company shall
at all times reserve a sufficient number of shares to meet the requirements of
this Plan. Should any CSO expire or be cancelled prior to its exercise in full,
the unexercised Option Shares theretofore subject to such CSO may again be
subjected to a CSO under this Plan.
5. OPTION EXERCISE PRICE.
The purchase (exercise) price of each share of Option Stock made
subject to an Option shall not be less than eighty-five percent (85%) of the
Fair Market Value of a share of Common Stock on the date the Option is granted.
For purposes of this Plan, the "Fair Market Value" of a share of the Company's
Common Stock as of a given date shall be: (i) the closing price of a share of
the Company's Common Stock on the principal exchange, NASDAQ system, NASDAQ
Small Cap Market, or other quotation medium, on which shares of the Company's
Common Stock are then trading or quoted, or (ii) if the Company's Common Stock
is not publicly traded, the fair market value established by the Committee
acting in good faith. The cash proceeds from the sale of Option Stock are to be
added to the general funds of Company.
6. EXERCISE PERIOD; VESTING. (a) An Option shall have a term of not more
than ten (10) years from the date of grant and shall automatically
terminate:
(i) Upon termination of the Optionee's employment with
the Company for cause;
(ii) At the expiration of a period to be determined by the
Committee at the time of grant which is not to exceed
twelve (12) months following the date of termination
of the Optionee's employment with the Company without
cause for any reason other than death; provided, that
if no such period is specified in the Option, the
Option shall automatically terminate thirty (30) days
following termination of Optionee's employment;
provided, further,
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that if the Optionee dies within such period,
subclause (iii) below shall apply; or
(iii) At the expiration of twelve (12) months after the
date of death of the Optionee; provided, that the
Committee may in its discretion provide that any
Option not be exercisable after the Optionee's death
or may be exercised for a period less than twelve
months.
(iv) Unless otherwise specified in the Option, if
termination is due to the Optionee's "permanent and
total disability" within the meaning of Section
422(c)(6) of the Code, an Option may be exercised at
any time within twelve (12) months following
termination of employment or relationship as a
consultant or director.
(b) "Employment with the Company" as used in this Plan shall include
employment or relationship as a consultant, adviser or director with the Company
or any Affiliated Company in any such capacity, even if employment or engagement
in another capacity ceases. Options granted under this Plan shall not be
affected by an employee's transfer of employment among the Company and any one
or more Affiliated Companies. An Optionee's employment with the Company shall
not be deemed interrupted or terminated by a bona fide leave of absence (such as
sabbatical leave or employment by the Government) duly approved, military leave
or sick leave. As to consultants, advisers or other non-employee providers of
services, employment with the Company shall be deemed to cease upon formal
termination of the Optionee's engagement.
(c) Each Option may be made exercisable (that is, vest) in whole or in
installments, cumulative or otherwise, during its term, or subject to other
restrictions or limitations. Unless otherwise set forth in the granting
resolution, an Option shall vest immediately upon grant. If an Option is made to
vest over time, any portion not vested at the time of termination of employment
or relationship as a director or consultant with the Company shall lapse as if
never granted. Nothing contained in this Section shall be construed to extend
the term of any Option or to permit anyone to exercise an Option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any Option is exercisable from the amount exercisable on the
date of termination of the Optionee's employment or relationship as a consultant
or director.
7. EXERCISE OF OPTIONS.
(a) The Committee, in granting CSOs, shall have discretion to determine
the terms upon which CSOs shall be exercisable, subject to applicable provisions
of this Plan. Once available for purchase, unpurchased Option Shares shall
remain subject to purchase until the CSO expires or terminates in accordance
with Paragraph 6 above. Unless otherwise provided in the CSO, a CSO may be
exercised in whole or in part, one or more times, but no CSO may be exercised
for a fractional share. Resulting fractions shall be rounded up or down, as
appropriate.
(b) CSOs may be exercised solely by the Optionee or a permitted
transferee during his lifetime or by a spouse or former spouse pursuant to a
qualified domestic relations order, or if the
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Option permits, after his death (with respect to the number of shares which the
Optionee could have purchased at the time of death) by the person or persons
entitled thereto under the decedent's will or the laws of descent and
distribution.
(c) The purchase price of the Option shares as to which a CSO is
exercised shall be paid or delivered in full at the time of exercise and no
Option Shares shall be issued until full payment is made therefor. Payment shall
be made by any one or more of the following means:
(i) in cash, represented by bank or cashier's check,
certified check or money order, or made by bank wire
transfer;
(ii) by offsetting against the purchase price a cash
obligation of the Company which is both liquidated
(meaning the dollar amount is fixed and known or
easily determinable) and uncontested;
(iii) with the prior approval of the Committee, by
delivering shares of the Company's Common Stock which
have been beneficially owned by the Optionee, the
Optionee's spouse or both of them, for a period of at
least six (6) months prior to the time of exercise
(the "Delivered Stock"), the Delivered Stock to be
valued by the Committee in good faith at its Fair
Market Value on the date of exercise;
(iv) with the prior approval of the Committee, by delivery
of shares of corporate stock which are freely
tradeable without restriction and which are part of a
class of securities which has been listed for trading
on the Nasdaq National Market System, the Nasdaq
Small Cap Market or a national securities exchange,
with an aggregate Fair Market Value on the date of
exercise equal to or greater than the exercise price
of the Option Shares being purchased under the Option
("Other Shares'); or
(v) with the prior approval of the Committee, by
delivering to the Company the Optionee's personal
recourse promissory note, adequately secured by
property other than the Option Shares thereby
purchased, containing such terms and conditions as
the Committee shall determine.
(d) An Option shall be deemed exercised when written notice thereof,
accompanied by the payment in full, is received by the Company. No holder of an
Option shall be, or have any of the rights and privileges of, a shareholder of
the Company in respect of any Option Shares purchasable upon exercise of an
Option unless and until certificates evidencing such shares shall have been
issued by the Company to him, her or it.
(e) An Option may, but need not, provide that the Optionee may at any
time when and to the extent the Option is exercisable, effect an Option
Exchange, provided the then market price of the Common Stock exceeds the
Option's exercise price. To effect an Option Exchange, the Optionee must
surrender the Option at the Company's principal offices stating the intent to
effect the Option Exchange and the number of Option Shares being exchanged, and
the Option
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Exchange shall be deemed to take place on the date of the Company's receipt
thereof or such later date as the Optionee specifies in writing. In connection
with any Option Exchange, an Option shall represent the right to subscribe for
and acquire the number of Option Shares equal to [i] the number of Option Shares
specified by the Optionee in its notice of exchange (the "Total Number") LESS
[ii] the number of Option Shares equal to the quotient obtained by dividing (A)
the product of the Total Number and the exercise price by (B) the current Fair
Market Value of a share of the Common Stock on the date of exchange, or if such
date is not a trading day, on the trading day preceding. One or more
certificates for the Option Shares issuable and, if applicable, a new Option of
like tenor evidencing the balance of the Option Shares remaining subject to the
Option, shall be issued as of the exercise date.
8. NON-TRANSFERABILITY OF OPTIONS.
No Option shall be assignable or otherwise transferable except by will
or by operation of law, pursuant to a qualified domestic relations order (as
defined in Rule 16b-3 of the Securities and Exchange Commission, or any
successor rule), or pursuant to Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or rules thereunder. No CSO shall be
pledged or hypothecated in any manner, whether by operation of law or otherwise,
nor be subject to execution, attachment or similar process. The same
restrictions on transfer or assignment shall apply to any heirs, devisees,
beneficiaries, legal representatives or other persons acquiring this Option or
an interest herein under such an instrument or by operation of law. Any attempt
to transfer or otherwise dispose of an Option in contravention of its terms
shall void the Option.
9. REORGANIZATION AND RECAPITALIZATIONS OF THE COMPANY.
(a) No Limit Imposed on Corporate Powers. The existence of this Plan
and Options granted hereunder shall not affect in any way the right or power of
the Company or its shareholders to make or authorize any and all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger consolidation of the Company, or any
issue of bonds, debentures or other indebtedness, or any preferred or prior
preference stocks senior to or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale, exchange or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) Certain Adjustments to be Made. The Option Shares with respect to
which Options may be granted hereunder are shares of the Common Stock of the
Company as currently constituted. In certain instances, the number of shares
purchasable upon exercise of Options and the exercise price shall be adjusted as
provided herein. All adjustments and made under this Section shall be made by
the Committee in good faith in its sole discretion. Every adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of the Option but with a corresponding adjustment in
the exercise price per share and number (and if applicable, kind) of shares
purchasable.
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<PAGE>
(c) Stock Splits, Stock Combinations, Etc. If, and whenever, prior to
delivery by the Company of all the Option Shares which are subject to Options
granted hereunder, the Company shall effect a split or combination of the Common
Stock or other capital readjustment, the payment of a Common Stock dividend, or
recapitalization, reclassification or other increase or reduction of the number
of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then the number of Option Shares
available under this Plan and the number of Option Shares with respect to which
Options granted hereunder may thereafter be exercised shall (i) in the event of
an increase in the number of outstanding shares of Common Stock, be
proportionately increased, and the cash consideration payable per share shall be
proportionately reduced; and (ii) in the event of a reduction in the number of
outstanding shares of Common Stock, be proportionately reduced, and the cash
consideration payable per share shall be proportionately increased.
(d) Certain Other Changes In the Common Stock. If the outstanding
Common Stock shall be hereafter increased or decreased, or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation, by reason of reorganization, merger,
consolidation, share exchange or other business combination in which the Company
is the surviving parent corporation, appropriate adjustment shall be made by the
Committee in the number and kind of shares for which Options may be granted
under the Plan. In addition, the Committee shall make appropriate adjustment in
the number and kind of shares as to which outstanding and unexercised Options
shall be exercisable, to the end that the proportionate interest of the holder
of the Option shall, to the extent practicable, be maintained as before the
occurrence of such event.
(e) Certain Defined Reorganizations. For purposes of this Section, the
term "Reorganization" shall mean any reorganization, merger, consolidation,
share exchange, or other business combination pursuant to which the Company is
not the surviving parent corporation after the effective date of the
Reorganization, or any sale or lease of all or substantially all of the assets
of the Company, and the term "Reorganization Agreement" shall mean a plan or
agreement with respect to a Reorganization. Nothing herein shall require the
Company to adopt a Reorganization Agreement, or to make provision for the
adjustment, change, conversion, or exchange of any Options, or the shares
subject thereto, in any Reorganization Agreement which it does adopt. In the
event of a Reorganization (as hereinafter defined), then,
(i) If there is no Reorganization Agreement, or if the
Reorganization Agreement does not specifically
provide for the adjustment, change, conversion, or
exchange of the outstanding and unexercised options
for cash or other property or securities of another
corporation, then any outstanding and unexercised
options shall terminate as of a future date to be
fixed by the Committee; or
(ii) If there is a Reorganization Agreement, and the
Reorganization Agreement specifically provides for
the adjustment, change, conversion, or exchange of
the outstanding and unexercised options for cash or
other property or securities of another corporation,
the Committee shall adjust the shares under such
outstanding and unexercised options, and shall adjust
the
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shares remaining under the Plan which are then
available for the issuance of options under the Plan
if the Reorganization Agreement provides for the
adjustment, change, conversion, or exchange of such
options and shares.
(iii) The Committee shall provide to each Optionee then
holding an outstanding and unexercised Option not
less than thirty (30) calendar Days' advance written
notice of any date fixed by the Committee pursuant to
this Section 13 and of the terms of any
Reorganization Agreement providing for the
adjustment, change, conversion, or exchange of
outstanding and unexercised Options. Except as the
Committee may otherwise provide, each Optionee shall
have the right during such period to exercise his
Option only to the extent that the Option was
exercisable on the date such notice was provided to
the Optionee.
(f) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, any outstanding and unexercised options shall
terminate as of a future date to be fixed by the Committee.
(g) No Adjustments to be Made. Except as expressly provided above, the
Company's issuance of shares of its capital stock of any class, or securities
convertible into shares of its capital stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option Shares subject to
CSOs granted hereunder or the purchase price of such shares.
10. PURCHASE FOR INVESTMENT.
Unless the Option Shares covered by this Plan have been registered
under the Act prior to issuance, each person exercising a CSO under this Plan
may be required by the Company to give a representation in writing that he is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof.
11. EFFECTIVE DATE AND EXPIRATION OF THIS PLAN.
This Plan shall be effective as of April 30, 1998, the date of its
adoption by the Board, and no CSO shall be granted pursuant to this Plan after
its expiration. This Plan shall expire on April 30, 2008 except as to CSOs then
outstanding, which shall remain in effect until they have expired or been
exercised.
12. AMENDMENTS OR TERMINATION.
The Committee or Board may amend, alter or discontinue this Plan at any
time in such respects as it shall deem advisable in order to conform to any
change in any other applicable law,
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or in order to comply with the provisions of any rule or regulation of the
Securities and Exchange Commission required to exempt this Plan or any CSOs
granted thereunder from the operation of Section 16(b) of the Exchange Act, or
in any other respect not inconsistent with Section 16(b) of the Exchange Act;
provided, that no amendment or alteration shall be made which would impair the
rights of any participant under any CSO theretofore granted, without his consent
(unless made solely to conform such CSO to, and necessary because of, changes in
the foregoing laws, rules or regulations), and except that no amendment or
alteration shall be made without the approval of shareholders which would
increase the total number of shares reserved for the purposes of this Plan
(except as provided in Paragraph 9) or extend the expiration date of this Plan
as set forth in Paragraph 11.
13. GOVERNMENT REGULATIONS.
This Plan, and the granting and exercise of CSOs hereunder, and the
obligation of the Company to sell and deliver Option Shares under such CSOs,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
14. LIABILITY.
No member of the Board of Directors or the Committee, nor any officers,
employees or agents of the Company or any Affiliated Company shall be personally
liable for any action, omission or determination made in good faith in
connection with this Plan.
15. OPTIONS IN SUBSTITUTION FOR OTHER OPTIONS.
The Committee may, in its sole discretion, at any time during the term
of this Plan, grant new options to an employee under this Plan or any other
stock option plan of the Company on the condition that such employee shall
surrender for cancellation one or more outstanding options which represent the
right to purchase (after giving effect to any previous partial exercise thereof)
a number of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Company as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Company, or the acquisition by the
Company of an Affiliated Company of the assets of the employing corporation, or
the acquisition by the Company or an Affiliated Company of stock of the
employing corporation as the result of which such other corporation becomes an
Affiliated Company.
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16. WITHHOLDING TAXES.
Pursuant to applicable federal and state laws, the Company may be
required to collect withholding taxes upon the exercise of a GSO. The Company
may require, as a condition to the exercise of a CSO, that the Optionee
concurrently pay to the Company the entire amount or a portion of any taxes
which the Company is required to withhold by reason of such exercise, in such
amount as the Committee or the Company in its discretion may determine. In lieu
of part or all of any such payment, the Optionee may elect to have the Company
withhold from the shares to be issued upon exercise of the option that number of
shares having a Fair Market Value equal to the amount which the Company is
required to withhold.
17. OTHER DEFINITIONS.
Whenever used in this Plan, except where the context might clearly
indicate otherwise, the following terms shall have the meanings set forth below:
a. "ACT" means the U.S. Securities Act of 1933, as amended.
b. "AFFILIATED COMPANY" means any Parent or Subsidiary of the
Company.
c. "AWARD" or "GRANT" means any grant of a CSO (Option) made
under this Plan.
d. "BOARD OF DIRECTORS" means the Board of Directors of the
Company. The term "COMMITTEE" is defined in Section 2 of this
Plan.
e. "COMMON STOCK" or "COMMON SHARES" means the common stock, no
par value per share, of the Company, or in the event that the
outstanding Common Shares are hereafter changed into or
exchanged for different shares or securities of the Company or
any other issuer, such other shares or securities.
f. "DATE OF GRANT" means the day the Committee authorizes the
grant of a CSO or such later date as may be specified by the
Committee as the date a particular grant will become
effective.
g. "EMPLOYEE" means and includes the following persons: (i)
executive officers, officers and directors (including advisory
and other special directors) of the Company or an Affiliated
Company; (ii) full-time and part-time employees of the Company
or an Affiliated Company; (iii) persons engaged by the Company
or an Affiliated Company as a consultant, advisor or agent;
and (iv) a lawyer, law firm, accountant or accounting firm, or
other professional or professional firm engaged by the Company
or an Affiliated Company.
h. "OPTIONEE" means an Employee to whom a CSO is granted.
i. "PARENT" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of
another corporation qualifying as a Parent within this
definition.
9
<PAGE>
j. "SUBSIDIARY" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company
or by another corporation qualifying as a Subsidiary within
this definition.
18. LITIGATION.
In the event that any Optionee or Optionee's successor should bring any
lawsuit or other action or proceeding ("Action") against the Company or an
Affiliated Company based upon or arising in relation to an Option, an Optionee
or successor, as the case may be, not prevailing in such Action shall be
required to reimburse the Company or Affiliated Company's costs and expenses,
including reasonable attorneys' fees, incurred in defending such action and
appealing any award by a lower court.
19. MISCELLANEOUS PROVISIONS.
The place of administration of this Plan shall be in the State of
Colorado (or subsequently, wherever the Company's principal executive offices
are located), and the validity, construction, interpretation and effect of this
Plan and of its rules, regulations and rights relating to it, shall be
determined solely in accordance with the laws of the State of Colorado or
subsequent state of domicile, should the Company be redomiciled. Without
amending this Plan, the Committee may issue Options and Options Shares to
employees of the Company who are foreign nationals or employed outside the
United States, or both, on such terms and conditions different from those
specified in this Plan but consistent with the purpose of this Plan, as it deems
necessary and desirable to create equitable opportunities given difference in
tax laws in other countries. All expenses of administering this Plan and issuing
Option and Option Shares shall be borne by the Company.
* * *
By signature below, the undersigned officers of the Company hereby
certify that the foregoing is a true and correct copy of the 1998 Compensatory
Stock Option Plan of the Company.
DATED: April 30, 1998
GRAND CANYON VENTURES FIVE,
INCORPORATED
(SEAL) By
-----------------------------------
Authorized Officer
By
-----------------------------------
Secretary or Assistant Secretary
10
<PAGE>
GRAND CANYON VENTURES FIVE, INCORPORATED
------------------
CERTIFICATION OF PLAN ADOPTION
------------------
I, the undersigned Secretary or assistant secretary of this
Corporation, hereby certify that the foregoing Compensatory Stock Option Plan of
this corporation was duly approved by the requisite number of holders of the
issued and outstanding common stock of this corporation as of the date below.
Date of Approval: June 22, 1998
X
-----------------------------------
Signature
(SEAL)
11
EXHIBIT 10.5
GRAND CANYON VENTURES FIVE, INCORPORATED
1998 EMPLOYEE STOCK COMPENSATION PLAN
1. PURPOSE OF THE PLAN.
This 1998 Employee Stock Compensation Plan ("Plan") is intended to
further the growth and advance the best interests of GRAND CANYON VENTURES FIVE,
INCORPORATED, a Colorado corporation (the "Company"), and Affiliated
Corporations, by supporting and increasing the Company's ability to attract,
retain and compensate persons of experience and ability and whose services are
considered valuable, to encourage the sense of proprietorship in such persons,
and to stimulate the active interest of such persons in the development and
success of the Company and Affiliate Corporations. This Plan provides for stock
compensation through the award of the Company's Common Stock.
2. DEFINITIONS.
Whenever used in this Plan, except where the context might clearly
indicate otherwise, the following terms shall have the meanings set forth in
this section:
a. "ACT" means the U.S. Securities Act of 1933, as amended.
b. "AFFILIATED CORPORATION" means any Parent or Subsidiary of the
Company.
c. "AWARD" OR "GRANT" means any grant or sale of Common Stock
made under this Plan.
d. "BOARD OF DIRECTORS" means the Board of Directors of the
Company. The term "COMMITTEE" is defined in Section 4 of this
Plan.
e. "CODE" means the Internal Revenue Code of 1986, as mended.
f. "COMMON STOCK" or "COMMON SHARES" means the common stock, no
par value per share, of the Company, or in the event that the
outstanding Common Shares are hereafter changed into or
exchanged for different shares or securities of the Company,
such other shares or securities.
g. "DATE OF GRANT" means the day the Committee authorizes the
grant of Common Stock or such later date as may be specified
by the Committee as the date a particular award will become
effective.
h. "EMPLOYEE" means and includes the following persons: (i)
executive officers, officers and directors (including advisory
and other special directors) of the Company or an Affiliated
Corporation; (ii) full-time and part-time employees of the
Company or an Affiliated Corporation; (iii) natural persons
engaged by the Company or an
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<PAGE>
Affiliated Corporation as a consultant, advisor or agent; and
(iv) a lawyer, law firm, accountant or accounting firm, or
other professional or professional firm engaged by the Company
or an Affiliated Corporation.
i. "PARENT" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of
other corporation qualifying as a Parent within this
definition.
j. "PARTICIPANT" means an Employee to whom an Award of Plan
Shares has been made.
k. "PLAN SHARES" means shares of Common Stock from time to time
subject to this Plan.
l. "SUBSIDIARY" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company
or by another corporation qualifying as a Subsidiary within
this definition.
3. EFFECTIVE DATE OF THE PLAN.
The effective date of this Plan is April 30, 1998. No Plan Shares may
be issued after April 30, 2003.
4. ADMINISTRATION OF THE PLAN.
The Compensation Committee of the Board of Directors ("Committee"), and
in default of the appointment or continued existence of such Committee, the
Board of Directors will be responsible for the administration of this Plan, and
will have sole power to award Common Shares under this Plan. Subject to the
express provisions of this Plan, the Committee shall have full authority and
sole and absolute discretion to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations which it believes to be necessary or advisable in administering
this Plan. The determination of those eligible to receive an award of Plan
Shares shall rest in the sole discretion of the Committee, subject to the
provisions of this Plan. Awards of Plan Shares may be made as compensation for
services rendered, directly or in lieu of other compensation payable, as a bonus
in recognition of past service or performance or may be sold to an Employee as
herein provided. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in this Plan in such manner and to such extent it
shall deem necessary to carry it into effect. Any decision made, or action
taken, by the Committee arising out of or in connection with the interpretation
and administration of this Plan shall be final and conclusive.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of Plan Shares which may be awarded under this Plan
is 1,000,000 shares.
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<PAGE>
6. PERSONS ELIGIBLE TO RECEIVE AWARDS.
Awards may be granted only to Employees (as herein defined).
7. GRANTS OR AWARDS OF PLAN SHARES.
Except as otherwise provided herein, the Committee shall have complete
discretion to determine when and to which Employees Plan Shares are to be
granted, and the number of Plan Shares to be awarded to each Employee. A grant
to an Employee may be made for cash, property services rendered or other form of
payment constituting lawful consideration under applicable law; Plan Shares
awarded other than for services rendered shall be sold at not less than the fair
value thereof on the date of grant. No grant will be made if, in the judgement
of the Committee, such a grant would constitute a public distribution with the
meaning of the Act or the rules and regulations promulgated thereunder.
8. DELIVERY OF STOCK CERTIFICATE.
As promptly as practicable after authorizing an award of Plan Shares,
the Company shall deliver to the person who is the recipient of the award, a
certificate or certificates registered in that person's name, representing the
number of Plan Shares that were granted. Unless the Plan Shares have been
registered under the Act, each certificate evidencing Plan Shares shall bear a
legend to indicate that such shares represented by the certificate were issued
in a transaction which was not registered under the Act, and may only be sold or
transformed in a transaction that is registered under the Act or is exempt from
the registration requirements of the Act. In the absence of registration under
the Act, any person awarded Plan Shares may be required to execute and deliver
to the Company an investment letter, satisfactory in form and substance to the
Company, prior to issuance and delivery of the shares. An award may be made
under this Plan wherein the Plan Shares may be issued only after registration
under the Act.
9. ASSIGNABILITY.
An award of Plan Shares may not be assigned. Plan Shares themselves may
be assigned only after such shares have been awarded, issued and delivered, and
only in accordance with law and any transfer restrictions imposed at the time of
award.
10. EMPLOYMENT NOT CONFERRED.
Nothing in this Plan or in the award of Plan Shares shall confer upon
any Employee the right to continue in the employ of the Company or Affiliated
Corporation nor shall it interfere with or restrict in any way the lawful rights
of the Company or any Affiliated Corporation to discharge any Employee at any
time for any reason whatsoever, with or without cause.
-3-
<PAGE>
11. LAWS AND REGULATIONS.
The obligation of the Company to issue and deliver Plan Shares
following an award under this Plan shall be subject to the condition that the
Company be satisfied that the sale and delivery thereof will not violate the Act
or any other applicable laws, rules or regulations.
12. WITHHOLDING OF TAXES.
If subject to withholding tax, the Company or any Affiliated
Corporation may require that the Employee concurrently pay to the Company the
entire amount or a portion of any taxes which the Company or Affiliated
Corporation is required to withhold by reason of granting Plan Shares, in such
amount as the Company or Affiliated Corporation in its discretion may determine.
In lieu of part or all of any such payment, the Employee may elect to have the
Company or Affiliated Corporation withhold from the Plan Shares issued hereunder
a sufficient number of shares to satisfy withholding obligations. If the Company
or Affiliated Corporation becomes required to pay withholding taxes to any
federal, state or other taxing authority as a result of the granting of Plan
Shares, and the Employee fails to provide the Company or Affiliated Corporation
with the funds with which to pay that withholding tax, the Company or Affiliate
Corporation may withhold up to 50% of each payment of salary or bonus to the
Employee (which will be in addition to any required or permitted withholding),
until the Company or Affiliated Corporation has been reimbursed for the entire
withholding tax it was required to pay in respect of the award of Plan Shares.
13. RESERVATION OF SHARES.
The stock subject to this Plan shall, at all times, consist of
authorized but unissued Common Shares, or previously issued shares of Common
Stock reacquired or held by the Company or an Affiliated Corporation equal to
the maximum number of shares the Company may be required to issue as stated in
Section 5 of this Plan, and such number of Common Shares hereby is reserved for
such purpose.
14. AMENDMENT AND TERMINATION OF THE PLAN.
The Committee may suspend or terminate this Plan at any time or from
time to time, but no such action shall adversely affect the rights of a person
granted an Award under this Plan prior to that date. Otherwise, this Plan shall
terminate on the earlier of the terminal date stated in Section 3 of this Plan
or the date when all Plan Shares have been issued. The Committee shall have
absolute discretion to amend this Plan, subject only to those limitations
expressly set forth herein; however; the Committee shall have no authority to
extend the term of this Plan, to increase the number of Plan Shares subject to
award under this Plan or to amend the definition of "Employee" herein.
15. DELIVERY OF PLAN.
A copy or description (for which a prospectus registering the Plan
Shares will serve) of this Plan shall be delivered to every person to whom an
award of Plan Shares is made. The Secretary of the Company may, but is not
required to, also deliver a copy of the resolution or resolutions of the
Committee authorizing the award.
-4-
<PAGE>
16. LIABILITY.
No member of the Board of Directors, the Committee or any other
committee of directors, or officers, employees or agents of the Company or any
Affiliated Corporation shall be personally liable for any action, omission or
determination made in good faith in connection with this Plan.
17. MISCELLANEOUS PROVISIONS.
The place of administration of this Plan shall be in the State of
Colorado (or subsequently, wherever the Company's principal executive offices
are located), and the validity, construction, interpretation and effect of this
Plan and of its rules, regulations and rights relating to it, shall be
determined solely in accordance with the laws of the State of Colorado or
subsequent state of domicile, should the Company be redomiciled. Without
amending this Plan, the Committee may issue Plan Shares to employees of the
Company who are foreign nationals or employed outside the United States, or
both, on such terms and conditions different from those specified in this Plan
but consistent with the purpose of this Plan, as it deems necessary and
desirable to create equitable opportunities given differences in tax laws in
other countries. All expenses of administering this Plan and issuing Plan Shares
shall be borne by the Company.
18. REORGANIZATIONS AND RECAPITALIZATION OF THE COMPANY.
(a) [The shares of Common Stock subject to this Plan are shares of the
Common Stock of the Company currently constituted. If, and whenever, the Company
shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a Common Stock dividend, a stock split, combination
of shares (reverse stock split) or recapitalization or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then the number
of shares of Common Stock subject to this Plan shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced.
(b) Except as expressly provided above, the Company's issuance of
shares of Common Stock of any class or securities convertible into shares of
Common Stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into or exchangeable for shares of Common Stock or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to this Plan.
-5-
<PAGE>
By signature below, the undersigned officers of the Company hereby
certify that the foregoing is a true and correct copy of the 1998 Employee Stock
Compensation Plan of the Company.
DATED: April 30, 1998
GRAND CANYON VENTURES FIVE,
INCORPORATED
By:/s/
-------------------------------------------
Authorized Officer
(SEAL)
By:/s/
--------------------------------
Secretary or Assistant Secretary
-6-
<PAGE>
GRAND CANYON VENTURES FIVE, INCORPORATED
--------------------------
CERTIFICATION OF PLAN ADOPTION
--------------------------
I, the undersigned Secretary or assistant secretary of this Corporation,
hereby certifiy that the foregoing Employee Stock Compensation Plan of this
corporation was duly approved by the requisite number of holders of the issued
and outstanding common stock of this corporation as of the date below.
Data of Approval: JUNE 22 , 1998
------------------
X /s/
------------------------------
Signature
-7-
EXHIBIT 10.6
A G R E E M E N T A N D P L A N O F R E O R G A N I Z A T I O N
This Agreement ("Agreement") is made and entered into on February 26,
1999, by and among BLAZOON SYSTEMS INCORPORATED, a Colorado corporation, as
buyer (the "Company"); J.R. NELSON, an individual residing in Colorado, as a
shareholder of the Company ("Nelson"); JOHN D. BRASHER JR., an individual
residing in Colorado, as a shareholder of the Company ("Brasher"); NORDSTROM,
FORBES & LINCOLN INCORPORATED, a Colorado corporation, as a shareholder of the
Company ("NFL"); DIVERSE CAPITAL CORP., a Florida corporation, as the acquired
company ("Acquired Company" or "DCC"); and certain persons executing this
Agreement in their capacity as shareholders of DCC (the "DCC Holders").
R E C I T A L S:
A. The DCC Holders collectively own of record and beneficially all of
the 1,235,000 issued and outstanding shares of common stock, $.001 par value,
and 625,000 Class A Convertible Preferred Shares, Series 2, $4.00 par value, of
DCC (collectively, the "DCC Shares"): and
B. The DCC Holders desire to sell to the Company, and the Company
desires to purchase from the DCC Holders, all of the DCC Shares, on the terms
and subject to the conditions of this Agreement; and
C. Nelson is the owner of 335,000 shares of the Company's issued and
outstanding common stock ("Nelson Shares"), Brasher is the owner of 353,000
shares of the Company's issued and outstanding common stock ("Brasher Shares"),
and NFL is the owner of 200,000 shares of the Company's issued and outstanding
common stock, and such persons appear as parties to this Agreement for the
purpose of consenting to the transactions herein and entering into certain
covenants required by DCC and the DCC Holders; and
D. The respective boards of directors of DCC and the Company have
approved the execution of this Agreement and performance of the parties'
respective obligations herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
promises and undertakings contained herein, and for other good and valuable
consideration, and subject to the terms and conditions of this Agreement, the
parties hereto agree as follows:
1. THE EXCHANGE.
1.1 Sale and Purchase of the DCC Shares. On the terms and
subject to conditions of this Agreement, at the Closing (defined below), the DCC
Holders shall sell, transfer, assign, convey and deliver to the Company, free
and clear of all adverse claims, security interests, liens, claims and
encumbrances (other than restrictions under applicable securities laws or as
expressly agreed to herein by the Company), and the Company or its subsidiary
shall purchase, accept and acquire all of the DCC Shares from the DCC Holders,
such purchase and sale being herein sometimes referred to as the "Exchange." The
Company shall receive good and merchantable title to the DCC Shares. It is
intended among all the parties that the Exchange shall constitute a tax free
reorganization within the meaning of Sections 351 and 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended ("Code").
1.2 Issuance of Exchange Shares. In full payment for the DCC
Shares, the Company shall ratably issue and deliver to the DCC Holders in
proportion to their respective ownership of the DCC Shares, an aggregate of
(i) 1,235,000 shares of the Company's common stock, no par value
per share (the "Common Exchange Shares"), being one (1) Common
Exchange Share for every common DCC Share exchanged; and
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<PAGE>
(ii) 625,000 shares of the Company's "Series A Convertible
Preferred Shares," $4.00 stated value per share (the
"Preferred Exchange Shares"), the terms, preferences and
designations of which are set forth on EXHIBIT A to this
Agreement, being one (1) Preferred Exchange Share for every
preferred DCC Share exchanged.
The Common Exchange Shares and Preferred Exchange Shares are sometimes
collectively referred to in this Agreement as the "Exchange Shares." The
Exchange Shares, which term includes the common shares of the Company into which
the Preferred Exchange Shares may be converted ("Conversion Shares"), will, when
issued, be validly issued, fully paid, and nonassessable; the sale, issuance and
delivery of the Exchange Shares on the terms herein contemplated has been
authorized by all requisite corporate action of the Company; and the Exchange
Shares and Conversion Shares will not be subject to any preemptive rights,
options or similar rights on the part of any shareholder or creditor of the
Company or any other person. The Exchange Shares shall be issued to the DCC
Holders in the respective denominations set forth on SCHEDULE 1.2 to this
Agreement.
1.3 Exchange Shares Not Registered. The Exchange Shares have
not been and will not be registered under the Securities Act of 1933, as amended
("Act"), or the securities laws of any state or states, but shall be issued in
reliance upon the exemptions from registration provided by Section 4(2) of the
Act and/or Rule 506 of Regulation D under the Act and under analogous state
securities laws, on the grounds that the Exchange does not involve any public
offering. The Exchange Shares will be "restricted securities" as that term is
defined in Rule 144(a) of the General Rules and Regulations under the Act and
must be held indefinitely, unless they are subsequently registered under the Act
or an exemption from the Act's registration requirements is available for their
resale. The prior written consent of the Company will be necessary for any
transfer of any or all of the Exchange Shares, unless the shares have been duly
registered under the Act or the transfer is made in accordance with Rule 144 or
other available exemption under the Act. All certificates evidencing the
Exchange Shares shall, unless and until removed in accordance with law, bear a
restrictive legend substantially in the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and are "restricted securities" as that term is defined in Rule 144
under the Act. These shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act."
1.4 Closing. Subject to the conditions precedent set forth
herein, the purchase of the Control Shares and any other transactions herein
contemplated ("Closing") shall take place either at the offices of Brasher &
Company, 90 Madison Street, Suite 707, Denver, Colorado 80206 or by the exchange
of documents via courier, on or before March 4, 1999 which is herein referred to
as the "Closing Date". The parties may by unanimous agreement provide for one or
more postponements of the Closing.
1.5 Assignment of Exchange Shares. If any certificate for
Exchange Shares is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it shall be a
condition of issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer, that such transfer
otherwise be proper and that the person requesting such transfer pay any
transfer or other taxes payable by reason of the issuance of such new
certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Survivor that such
tax has been paid or is not payable.
1.6 Officers and Directors of the Company. At the Closing, the
current officers and directors of the Company shall resign as necessary, each
resignation to confirm in writing that the resigning persons do not owe and are
not owed anything by the Company, and the persons named below shall be elected
to the offices and directorships shown next to their respective names:
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<PAGE>
Name Position
---- --------
MARK D. COBB DIRECTOR, PRESIDENT, SECRETARY
DONALD E. DARDEN DIRECTOR
JOHN J. WHITE, JR DIRECTOR
1.7 Further Assurances. DCC and the DCC Holders agree to
execute all documents and instruments and to take or to cause to be taken all
actions which the Company deems necessary or appropriate to complete the
transactions contemplated by this Agreement, whether before or after the
Closing.
2. OTHER AGREEMENTS OF THE PARTIES.
2.1 Reverse Splits and Certain Recapitalizations Prohibited.
The parties acknowledge that, following the Closing, Brasher, Nelson and other
persons who are shareholders of the Company immediately preceding the Closing,
will no longer hold a majority of the Company's voting power. The Company and
all other parties expressly agree that, during the two-year period following the
Closing ("Period"), the Company shall not effect any "prohibited
recapitalization," defined as any reverse split or combination of its common
shares, or any reorganization, merger, recapitalization or other action
whatsoever which has the effect of changing any issued and outstanding common
share of the Company into less than one common share; provided, that the term
"prohibited recapitalization" shall not include any cancellation, partial
cancellation or readjustment of shares issued by the Company in the normal
course of business which relates only to shares issued after the Closing Date
and not to all common shares of the Company then issued and outstanding. The DCC
Holders expressly agree that, during the Period, they will not vote for or
support any prohibited recapitalization nor grant a proxy or other voting right
to a person other than a DCC Holder to vote at any meeting or act by written
consent on a proposal to effect a prohibited recapitalization, and will
affirmatively oppose any attempt to effect a prohibited recapitalization during
the Period unless approved in a manner permitted by this Agreement.
2.2 Right to Enforce Provisions. The provisions set forth in
Section 2.1 are intended for the protection and benefit of Nelson and Brasher
and of all persons who are and during the Period become shareholders of the
Company, all of whom are and shall be deemed third party beneficiaries of such
provisions, and all parties agree that such provisions and the duration of the
Period are reasonable. Brasher, Nelson or any one or more of such other
shareholders may bring an injunctive action to prevent a prohibited
recapitalization, an action to force the Company to revoke or rescind a
prohibited recapitalization as if it had never been effected, an action to
recover on the Company's behalf any damages suffered by effecting the prohibited
recapitalization, or any one or more of such actions, or may otherwise
judicially enforce such provisions. Any shareholder prevailing in such
injunctive or other action shall be entitled to reimbursement from the Company
and all officers and directors involved in effecting the prohibited
recapitalization for costs and reasonable attorneys' fees incurred in bringing
such action(s).
2.3 Change of the Company's Name. The parties agree that, as
soon as reasonably possible following the Closing, a special meeting of the
Company's shareholders shall be called for the purpose of voting upon a change
of the Company's name to better reflect the Company's new business. The DCC
Holders agree to vote their Exchange Shares in favor of the name change.
2.4 Company, DCC and Any Acquired Companies to Obtain Audited
Financial Statements. As soon as reasonably possible after the Closing, the
Company and DCC (including Orlando Digital Telephone Corp.) shall obtain the
audited financial statements called for by Item 310 of Regulation S-B of the
Securities and Exchange Commission, including at a minimum a balance sheet as of
December 31, 1998, and statements of cash flows, operations and changes in
stockholders' equity for the two years ended December 31, 1998, together with
all required footnotes and schedules, audited by certified public accountants
who are members of the SEC Practice Section of the AICPA. Such statements shall
be prepared in accordance with generally accepted accounting principles, applied
on a consistent basis. If the Company should subsequently acquire a company
which does not have audited financial statements meeting such requirements, then
it shall also promptly obtain audited financial statements for such acquired
companies.
2.5 Acquisition of Orlando Digital Telephone. DCC has acquired
Orlando Digital Telephone Corp., a
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<PAGE>
Florida corporation ("ODTC"), in a stock-for-stock exchange pursuant to that
certain Acquisition Agreement dated January 6, 1999, and Amended Acquisition
Agreement dated January 29, 1999, and such agreement has been duly consummated
and all required securities and promissory notes, exhibits, schedules, documents
and instruments called for thereunder have been duly issued and delivered. DCC
and the DCC Holders agree that such Acquisition Agreement is not in default for
any reason, and no cause exists as of this date or shall exist at the time of
Closing which entitles or will entitle any party thereto to cancel or rescind
the Acquisition Agreement.
2.6 Stipulation as to Status of Certain Shareholders of the
Company; Etc. Brasher and Nelson represent and warrant, and the Company, DCC and
the DCC Holders stipulate and acknowledge that (i) the shareholdings of Brasher
and Nelson and their respective affiliates are set forth on SCHEDULE 2.6 to this
Agreement and that no other shareholders of the Company are their affiliates,
and (ii) no other shareholder of the Company is an affiliate of Brasher or
Nelson, despite having the last name Brasher or Nelson. The Company, DCC and the
DCC Holders have satisfied themselves fully on this point. The term "affiliate"
as used in this Agreement has the meaning given it in Rule 144(a) under the Act.
The Company, DCC and the DCC Holders acknowledge that,
following the Closing, Brasher and his affiliates ("Brasher Group") and Nelson
and his affiliates ("Nelson Group") will not be officers or directors of the
Company, will not control the Company, be controlled by the Company or be under
common control with the Company, and can only continue to be presumed to be
affiliates of the Company based on their ownership of securities of the Company.
The Company, DCC and the DCC Holders agree that, when the number of common
shares of the Company issued and outstanding increases such that either or both
the Brasher Group or the Nelson Group owns less than ten percent (10%) of the
issued and outstanding shares (as to each group or shareholder, the
"Non-Affiliation Date"), then the Brasher Group or the Nelson Group, or both as
the case may be, shall on such date cease to be affiliates of the Company; it
being further agreed that the Brasher Group and Nelson Group each must
separately satisfy the non-affiliation test and that shares owned by the Brasher
Group and Nelson Group shares shall not be aggregated for purposes of
determining satisfaction of the non-affiliation test.
The Company, DCC and the DCC Holders stipulate and agree that on and
after the date which is three months after the Non-Affiliation Date, the Company
will permit Brasher and his affiliates and Nelson and his affiliates to rely
upon Rule 144(k) under the Act to remove all restrictive legends affecting their
respective shares of the Company and will interpose no delay or delays for a
combined period exceeding 10 business days after receipt by the Company or its
transfer agent of written request by Brasher and affiliates or Nelson and
affiliates to remove such legends. Nothing in this Section shall limit or affect
the obligations of Nelson or Brasher under any lock-up agreement entered into by
them. This requirement for removal of restrictive legends shall not apply in the
event that Brasher, Nelson or any of their respective affiliates become
executive officers or directors of the Company or otherwise become affiliates of
the Company based on grounds other than stock ownership. Brasher and Nelson each
agree to notify the Company in the event that he or an affiliate of his acquires
common stock of the Company or any security exercisable for, convertible into or
exchangeable for common stock of the Company; provided, that no such notice
shall be required if the common stock or other security is issued by the Company
directly to Brasher or Nelson.
If the Company without good cause delays in permitting legend removal
more than 10 business days after its or its' transfer agent's receipt of written
request for removal, the Company shall be liable to Brasher and his affiliates
or Nelson and his affiliates, as the case may be, for any damages they or either
of them suffer due to fall in the market price of their shares of the Company
which occurs after the lapse of the maximum permissible 10-day delay period. In
such event Brasher and his affiliates shall be entitled to recover from the
Company all damages suffered by them due to diminution of the stock's trading
price, plus court costs and reasonable attorneys' fees in a court of proper
jurisdiction. The parties agree that proper jurisdiction and venue for any such
action shall be in the Colorado District Court, Denver, Colorado. "Good cause"
means that Brasher or Nelson due to events subsequent to Closing becomes an
affiliate of the Company again, or the discovery of evidence admissible in court
showing that Brasher's or Nelson's representations herein concerning their
affiliates are false and that Brasher or Nelson continues to be an affiliate of
the Company.
It is further agreed that, other than Nelson, Brasher and their
respective affiliates, the other shareholders of the Company are not affiliates
of the Company, Nelson or Brasher, and that the shares held by them are freely
tradeable and not restricted in any manner, nor is there any basis to restrict
or delay any transfer of such persons' shares of the Company, and the Company,
DCC and the DCC Holders agree that no attempt shall be made to do so. The
Company shall be liable for any damages suffered by any non-
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affiliated shareholder of the Company who is delayed in the transfer of his, her
or its shares for more than a 5-day period upon request for transfer duly
presented in accordance with the transfer agent's customary rules and practices
applicable to all its client issuers generally.
2.7 Lock-Up and Leakage Agreement. Brasher and Nelson each
agree to execute a Lock-Up and Leakage Agreement in the form of EXHIBIT B to
this Agreement, to govern the orderly disposition of the 435,000 shares of the
Company's common stock being retained by them after the Closing, as shown on
SCHEDULE 2.6. Nelson and Brasher shall not receive or be entitled to any
compensation for entering into and performing their covenants under the Lock-Up
and Leakage Agreements, and agree that the consummation of the transactions
contemplated and performance of the covenants of DCC and the DCC Holders set
forth in this Agreement constitute sufficient consideration therefor. Nelson and
Brasher further agree that, until the Lock-Up and Leakage Agreements expire and
all restrictive legends affecting stock held by the Brasher Group and Nelson
Group have been removed as permitted by Rule 144(k) under the Act, they will
make all resales of stock in accordance with Rule 144 under the Act and make all
required filings.
2.8 Registration of the Company. The Company, DCC and the DCC
Holders acknowledge that recent changes to Rules 6530 and 6540 of the National
Association of Securities Dealers, Inc. ("NASD") will require that the Company
become subject to the reporting requirements of Section 15(d) or 13 of the
Exchange Act in order for its common stock to continue to be quoted on the OTC
Bulletin Board. Accordingly, it is agreed by all parties that as soon as
reasonably possible after obtaining the required audits, the Company shall file
a registration statement under the Act under cover of Form SB-2 or other
appropriate form, or under Section 12(g) of the Exchange Act, and expend
reasonable effort to cause such registration statement to become effective as
promptly as reasonably possible.
2.9 The Company's Capitalization at Closing; Sale of Certain
Shares. At the Closing, the Company shall have issued and outstanding 1,000,000
shares of common stock. Other than such shares, at the Closing the Company will
not without the prior written consent of DCC have issued or outstanding any
other shares of stock, nor any options or other rights to purchase its common
stock, nor any instrument convertible into or exchangeable for its common stock.
No shareholder of the Company will have any preemptive right or similar right to
purchase the Exchange Shares or other stock of the Company. The Company, DCC and
the DCC Holders acknowledge that NFL, Brasher and Nelson are, in conjunction
with this Agreement and conditioned upon the consummation of this Agreement,
selling an aggregate of 443,000 shares of common stock of the Company owned by
them to Dunn Capital Corp., pursuant to that certain Stock Purchase Agreement of
even date herewith, and consent to such sale.
2.10 Assumption of DCC Rights and Obligations. The Company
hereby guarantees payment of any sums and deliveries of all other things owed to
the DCC Holders under, and assumes all liabilities of DCC to the DCC Holders
under, the DCC/ODTC Acquisition Agreement dated January 6, 1999, and Amended
Acquisition Agreement dated January 29, 1999. Such guarantee and assumption of
liabilites shall be effective upon consummation of the Closing. It is agreed
among the parties, however, that if the Exchange is subsequently rescinded and
unwound with the vote or other concurrence of a majority or more of the DCC
Holders, then the guarantee and assumption of liabilities of the Company in this
paragraph shall cease as of the effective time of such unwinding and from and
after such effective time the Company shall have no liability to the DCC
Holders, or any successor or assign of any DCC Holder, or to any other person
whatsoever under the guarantee and assumption of liabilities contained in this
Section. The Company acknowledges and assumes the existing options to purchase
DCC shares set forth on SCHEDULE 1.2 hereto.
3. DCC's REPRESENTATIONS AND WARRANTIES. DCC hereby represents and
warrants that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
(a) Organization and Standing. DCC is a corporation duly
organized, validly existing and in good standing under the laws of Florida, with
all requisite power and authority to carry on the business in which it is
engaged, to own the properties and assets it owns, and is duly qualified and
licensed to do business and is in good standing in all jurisdictions where the
nature of its business makes such qualification necessary. ODTC is a corporation
duly organized, validly existing and in good standing under the laws of Florida,
with all requisite power and authority to carry on the business in which it is
engaged, to own the properties and assets it owns, and is duly qualified and
licensed to do business and is in good standing in all jurisdictions where the
nature of its business makes such qualification necessary.
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(b) Capitalization. DCC's authorized capital stock consists of
50,000,000 shares of common stock, $.001 par value, of which 1,235,000 shares
have been issued and are outstanding, 5,000,000 shares of Class A Preferred
Stock, $4.00 par value, of which 625,000 shares have been issued and are
outstanding, and 5,000,000 shares of Series B Preferred Stock, none of which has
been issued or is outstanding. All of the 1,235,000 of common stock and 625,000
shares of Class A Convertible Preferred Stock, Series 2, $4.00 par value, of DCC
(the DCC Shares) issued and outstanding have been duly authorized, validly
issued, and are fully paid and nonassessable. DCC does not have outstanding any
other equity securities or, except as set forth on SCHEDULE 1.2 hereto, any
option, warrant or similar instrument and is not a party to or bound by any
agreement, instrument, arrangement, contract, obligation, commitment or
understanding of any character, whether written or oral, express or implied,
whereby DCC is bound to issue shares of its capital stock or any instrument or
right convertible into or exchangeable for shares of its capital stock, nor
relating to the sale, assignment, encumbrance, conveyance, transfer or delivery
of any capital stock of DCC of any type or class. SCHEDULE 1.2 sets forth the
names and addresses of all holders of capital stock of DCC and the number of
shares of common and preferred stock held by each, and of all holders of options
and any other rights to acquire DCC capital stock, which is an accurate and
complete list. No person has preemptive or similar rights as to the DCC Shares,
and DCC is not party to any agreement other than the Acquisition Agreement that
contemplates a stock exchange, merger, reorganization or similar transaction.
(c) Subsidiaries. ODTC is a wholly owned subsidiary of DCC,
and no other person has the right to acquire shares of ODTC. DCC currently has
no subsidiaries other than ODTC.
(d) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting the DCC
Shares, DCC, ODTC or any of its properties or assets in any court or by or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or other instrumentality, domestic or foreign,
or arbitration tribunal or other forum which, if determined adversely to DCC or
ODTC, would materially affect its business, prospects, properties or financial
condition or DCC's or ODTC's right to conduct its business as being conducted or
expected to be conducted, except as disclosed on SCHEDULE 3(d). There are no
judgments, decrees, injunctions, writs, orders or other mandates outstanding to
which the DCC Shares, DCC or ODTC is a party or by which it is bound or
affected, except as disclosed on SCHEDULE 3(d). Copies of material pleadings
shall accompany such schedule.
(e) Estoppel. All statements made in this Agreement, or in any
Exhibit or Schedule hereto, or in any document or certificate executed and
delivered herewith, by DCC are true, correct and complete as of the date of this
Agreement and will be so as of the Closing Date. All statements contained in any
certificate made by any official of DCC and delivered to the Company shall be
deemed representations and warranties of DCC.
(f) Compliance with Laws and Permits. DCC and ODTC have
complied in all material respects with its articles of incorporation and bylaws
(each as amended to date), all applicable laws, regulations and rules, all
applicable orders, judgments, writs, decrees or injunctions of federal, state
and municipal governments or any department, agency or other instrumentality
thereof, domestic or foreign, applicable to its business or properties, and has
not done or omitted to do any act or acts which singly or in the aggregate are
in violation of any of the foregoing. DCC and ODTC have obtained all federal,
provincial and municipal licenses and permits necessary to its properties and
operations, is not in violation of any such license or permit and has not
received any notification that any revocation or limitation thereof is pending
or threatened.
(g) No Undisclosed Material Liabilities. DCC has not incurred
any liabilities or obligations whatever (whether direct, indirect, accrued,
contingent, absolute, secured or unsecured or otherwise), including liabilities
as guarantor or surety or otherwise for the obligations of others and tax
liabilities due or to become due, except as described in the Acquisition
Agreement, as amended, or on SCHEDULE 3(g). There is no basis for any material
claim against DCC's or ODTC's assets which involves an amount in excess of
$10,000, except as disclosed in writing to the Company. DCC and ODTC have no
creditors whose prior consent might be required by law to the Exchange.
(h) Material Transactions and Adverse Changes. Except as has
been disclosed in writing to the Company, DCC and ODTC have not and as of the
Closing Date will not have: (i) suffered any materially adverse change in its
assets taken as a whole; (ii) suffered any damage or destruction in the nature
of a casualty loss to any one or more of its assets, whether or not covered
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by insurance, which singly or in the aggregate are materially adverse to the
properties or business of DCC or ODTC; (iii) made any change in any method of
accounting or accounting practice, including the revaluation of any of its
assets; or (iv) agreed in writing or otherwise to take any action prohibited in
this Section.
(i) Taxes. All income, excise, unemployment, social security,
occupational, franchise, ad valorem and other taxes, duties, assessments or
charges levied, assessed or imposed upon DCC or ODTC by any federal, state or
municipal government or subdivision or instrumentality thereof have been duly
paid or adequately provided for, and all required tax returns or reports
concerning any such items have been duly filed. Adequate reserves have been
established for all income and other tax liabilities, except as otherwise
disclosed on SCHEDULE 3(i). Neither DCC nor ODTC has waived any statute of
limitations with respect to any tax liability whatever for any period prior to
the date of this Agreement or agreed to any extension of time with respect to a
tax assessment or liability. No consents have been filed by DCC or ODTC pursuant
to Section 341(f) of the Internal Revenue Code of 1986, as amended.
(j) Contracts. Attached to this Agreement as SCHEDULE 3(j) is
a listing of all material contracts to which DCC and ODTC is a party. With
respect to each such contract, except as disclosed in writing to the Company,
DCC or ODTC is not in default, the contract is legal, valid, binding, in full
force and effect and enforceable in accordance with its terms, and the contract
will continue after the Closing to be legal, valid, binding, in full force and
effect in accordance with its terms. Contracts or commitments described in any
other Schedule need not be disclosed in SCHEDULE 3(j).
(k) Indebtedness to and from Affiliates. Except as disclosed
on SCHEDULE 3(k), DCC and ODTC are not indebted to any officer, director,
employee or shareholder thereof as of the date of this Agreement, and no money
or property is owed to DCC or ODTC by any officer, director, employee or
shareholder thereof, and none will be owed as of the Closing Date.
(l) Documents Genuine. All originals and/or copies of DCC's
and ODTC's articles of incorporation and bylaws, each as amended to date, and
all minutes of meetings and written consents in lieu of meetings of directors
and shareholders of DCC, financial data, and any and all other documents,
material, data, files, or information which have been or will be furnished to
the Company, are and will be true, complete, correct and unmodified originals
and/or copies of such documents, information, data, files or material.
(m) Financial Statements and Records. DCC and ODTC will
provide to the Company two years' of financial statements, and all such
statements shall fairly present the assets, liabilities and financial condition
of DCC and ODTC as of the respective dates thereof, and all shall have been
prepared in conformity with generally accepted accounting principles,
consistently applied during the periods covered. For purposes of this Agreement,
such statements shall include all notes thereto. DCC also will furnish to the
Company copies of its other books, accounts and records as requested.
(n) Officers and Directors Salaries. DCC will provide to the
Company a list of all its and ODTC's officers and directors, reflecting the job
description and salary of each person in Schedule 3(n).
(o) Insurance. Attached hereto as SCHEDULE 3(o) is a list of
all insurance policies of DCC and ODTC in effect.
(p) Authorization and Validity. The execution, delivery and
performance by DCC of this Agreement and any other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by DCC and all necessary approvals of the
shareholder(s) of DCC will have been obtained by the Closing Date. This
Agreement and any other agreement contemplated hereby have been or will be as of
the Closing Date duly executed and delivered by DCC and constitutes and will
constitute legal, valid and binding obligations of DCC, enforceable against it
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(q) Consents; Approvals; Conflict. Except for compliance with
applicable federal and state securities laws, no consent, approval,
authorization or order of any court or governmental agency or other body is
required for DCC and the DCC
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Holders to consummate the Exchange. Neither the execution, delivery,
consummation or performance of this Agreement shall conflict with, or constitute
a breach of, and no prior approval is necessary by or under, DCC's articles of
incorporation, bylaws or any note, mortgage, indenture, deed of trust, lease,
obligation, or other agreement or instrument to which DCC is a party.
(r) Intellectual Property. Attached to this Agreement as
SCHEDULE 3(r) is a description of all registered trademarks, trademarks,
servicemarks, copyrights, trade names and licenses, owned or held by DCC or ODTC
and applications pending therefor. Copies of each such right or application
shall be furnished to the Company. DCC nor ODTC has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any patent,
trademark, trade name, servicemark or copyright belonging to any third person,
and DCC and ODTC have never received any charge, complaint, claim, demand or
notice alleging any such interference, infringement or misappropriation. DCC and
ODTC own or hold adequate licenses or other rights to use all patents,
trademarks, trade names, servicemarks and copyrights used in its business as now
conducted, and such use does not conflict with, infringe upon or violate the
rights of any third party in a manner which might have a materially adverse
effect upon DCC or ODTC.
(s) Restrictive Covenants. Prior to the consummation of the
Exchange, DCC and ODTC shall conduct its business in the ordinary and usual
course without unusual commitments and in compliance with all applicable laws,
rules, and regulations. Furthermore, DCC will not, without the prior written
consent of the Company, (i) make any changes in its capital structure, (ii)
incur any liability or obligation other than current liabilities incurred in the
ordinary and usual course of business, (iii) incur any material indebtedness for
borrowed money, (iv) make any loans or advances other than in the ordinary and
usual course of business, (v) declare or pay any dividend or make any other
distribution with respect to its capital stock, (vi) issue, sell, or deliver or
purchase or otherwise acquire for value any of its stock or other securities, or
(vii) mortgage, pledge, or subject to encumbrance any of its assets or
properties or sell or transfer any of its assets or properties, except in the
ordinary and usual course of business.
(t) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, the Company,
Brasher and Nelson have made no other representation or warranty to DCC or any
DCC Holder in connection with the Exchange. DCC's decision to enter into the
Exchange is based upon its own independent judgment and investigation and not on
any representations and warranties of the Company other than those expressly
stated in this Agreement and in the Schedules and Exhibits hereto.
(u) OTC Quotation. The staff of NASD Regulation, Inc. has
approved the Company's common stock for unpriced quotation on the OTC Bulletin
Board, and the common stock of the Company is quoted without price by two market
makers on the OTC Bulletin Board under symbol "BLZO." To the knowledge of the
Company, there have not been any price quotations or market trades in its common
stock. There is at this time no active market in the shares of the Company, and
DCC and the DCC Holders have been advised that such a market is likely to arise
only after the acquisition of DCC and acquisition of funding.
4. REPRESENTATIONS AND WARRANTIES OF THE DCC HOLDERS. The DCC Holders
each represent and warrant to the Company that the following are true and
correct as of the date hereof and will be true and correct through the Closing
Date as if made on that date:
(a) Each DCC Holder owns of record and beneficially all the
DCC Shares respectively shown next to his, her or its name on SCHEDULE 1.2 to
this Agreement; and his, her or its DCC Shares are free and clear of all liens,
claims, rights or other encumbrances whatever and of all options and similar
rights of third persons; and no person has or will have any right in and to such
shares except as are created by force of law under any marital, community
property or similar rights. No third party has or at Closing will have any right
of first refusal, pre-emptive right, option or similar right to acquire any of
the DCC Shares except as disclosed to the Company in writing prior to the
Closing. Each DCC Holder represents and warrants that he, she or it is not now
insolvent and will not be insolvent after selling and delivering the DCC Shares
to the Company on the terms of this Agreement, and each DCC Holder is receiving
new consideration at least equal to the full and fair value of the DCC Shares
being sold. Each DCC Holder has the full right, power and legal capacity to
enter into this Agreement and sell and deliver the DCC Shares to the Company. As
to each DCC Holder which is a corporation or other entity, all requisite
corporate or equivalent action has been taken necessary to approve the execution
and performance of this Agreement.
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(b) DCC and the DCC Holders understand and acknowledge that
the Company is a public shell with no current operations, revenues or assets,
that the Company does not have full-time or professional management, and that
the officers and directors of the Company after the Closing will be the current
officers and directors of or persons designated by DCC. Each DCC Holder
recognizes that the Exchange Shares are speculative and involve a high degree of
risk, and that the prospects and future success of the Company depend
principally upon the DCC Holders and current DCC management.
(c) Each DCC Holder acknowledges and agrees that he, she or it
or his, her or its representatives have been furnished with substantially the
same kind of information regarding the Company and its business, assets,
financial condition and plan of operation as would be contained in a
registration statement and included prospectus prepared in connection with a
public offering of the Exchange Shares. Each DCC Holder further represents that
he, she or it has had an opportunity to ask questions of and receive answers
from the Company regarding the Company and its business, assets, results of
operations, financial condition and plan of operation and the terms and
conditions of the issuance of the Exchange Shares.
(d) In connection with the issuance and delivery of the
Exchange Shares, each DCC Holder understands and acknowledges that the Exchange
Shares have not been and will not be registered under the Act or any state laws
in reliance upon exemptions from registration and that such shares will be
restricted and subject to significant restrictions on transfer, as described in
Section 1.3 of this Agreement. Each DCC Holder is acquiring the Exchange Shares
for his, her or its own account, and not for the account of any other person and
not for distribution, assignment or resale to others, or for pledge or
hypothecation, and no other person has or is intended to have a direct or
indirect ownership or contractual interest in the Exchange Shares except as may
exist or arise under marital property laws or otherwise by operation of law.
(e) The DCC Holder, alone or together with the DCC Holder's
adviser(s), has such knowledge and experience in financial, tax and business
matters as to enable DCC Holder to utilize the information made available by the
Company, in connection with the Exchange and issuance of the Exchange Shares, to
evaluate the merits and risks of acquiring the Exchange Shares and to make an
informed investment decision with respect thereto.
(f) All information which each DCC Holder has provided or will
provide to the Company is or will be correct and complete as of the date
furnished to the Company, and, if there should be any material change in such
information prior to the Closing as to a DCC Holder, that DCC Holder will
immediately provide the Company with such information.
(g) No DCC Holder was solicited by the Company by any form of
general solicitation or general advertising, including but not limited to any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
made available over telephone lines by any information service, or any seminar
or meeting whose attendees had been invited by any means of general solicitation
or general advertising.
(h) Except as expressly set forth in this Agreement and the
Schedules and Exhibits hereto, the Company has not made any representation or
warranty to any DCC Holder in connection with this Agreement. Each DCC Holder's
decision to enter into the Exchange is based upon his, her or its own
independent judgment and investigation and not on any representations and
warranties of the Company other than those expressly stated in this Agreement
and in the Schedules and Exhibits hereto.
(i) To the best of the knowledge of each DCC Holder, all of
the representations and warranties of DCC set forth in this Agreement are
accurate and true.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Unless specifically
stated otherwise, the Company represents and warrants to the other parties that
the following are true and correct as of the date hereof and will be true and
correct through the Closing Date as if made on that date.
(a) Organization and Good Standing. The Company is and on the
Closing Date will be duly organized, validly existing and in good standing under
the laws of the State of Colorado. The Company has no assets or liabilities and
currently conducts no business in any state.
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(b) Authorized Capitalization. As provided in its Articles of
Incorporation, the authorized capital stock of the Company consists of
60,000,000 shares, of which 50,000,000 shares, no par value, are designated as
common stock, of which 1,000,000 shares shall be issued and outstanding at
Closing; and 10,000,000 shares, no par value, are designated as preferred stock,
none of which are issued or outstanding.
(c) Outstanding Options, Warrants or Other Rights. The Company
does not have outstanding any option, warrant or similar instrument and is not a
party to or bound by any agreement, instrument, arrangement, contract,
obligation, commitment or understanding of any character, whether written or
oral, express or implied, whereby the Company is bound to issue shares of its
capital stock or any instrument or right convertible into or exchangeable for
shares of its capital stock, nor relating to the sale, assignment, encumbrance,
conveyance, transfer or delivery of any capital stock of the Company of any type
or class. The Company shall provide to DCC a list of all holders of the
Company's capital stock, the number of shares held by each and the number of
each certificate held, duly certified by the Secretary of the Company.
(d) Subsidiaries. The Company has and as of the Closing will
have no subsidiaries.
(e) Documents Genuine. All originals and/or copies of the
Company's articles of incorporation and bylaws, each as amended to date, and all
minutes of meetings and written consents in lieu of meetings of shareholders,
directors and committees of directors of the Company, financial data, and any
and all other documents, material, data, files, or information which have been
or will be furnished to DCC, are and will be true, complete, correct and
unmodified originals and/or copies of such documents, information, data, files
or material.
(f) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting the
Company in any court or by or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, or arbitration tribunal or other forum.
There are no judgments, decrees, injunctions, writs, orders or other mandates
outstanding to which the Company is a party or by which it is bound or affected.
(g) Compensation Plans. Except as described below, the Company
has not authorized and does not have in effect any stock option or stock
purchase plan, dividend reinvestment plan or similar plan pursuant to which any
person is entitled to acquire capital stock of the Company or any securities
convertible into or exchangeable for its capital stock. The Company has
delivered to DCC a copy of each plan described below. No shares will be awarded
or issued pursuant to either such plan without the prior written authorization
of DCC.
(i) The Company has in effect a 1997 Compensatory
Stock Option Plan, covering 1,000,000 shares of the Company's common
stock. No options have been granted or shares issued pursuant to this
plan, and none will be granted or issued prior to Closing.
(ii) The Company has in effect a 1997 Employee Stock
Compensation Plan covering 1,500,000 of the Company's common shares,
pursuant to which the Company may award shares of common stock to
persons defined therein as employees. No shares have been awarded
pursuant to such plan or will be awarded prior to Closing.
(h) Authorization and Validity. The execution, delivery and
performance by the Company of this Agreement and any other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement and
any other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by the Company and constitute and will
constitute legal, valid and binding obligations of the Company, enforceable
against it in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(i) Financial Statements. The Company will provide to DCC the
Company's financial books and records such audited and unaudited financial
statements of the Company, back to inception, as exist and as DCC requests. All
such statements shall fairly present the assets, liabilities and financial
condition of the Company as of the respective dates thereof, and all shall have
been prepared in conformity with generally accepted accounting principles,
consistently applied during the periods covered. For
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purposes of this Agreement, such statements shall include all notes thereto.
(j) No Undisclosed Material Liabilities. The Company has not
incurred any liabilities or obligations whatever (whether direct, indirect,
accrued, contingent, absolute, secured or unsecured or otherwise), which singly
or in the aggregate are material to it, except as disclosed in the Company's
financial statements or otherwise disclosed in writing to DCC.
(k) Taxes. All income, excise, unemployment, social security,
occupational, franchise and other taxes, duties, assessments or charges levied,
assessed or imposed upon the Company by the United States or by any state or
municipal government or subdivision or instrumentality thereof have been duly
paid or adequately provided for, and all required tax returns or reports
concerning any such items have been duly filed or will be so filed.
(l) Indebtedness to or from Affiliates. The Company is not and
will not be indebted to any officer, director, employee or shareholder thereof
as of the Closing Date. No money or property is owed to the Company by any
officer, director, employee or shareholder thereof, and none will be owed as of
the Closing.
(m) Salaries. No person currently receives a salary or other
cash compensation from the Company, and no person will receive a salary or other
cash compensation from the Company prior to Closing.
(n) Insurance. The Company does not now have any insurance
policy in effect and will not obtain any insurance policy prior to Closing.
(o) Books, Records and Accounts. Except for the minute book
and accounting and corporate records of the Company furnished to DCC, there are
no other books, records or accounts of the Company. DCC shall have the right to
review and obtain the records, books and accounts of the Company, all and
sundry.
(p) Estoppel. All statements made herein, or in any Exhibit or
Schedule hereto, or in any document or certificate executed and delivered
herewith by the Company are true, correct and complete as of the date of this
Agreement and will be so as of the Closing. All statements contained in any
certificate made by any officer or director of the Company and delivered to DCC
shall be deemed representations and warranties of the Company.
(q) Consents; Approvals; Conflict. No consent, approval,
authorization or order of any court or governmental agency or other body is
required for the Company to execute and perform its obligations under this
Agreement. Neither the execution, delivery, consummation or performance of this
Agreement shall conflict with, constitute a breach of the Company's articles of
incorporation and bylaws, as amended to date, or any note, mortgage, indenture,
deed of trust or other agreement of instrument to which the Company is a party
or by which it is bound nor, to the best of the Company's knowledge and belief,
any existing law, rule, regulation, or any decree of any court or governmental
department, agency, commission, board or bureau, domestic or foreign, having
jurisdiction over the Company.
(r) Restrictive Covenants. Prior to the consummation of the
proposed Exchange, the Company shall not engage in any business or activity
other than attempting to consummate the Exchange. Furthermore, the Company will
not, without the prior written authorization of DCC, (i) make any changes in its
capital structure, (ii) incur any liability or obligation other than current
liabilities incurred in the ordinary and usual course, (iii) declare or pay any
dividend or make any other distribution with respect to its capital stock, (iv)
issue, sell, or deliver or purchase or otherwise acquire for value any of its
stock or other securities, (v) make any investment of a capital nature, or (vi)
enter into any contract, agreement, or other commitment which is material to the
Company.
(s) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, DCC has made
no other representation or warranty to the Company in connection with the
Exchange. The Company's decision to enter into the Exchange is based upon the
Company's own independent judgment and investigation and not on any
representations and warranties of DCC other than those expressly stated in this
Agreement and in the Schedules and Exhibits hereto.
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6. CONDITIONS TO OBLIGATIONS OF THE PARTIES; DELIVERIES. All
obligations of the parties under this Agreement are subject to the accuracy and
truthfulness of all representations of the other parties, and the fulfillment,
prior to the Closing, of all conditions precedent and to performance of all
covenants and agreements and completion of all deliveries contemplated herein,
unless specifically waived in writing by the party entitled to performance or to
demand fulfillment of the covenant or delivery of the documents.
6.1 Documents to be Delivered to the Company. At the Closing,
the following documents shall be delivered to the Company by DCC or the DCC
Holders, as the case may be, which documents shall be satisfactory in form and
content to the Company's counsel:
(a) Certificates executed by the chief executive officer
and the chief financial or accounting officer of DCC,
dated the Closing Date, certifying that the
representations and warranties of DCC contained in
this Agreement and the information set forth in all
Schedules and Exhibits of DCC hereto are then true
and correct and that DCC has complied with all
agreements and conditions required by this Agreement
and all related agreements to be performed or
complied with by DCC.
(b) A copy of the directors' resolution or the minutes of
the meeting of the directors of DCC approving the
execution and performance of this Agreement.
(c) All certificates evidencing the DCC Shares, each
indorsed on the reverse side for transfer or
accompanied by a signed stock power in form
satisfactory to the Company.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
6.2 Documents to be Delivered to DCC and the DCC Holders. At
the Closing the following documents shall be delivered to DCC and the DCC
Holders by the Company, which documents shall be satisfactory in form and
content to DCC's counsel:
(a) To the DCC Holders, certificates evidencing the
Exchange Shares in the proper denominations.
(b) To DCC, a certificate executed by the Company dated
the Closing Date, certifying that the representations
and warranties of the Company contained in this
Agreement and the information set forth in all
Schedules and Exhibits of the Company are then true
and correct and that the Company has complied with
all agreements and conditions required by this
Agreement to be performed or complied with by it.
(c) To DCC, a copy of the directors' resolution or the
minutes of the meeting of the directors of the
Company approving the execution and performance of
this Agreement.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
6.3 Conditions Precedent. The obligations of the parties under
this Agreement are subject to the satisfaction of the following conditions (in
addition to other conditions and terms of this Agreement), unless waived in
writing, on or prior to the Closing:
(a) Representations and Warranties Correct. The
representations and warranties of every party contained in this Agreement shall
be in all material respects true and correct on and as of the Closing Date as if
made on such date.
(b) Compliance. The Company, DCC and the DCC Holders each
shall have performed all covenants and agreements, satisfied all conditions and
complied with all other terms and provisions of this Agreement to be
respectively performed,
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satisfied or complied with by it as of the Closing Date.
(c) No Errors or Misrepresentations. The Company shall not
have discovered any material error, misstatement or omission in or failure of
any representation or warranty made by any of the other parties, and DCC shall
not have discovered any material error, misstatement or omission in or failure
of any representation or warranty made by the Company.
(d) Due Diligence Examination. The Company shall have
completed a due diligence examination of DCC satisfactory to the Company
covering all books, records, contracts and other documents and all financial
affairs of DCC. DCC shall have completed a due diligence examination of the
Company satisfactory to DCC covering all books, records, contracts and other
documents and all financial affairs of the Company.
(e) Legal Matters. All legal matters in connection with this
Agreement and the consummation of all transactions herein contemplated, and all
documents and instruments delivered in connection herewith shall be reasonably
satisfactory in form to each party.
(f) No Litigation or Proceedings. No injunction or restraining
order of any federal or state court is in effect which prevents the purchase of
the Assets or issuance and delivery of the Exchange Shares, and no lawsuit or
other proceeding has been filed by any person by the Closing Date contesting or
attempting to enjoin either action, and no action is taken and no law is passed
after the date of this Agreement which prevents the Exchange.
7. OTHER COVENANTS OF THE PARTIES. The parties agree that, prior to the
Closing:
(a) Effectuation of this Agreement. The parties hereto each
will use their best efforts to cause this Agreement and all related agreements
to become effective, and all transactions herein and therein contemplated to be
consummated, in accordance with its and their terms, to obtain all required
consents, waivers and authorizations of governmental entities and other third
parties, to make all filings and give all notices to those regulatory
authorities or other third parties which may be necessary or reasonably required
in order to effect the transactions contemplated in this Agreement, and to
comply with all federal, local and state laws, rules and regulations as may be
applicable to the contemplated transactions.
(b) Restriction on Action. The parties each agree that he or
it will not do any thing or act prohibited by this Agreement or any related
agreement, or fail to do any thing or act which he or it has undertaken to do in
this Agreement or any related agreement.
(c) Access and Information. To the extent each party deems
necessary for purposes of this Agreement and the transactions contemplated
hereby, DCC and the Company each shall permit the other, its counsel,
accountants and other representatives to have full access, upon reasonable
notice and during regular business hours, throughout the period prior to
Closing, to its equipment, assets, properties, books and records, and will cause
to be furnished to the requesting party and its representatives during such
period all information it or its representatives may reasonably request.
(e) Confidentiality. DCC and the Company covenant that they
each will not disclose any confidential information of the other party, except
to its officers, directors, attorneys, accountants, and employees involved in
these transactions, and only then on the condition that such individuals not
disclose the information disclosed to them. Notwithstanding the foregoing, the
terms of this Agreement, or of any of the transactions contemplated hereby, may
be disclosed following execution hereof, provided that each party will provide
at least twenty-four hours' notice to the other party prior to making the
initial public announcement regarding the transaction. In addition, either party
may disclose this Agreement or any part hereof to any third party at any time if
required to do so by law, this Agreement or other contractual obligation.
8. INDEMNIFICATION.
8.1 Indemnification by DCC. DCC agrees to defend, indemnify
and hold the Company, any subsidiary or affiliate thereof, and its respective
successors, officers, directors and controlling persons (the "Indemnified
Company Group") harmless
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from and against any and all losses, liabilities, damages, costs or expenses
(including reasonable attorney's fees, penalties and interest) payable to or for
the benefit of, or asserted by, any party resulting from, arising out of, or
incurred as a result of (a) the breach of any representation made by DCC or a
DCC Holder herein or in accordance herewith; (b) the breach of any warranty or
covenant made by DCC or a DCC Holder herein or in accordance herewith; or (c)
any claim, whether made before or after the date of this Agreement, or any
litigation, proceeding or governmental investigation, whether commenced before
or after the date of this Agreement, arising out of the business of DCC or
arising out of any act or occurrence prior to, or any state of facts existing as
of the Closing.
8.2 Indemnification by the Company. The Company agrees to
defend, indemnify and hold DCC, any subsidiary or affiliate thereof, and its
respective successors, officers, directors and controlling persons (the
"Indemnified DCC Group") harmless from and against any and all losses,
liabilities, damages, costs or expenses (including reasonable attorney's fees,
penalties and interest) payable to or for the benefit of, or asserted by, any
party resulting from, arising out of, or incurred as a result of (a) the breach
of any representation made by the Company herein or in accordance herewith; (b)
the breach of any warranty or covenant made by the Company herein or in
accordance herewith; or (c) any claim, litigation, proceeding or governmental
investigation, whether commenced before or after the date of this Agreement,
arising out of any act or occurrence prior to, or any state of facts existing as
of the Closing.
8.3 Survival of Covenants and Warranties. The representations,
warranties, covenants and agreements made by DCC on the one hand, and the
Company on the other hand, shall survive the Closing and shall be fully
enforceable at law or in equity against such other party and its successors and
assigns for a period of one year after the Closing Date. Any investigation at
any time made by or on behalf of (or any disclosure to ) any party hereto shall
not diminish in any respect whatsoever its right to rely on the representations
and warranties of the other party hereto.
8.4 Notice of Claims. The Company and DCC each agree to give
prompt written notice to the other of any claim against the party giving notice
which might give rise to a claim by it against the other party hereto based upon
the indemnity provisions contained herein, stating the nature and basis of the
claim and the actual or estimated amount thereof; provided, however, that
failure to give such notice will not affect the obligation of the indemnifying
party to provide indemnification in accordance with the provisions of this
Section 10 unless, and only to the extent that, such indemnifying party is
actually prejudiced thereby. In the event that any action, suit or proceeding is
brought against any member of the Indemnified DCC Group or the Indemnified
Company Group with respect to which any party hereto may have liability under
the indemnification provisions contained herein, the indemnifying party shall
have the right, at its sole cost and expense, to defend such action in the name
of or on behalf of the indemnified party and, in connection with any such
action, suit or proceeding, the parties hereto agree to render to each other
such assistance as may reasonably be required in order to ensure the proper and
adequate defense of any such action, suit or proceeding; provided, however, that
an indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate because of actual or potential differing interests between such
indemnified party and any other party represented by such counsel. Neither party
hereto shall make any settlement of any claim which might give rise to liability
of the other party under the indemnification provisions contained herein without
the written consent of such other party, which consent such other party
covenants shall not be unreasonably withheld.
9. TERMINATION OF THIS AGREEMENT.
9.1 Grounds for Termination. This Agreement shall terminate:
(a) By mutual written consent of the Company and DCC;
(b) By DCC or the Company, if:
(i) all the conditions precedent to its respective
obligations hereunder have not been satisfied or waived prior to the
Closing Date, as it may be accelerated or extended, or if any DCC
Holder refuses to execute this Agreement;
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<PAGE>
(ii) any party shall have defaulted or refused to
perform in any material respect under this Agreement, or if the Company
or DCC should have reasonable cause to believe there has been a
material representation concerning, or failure or breach of, any
representation or warranty by the other party, or if it appears that
either DCC or the Company has committed any unlawful acts affecting the
other party;
(iii) the transactions contemplated in this Agreement
and related agreements have not been consummated on the Closing Date,
as it may be mutually accelerated or extended, OR
(iv) either the Company or DCC shall reasonably
determine that the transactions contemplated in this Agreement have
become inadvisable by reason of the institution or threat by any
federal, state or municipal governmental authorities or by other person
whatever of a formal investigation or of any action, suit or proceeding
of any kind against either or both parties which in one party's
reasonable belief is material in light of the other party's business,
prospects, properties or financial condition;
9.2 Manner of Termination. Any termination of this Agreement
(other than an automatic termination) shall be made in accordance with the above
listed grounds and, if terminated by DCC or the Company, shall be accompanied by
a copy of the resolution of the terminating party's board of directors. Written
notice of termination shall be given to the other party as required in this
Agreement as promptly as is practical under the circumstances. Upon a party's
receipt of such termination notice, this Agreement shall terminate and the
transactions herein contemplated shall be abandoned without further action by
the parties.
9.3 Survival of Confidentiality Provisions. Upon termination
of this Agreement for any reason, (i) the covenants of the parties concerning
the confidentiality and proprietary nature of all documents and other
information furnished hereunder shall remain in force except as to information
which has otherwise become public knowledge, and (ii) each party shall promptly
return all documents received from the other party in connection with this
Agreement. This Section constitutes a mutual covenant of the parties, and either
may judicially enforce it.
10. MISCELLANEOUS PROVISIONS.
(a) Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto without the written
consent of the party not seeking assignment, except that the Company may direct
such an assignment to a wholly owned subsidiary corporation. No such assignment
shall relieve the assignor of any obligations created under this Agreement.
(b) Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Neither this Agreement nor
any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as expressly set forth in this Agreement.
(c) Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
(d) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Further, in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid and enforceable.
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(e) Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of all parties contained herein shall
survive the Closing, and all statements contained in any certificate, exhibit or
other instrument delivered by or on behalf of the Company or DCC, as the case
may be, and, notwithstanding any provision in this Agreement to the contrary,
shall survive the Closing.
(f) Interpretation. This Agreement shall be governed by and
construed under the laws of the State of Colorado and shall be interpreted as if
all parties participated equally in its drafting. The captions in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
any of the terms or provisions hereof. Whenever the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter, and
the number of all words shall include the singular and plural. Use of the words
"herein", "hereof", "hereto" and the like in this Agreement shall be construed
as references to this Agreement as a whole and not to any particular provision
in this Agreement, unless otherwise noted.
(g) Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by telefax transmission or by delivery
by use of a messenger which regularly retains its delivery receipts. Such notice
shall be deemed received on the date on which it is delivered to the addressee.
For purposes of notice, the addresses of the parties shall be, if to a DCC
Holder, sent to DCC for forwarding, and:
If to DCC: Diverse Capital Corp.
P.O. Box 172574
Tampa, Florida 33672
ATTN: Mark Cobb, President
If to Nelson/Company/NFL: 6521 West Calhoun
Littleton, Colorado 80123
ATTN: J.R. Nelson, Pres.
If to Brasher: 90 Madison Street, Suite 707
Denver, Colorado 80206
(h) No Finders. Each party represents and warrants to the
others and agrees that it has not employed or engaged, and will not employ or
engage, any person as a finder or broker in connection with the transactions
contemplated herein, and that no person is entitled to compensation as a finder
or broker. Each party hereby indemnifies the other parties and holds the other
parties harmless from and against any claims of any third persons claiming to
have acted as a finder or broker in connection with the transactions herein
contemplated, and such indemnity shall include all expenses, costs and damages
arising from or related to such claims, including reasonable attorneys fees.
(i) Expenses. Except as otherwise provided in this letter, the
Company and DCC shall bear their own fees and expenses incurred in connection
with the transactions contemplated herein.
(j) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and delivery of
this Agreement by exchange of facsimile copies bearing facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
(k) Prevailing Party Clause. In the event of any litigation or
proceeding arising as a result of the breach of this Agreement or the failure to
perform hereunder, or failure or untruthfulness of any representation or
warranty herein, the party or parties prevailing in such litigation or
proceeding shall be entitled to collect the costs and expenses of bringing or
defending such litigation or proceeding, including reasonable attorneys' fees,
from the party or parties not prevailing.
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<PAGE>
(l) Relationship of the Parties. Nothing in this Agreement is
intended to be construed so as to suggest that the parties hereto are partners
or joint venturers, or that any party or its employees is the employee or agent
of the other. Neither DCC nor the Company has any express or implied right or
authority under this Agreement to assume or create any obligations on behalf of
or in the name of the other party to any contract, agreement, arrangement,
understanding or undertaking with any third party.
(m) Exhibits, Schedules, etc. Each Exhibit to this Agreement
shall be initialed by DCC and the Company, and each Schedule shall be initialed
by the party providing it. Any Schedule provided by DCC Holders shall be
initialed by all of the DCC Holders. If a Schedule does not apply, it must
nonetheless be furnished and marked "not applicable." The information contained
in every Schedule shall be updated as necessary as of a date as close as
possible to the Closing Date and must be accurate and complete as of the Closing
Date. Each party signing this Agreement represents and warrants, to all other
parties, by such signature that he, she or it has carefully read this Agreement
in its entirety and understands the provisions of this Agreement.
(n) No Advice Given. DCC and the DCC Holders acknowledge and
agree that they have neither asked for nor received any legal or tax advice from
the Company, J.R. Nelson, John D. Brasher Jr., Esquire, or any other person
associated with the Company, in regard to this Agreement or the transactions
herein contemplated, and have instead relied on advice and counsel furnished by
their own legal or other advisers in order to satisfy themselves as to the tax
and other legal implications to them of the Exchange and issuance of the
Exchange Shares.
IN WITNESS WHEREOF, all parties have executed this Agreement, and DCC
and the Company have initialed every preceding page hereof, as of the dates
respectively indicated below.
BLAZOON SYSTEMS, INCORPORATED DIVERSE CAPITAL CORP.
By By
----------------------------------- --------------------------------
J.R. Nelson, President Mark Cobb, President
J.R. NELSON JOHN D. BRASHER JR.
X X
----------------------------------- --------------------------------
Signature Signature
NORDSTROM, FORBES & LINCOLN INCORPORATED
By
----------------------------------------------------
SHAREHOLDERS' SIGNATURE PAGE
to Agreement and Plan of Reorganization
FUNDING USA CORP. BELL ENTERTAINMENT, INC.
By By
----------------------------------- --------------------------------
Authorized Officer Authorized Officer
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CARL BERAK DONALD E. DARDEN
X X
----------------------------------- --------------------------------
Signature Signature
MARK D. COBB KEN ALLEN
X X
----------------------------------- --------------------------------
Signature Signature
JOHN J. WHITE BRENDA L. WHITE
X X
----------------------------------- --------------------------------
Signature Signature
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<PAGE>
EXHIBITS and SCHEDULES
EXHIBIT A - New Blazoon preferred stock to go to original Orlando Digital
owner(s)
EXHIBIT B- Lock-Up and Leakage Agreement
Schedule 2.6 Nelson and Brasher and affiliates
DCC/ODTC Schedules:
Schedule 1.2 - Names and addresses of DCC shareholders, no. of DCC Shares
owned by each and number of common and preferred exchange
shares options that go to each person
Schedule 3(d) litigation
Schedule 3(g) disclosure of material liabilities
Schedule 3(i) taxes owed
Schedule 3(j) material contracts
Schedule 3(k) affiliate relationships
Schedule 3(n) officers and directors salaries
Schedule 3(o) insurance policies in effect
Schedule 3(r) patents, trademarks, servicemarks, licenses, franchises and
other intellectual property
EXHIBIT 10.7
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, made and entered into as of July 2, 1999,
by and among, USA Digital, Inc., a Nevada corporation (the "HOLDING COMPANY"),
DSA Computer, Inc., a Florida corporation (the "ACQUIRED COMPANY"), and David
Seal, an individual residing in Florida (the "SELLER").
W I T N E S S E T H:
--------------------
WHEREAS, the Holding Company is engaged in the business of acquiring
internet service providers, switchless resellers, interconnect companies and
various other communication companies, so as to be able to offer its customer
base a complete variety of convergent communication products and services; and
WHEREAS, the Holding Company is publicly traded; and
WHEREAS, the Acquired Company is engaged in the business of a computer
sales and the sale of related products and services to predominately small to
medium sized businesses; and
WHEREAS, the Seller owns all of the issued and outstanding shares of
the common stock, par value $1.00 per share, of the Acquired Company (the
"STOCK") and desires to sell the Stock to the Holding Company; and
WHEREAS, the Holding Company desires to purchase the Stock for the
purpose of owning and operating the Acquired Company as a wholly owned
subsidiary; and
WHEREAS, the parties desire the Holding Company to acquire from the
Seller all of the Stock in a transaction intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, in consideration of the premises herein set forth, and
the mutual promises and respective representations and warranties of the
parties, one to another made herein, and the reliance of each party upon the
other(s) based hereon, the parties hereto adopt this plan of reorganization and
agree, as follows:
ARTICLE I
PRELIMINARY MATTERS
SECTION 1.01. RECITALS. The parties acknowledge the recitals herein
above set forth in the preamble are correct, incorporated herein and are made a
part of this Agreement.
SECTION 1.02. EXHIBITS AND SCHEDULES. Exhibits (which are documents to
be executed and delivered at the Closing (as hereinafter defined) by the party
identified therein or in the provision requiring its delivery) and Schedules
(which are documents setting forth information about either the Acquired Company
or the Holding Company) referred to herein and annexed
<PAGE>
hereto are, by this reference, incorporated herein and made a part of this
Agreement, as if set forth fully herein.
SECTION 1.03. USE OF WORDS AND PHRASES. Natural persons may be
identified by last name, with such additional descriptors as may be desirable.
The words "herein," "hereby," "hereunder," "hereof," "herein before,"
"hereinafter" and any other equivalent words refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision hereof. The
words, terms and phrases defined herein and any pronoun used herein shall
include the singular, plural and all genders. The word "and" shall be construed
as a coordinating conjunction unless the context clearly indicates that it
should be construed as a copulative conjunction.
SECTION 1.04. ACCOUNTING TERMS. All accounting terms not otherwise
defined herein shall have the meanings assigned to them under the profession's
generally accepted accounting principles ("GAAP") unless specifically referenced
to regulatory accounting principles.
SECTION 1.05. CALCULATION OF TIME LAPSE OR PASSAGE; ACTION REQUIRED ON
HOLIDAYS. When a provision of this Agreement requires or provides for the
calculation of the lapse or passage of a time period, such a time period shall
be calculated by treating the event which starts the lapse or passage as zero;
provided, that this provision shall not apply to any provision which specifies a
certain day for action or payment, e.g. the first day of each calendar month.
Unless otherwise provided, the term "month" shall mean a period of thirty days
and the term "year" shall mean a period of 360 days, except that the term
"calendar year" shall mean the actual calendar year period. If any calendar day
on which action is required to be taken or payment is required to be made under
this Agreement is not a business day (meaning Monday through Friday, excluding
national holidays), then such action or payment shall be taken or made on the
next succeeding business day.
SECTION 1.06. USE OF TITLES, HEADINGS AND CAPTIONS. The titles,
headings and captions of Articles, sections, paragraphs and other subdivisions
contained herein are for the purpose of convenience only and are not intended to
define or limit the contents of said articles, sections, paragraphs and other
subdivisions.
ARTICLE II
TERMS OF THE TRANSACTION
SECTION 2.01. PURCHASE AND SALE OF STOCK. Upon and subject to the terms
and conditions of this Agreement, the Seller agrees to sell, assign, deliver and
transfer to the Holding Company, and the Holding Company agrees to purchase and
accept delivery from the Seller at the Closing, all of the Stock, free and clear
of all liens, pledges, security interests, claims, charges, restrictions,
equities or encumbrances of any kind whatsoever (the "ACQUISITION").
SECTION 2.02. PURCHASE PRICE. As consideration for the Stock, the
Holding Company shall issue and deliver to the Seller, forty thousand (40,000)
shares of preferred stock (the "PREFERRED STOCK"). The Preferred Stock will be
designated as Class B Convertible Preferred
2
<PAGE>
Stock, Series "1", of which each share (a) will have a liquidation value of
$4.00, (b) will be convertible into five (5) shares of the Holding Company's
common stock beginning one year after the Closing Date, (c) will be entitled to
one vote per share on matters submitted to a vote of the holders of the common
stock, and (d) will be subject to cash redemption at the election of either the
Holding Company or the Seller beginning three years from the date hereof, upon
thirty days' written demand for redemption by either party, at liquidation
value. The liquidation value and conversion rate will be subject to proportional
adjustment for stock splits, stock dividends, recapitalizations and the like.
SECTION 2.03. SECURITY FOR HOLDING COMPANY'S OBLIGATIONS. As security
for the Holding Company's payment obligation under Section 2.02 of this
Agreement in the event of the exercise of the cash redemption right by the
Seller, (a) the Holding Company shall grant to Seller a security interest in all
of the Stock of the Acquired Company, as evidenced by the Pledge Agreement in
the form of EXHIBIT A attached hereto (the "PLEDGE AGREEMENT"), and (b) the
Holding Company shall cause the Acquired Company to grant to the Seller a
security interest in all of the assets of the Acquired Company, as evidenced by
the Security Agreement in the form of EXHIBIT B attached hereto (the "SECURITY
AGREEMENT").
SECTION 2.04. PRESS RELEASES. The Holding Company, the Acquired Company
and the Seller agree not to make any public announcement with regard to the
Acquisition without the prior consent of the other party, which shall not be
unreasonably withheld; provided however, that the Holding Company may make such
disclosures as are required under federal and state securities laws in the
opinion of counsel to the Holding Company.
SECTION 2.05. TRANSACTION COSTS. Each of the Holding Company and the
Acquired Company shall bear its own costs associated with the negotiation,
drafting and closing of this Agreement and its related documents. In addition,
the Acquired Company may bear the Seller's reasonable costs directly related to
the negotiation, drafting and closing of this Agreement and its related
documents.
SECTION 2.06. CAPITAL INFUSION. For a twelve month period commencing on
the Closing Date and ending on the date twelve months after the Closing Date,
upon the request of the Acquired Company, the Holding Company agrees to lend to
the Acquired Company an amount not to exceed five thousand dollars ($5,000) per
month, which such loans are to be used by the Acquired Company to expand its
business. Each such loan will be represented by a promissory note in a form
mutually acceptable to the parties.
ARTICLE III
CLOSING OF THE TRANSACTION;
CONDITIONS PRECEDENT
SECTION 3.01. LOCATION, DATE AND TIME OF THE CLOSING. The closing of
the Acquisition herein contemplated (the "CLOSING") shall take place on or
before July 9, 1999 (the "CLOSING DATE"), at the offices of the Acquired
Company, 10001 Northwest 50th Street, Suite 104,
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Sunrise, Florida, subject to the satisfaction of the conditions to Closing set
forth in Sections 3.08 and 3.09.
The effective date of this Agreement shall be the Closing Date.
SECTION 3.02. DOCUMENTS DELIVERED BY THE ACQUIRED COMPANY AND THE
SELLER AT CLOSING. At the Closing, the Acquired Company or the Seller, as
appropriate will deliver the following documents:
(a) A certificate of an officer of the Acquired Company and
the Seller, dated the Closing Date, certifying (i) as to the accuracy of their
representations and warranties at and as of the Closing Date, (ii) that the
Acquired Company and the Seller have performed and complied with all of the
agreements and conditions to be performed and complied with by them on or before
the Closing Date, (iii) that no material adverse change in the business,
condition (financial or otherwise), operations (present or prospective), assets
or properties of the Acquired Company has occurred from the date of this
Agreement through the Closing Date, and (iv) that no action or proceeding has
been instituted or, to their best knowledge, been threatened before a court or
other government body or by any public authority to restrain or prohibit any of
the transactions contemplated hereby or which could reasonably be expected to
have a material adverse effect on the Acquired Company;
(b) A certificate of the Secretary of the Acquired Company,
dated the Closing Date, certifying true, correct and complete copies of (i) the
Acquired Company's Certificate of Incorporation, including all amendments
thereto, (ii) the Acquired Company's By-Laws, including all amendments thereto,
and (iii) resolutions of the board of directors and stockholders of the Acquired
Company authorizing the transactions contemplated hereby;
(c) A certificate of good standing issued by the Secretary
of State of the Acquired Company's State of incorporation and of each State in
which it is qualified to do business as a foreign corporation;
(d) A duly executed Security Agreement;
(e) The certificate(s) representing all of the Stock,
together with a duly executed stock power in favor of the Holding Company;
(f) Stock ledger and minute books of the Company reflecting
all transactions in the Stock and all meetings of the board of directors,
committees thereof and stockholders of the Company to date;
(g) An opinion of counsel for the Acquired Company and the
Seller, as of the date of the Closing, confirming the legality of the Stock
acquired by the Holding Company;
(h) A duly executed closing memorandum as required under
Section 3.04 hereof (the "CLOSING MEMORANDUM");
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(i) Such consents of third parties as may be necessary to
consummate the transactions contemplated hereby; and
(j) Such other certificates or documents as the Holding
Company or its counsel may reasonably request.
SECTION 3.03. DOCUMENTS DELIVERED BY THE HOLDING COMPANY AT CLOSING. At
the Closing, the Holding Company will deliver the following documents:
(a) A certificate of an officer of the Holding Company,
dated the Closing Date, certifying (i) as to the accuracy of its representations
and warranties at and as of the Closing Date, (ii) that the Holding Company has
performed and complied with all of the agreements and conditions to be performed
and complied with by it on or before the Closing Date, (iii) that no material
adverse change in the business, condition (financial or otherwise), operations
(present or prospective), assets or properties of the Holding Company has
occurred from the date of this Agreement through the Closing Date, and (iv) that
no action or proceeding has been instituted or, to its best knowledge, been
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby or which could
reasonably be expected to have a material adverse effect on the Holding Company;
(b) A certificate of the Secretary of the Holding Company,
dated the Closing Date, certifying true, correct and complete copies of (i) the
Holding Company's Certificate of Incorporation, including all amendments
thereto, (ii) the Holding Company's By-Laws, including all amendments thereto,
and (iii) resolutions of the board of directors and stockholders of the Holding
Company authorizing the transactions contemplated hereby;
(c) A certificate of good standing issued by the Secretary
of State of its State of incorporation and of each State in which it is
qualified to do business as a foreign corporation;
(d) A duly executed Pledge Agreement,
(e) Certificates for the Preferred Stock, bearing the
restrictive legend set forth in Section 6.04 hereof, issued to and registered to
the order of the Seller;
(f) An opinion of counsel, as of the date of the Closing,
confirming the legality of the Preferred Stock issued to the Seller;
(g) A duly executed Closing Memorandum;
(h) Such consents of third parties as may be necessary to
consummate the transactions contemplated hereby; and
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(i) Such other certificates or documents as the Seller or
its counsel may reasonably request.
SECTION 3.04. CLOSING MEMORANDUM AND RECEIPTS. As evidence that all
parties deem the Closing to have been completed, the conditions precedent to
have been satisfied, and the transaction contemplated by this Agreement to have
been consummated, the parties will jointly execute and deliver a Closing
Memorandum acknowledging such completion and consummation, setting forth any
matters or conditions which the parties agree to complete after the Closing and
containing an acknowledgment receipt for the Stock referenced above.
SECTION 3.05. WAIVER OF CONDITIONS. Notwithstanding Section 12.02
herein, any condition to the Closing which is not satisfied at or prior to the
Closing will be deemed to be waived by each of the affected parties or satisfied
by virtue of such party's execution of the Closing Memorandum; provided, that
any condition which is unsatisfied and is to be preserved for completion or
consummation after the Closing shall be set forth in the Closing Memorandum and
thereupon will become a covenant for completion or consummation by the parties
obligated for the performance thereof.
SECTION 3.06. FURTHER ASSURANCES. At any time and from time to time
after the Closing, at the reasonable request of any party and without further
consideration, any other party shall execute and deliver such other instruments
and documents as may be reasonably desirable or necessary to complete the
transactions contemplated by this Agreement.
SECTION 3.07. CONDITIONS PRECEDENT TO THE ACQUIRED COMPANY'S AND THE
SELLER'S OBLIGATION TO CLOSE. All obligations of the Acquired Company and the
Seller hereunder are subject to the fulfillment of each of the following
conditions at or prior to the Closing, and the Holding Company shall exert its
best efforts to cause each such condition to be fulfilled:
(a) All representations and warranties of the Holding
Company contained herein or in any document delivered pursuant hereto shall be
true and correct in all material respects when delivered and shall be deemed to
have been made again at and as of the date of the Closing, and shall then be
true and correct in all material respects except for changes in the ordinary
course of business after the date hereof in conformity with the covenants and
agreements contained herein.
(b) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Holding Company on or before the
Closing shall have been duly and properly performed in all material respects.
(c) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Holding Company not disclosed
to and acknowledged by the Acquired Company and the Seller. No action or
proceeding shall have been instituted or threatened before
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a court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby.
(d) All documents required to be delivered by the Holding
Company at or prior to the Closing shall have been so delivered.
(e) The Holding Company shall have received all consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement.
SECTION 3.08. CONDITIONS PRECEDENT TO THE HOLDING COMPANY'S OBLIGATION
TO CLOSE. All obligations of the Holding Company at the Closing are subject to
the fulfillment of each of the following conditions at or prior to the Closing,
and the Acquired Company and the Seller shall each exert their best efforts to
cause each such condition to be fulfilled.
(a) The Seller and the Acquired Company shall have delivered
within five (5) business days after the date of the execution of this Agreement
all of the schedules required to be delivered by the Seller and the Acquired
Company in form and substance satisfactory to the Holding Company in its sole
discretion. The Holding Company shall have completed its due diligence
examination of the Acquired Company and shall have become satisfied, in its sole
discretion, that the condition of the Acquired Company is acceptable to it.
(b) All representations and warranties of the Acquired
Company and the Seller contained herein or in any document delivered pursuant
hereto shall be true and correct in all material respects when delivered and
shall be deemed to have been made again at and as of the date of the Closing,
and shall then be true and correct in all material respects except for changes
in the ordinary course of business after the date hereof in conformity with the
covenants and agreements contained herein.
(c) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Acquired Company and the Seller
on or before the Closing shall have been duly and properly performed in all
material respects.
(d) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Acquired Company not disclosed
to and acknowledged by the Holding Company, and no action or proceeding shall
have been instituted or threatened before a court or other government body or by
any public authority to restrain or prohibit any of the transactions
contemplated hereby.
(e) The Seller and the Acquired Company shall have received
all consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement.
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(f) All documents required to be delivered by the Acquired
Company and by the Seller on or before the Closing shall have been so delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
SECTION 4.01. THE ACQUIRED COMPANY AND THE SELLER'S REPRESENTATIONS AND
WARRANTIES. The Acquired Company and Seller jointly and severally represent and
warrant to the Holding Company, except as set forth in the schedules annexed
hereto (collectively, the "DISCLOSURE SCHEDULE") that the following are true and
correct as of the date first above written and shall be true and correct on the
Closing Date:
(a) ORGANIZATION AND GOOD STANDING. The Acquired Company is
a corporation duly organized, validly existing and in good standing under the
laws of its State of incorporation. The Acquired Company is duly qualified and
licensed to do business and is in good standing in every jurisdiction where the
conduct of its business or the nature of its properties require it to be
qualified. The Acquired Company has delivered to the Holding Company true,
correct and complete copies of its articles of incorporation, as amended, bylaws
and the records of proceeding of its board of directors and stockholders, to the
extent such records exist, since the inception of the Acquired Company. The
Acquired Company does not own, directly or indirectly, any of the capital stock
of any other corporation or any equity, profit sharing, participation or other
interest in any corporation, partnership, joint venture or other entity.
(b) CORPORATE AUTHORITY. The Acquired Company has full
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been and all
other agreements to be executed hereunder upon such execution and delivery will
have been duly and validly authorized by all necessary corporate action of the
Acquired Company (including the approval of the board of directors and
stockholders), constitute the legal, valid and binding obligation of the
Acquired Company and the Sellers enforceable against them in accordance with
their terms subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of, relating to or affecting shareholders and
creditors rights generally and to general equitable principles.
(c) NO CONFLICT. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provision of the Acquired Company's articles of
incorporation or bylaws, (ii) violate any provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, any mortgage, lien, lease, material
contract, license, permit, instrument or any other material agreement to which
the Acquired Company is a party, (iii) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon any
property of the Acquired Company, (iv) violate or conflict with any order,
award, judgment or decree or other restriction or conflict with any law,
ordinance, rule or regulation to which the Acquired Company or its property is
subject or by which the Acquired Company or its
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property may be bound or affected, or (v) result in the loss, forfeiture or
waiver of any rights or franchise owned by the Acquired Company, from which the
Acquired Company benefits or which is desirable in the conduct of the Acquired
Company's business.
(d) CAPITALIZATION; STOCK OWNERSHIP. The Acquired Company's
authorized capital stock consists of 1,000 shares of common stock, par value
$1.00 per share, of which 1,000 shares are issued and outstanding. The Acquired
Company's issued and outstanding capital stock has been duly and validly
authorized, is validly issued and fully paid and nonassessable. All of the
outstanding capital stock of the Acquired Company is legally and beneficially
owned by the Seller, free of any security interests, liens, claims,
encumbrances, equities, proxies, shareholder agreements, or other restrictions
of any kind. No shares of the Acquired Company's Common Stock are owned by the
Acquired Company in treasury. No shares of the Acquired Company's Common Stock
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Acquired Company's stockholders.
The Acquired Company has no bonds, debentures, notes or other obligations the
holders of which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the stockholders of the Acquired
Company on any matter.
(e) STOCK TRANSACTIONS, OPTIONS AND WARRANTS. Except as set
forth on SCHEDULE 4.01(e), the Acquired Company has not acquired any capital
stock of the Acquired Company within the two (2) year period preceding the
execution of this Agreement. There exist no options, warrants, subscriptions or
other rights to purchase, or securities convertible into or exchangeable for,
any of the authorized or outstanding securities of the Acquired Company, and no
option, warrant, call, conversion right or commitment of any kind exists which
obligates the Acquired Company to issue any of its authorized but unissued
capital stock. The Acquired Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Acquired Company nor the ownership
of shares among its stockholders has been altered or changed within the two (2)
year period preceding the date of this Agreement.
(f) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State or
subdivision thereof or any self-regulatory body to which the Acquired Company is
subject is required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby on the
part of the Acquired Company.
(g) THIRD PARTY APPROVALS. Except as set forth on SCHEDULE
4.01(g), there are no authorizations, consents or approvals of the parties under
any contracts, commitments or understandings to which the Seller or the Acquired
Company are a party or of any other person (including any public body or
authority) required to permit the consummation on the part of the Seller or the
Acquired Company of the transactions contemplated by this Agreement.
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(h) SPIN-OFFS. Except as contemplated by this Agreement,
there has not been any sale, distribution or spin-off of significant assets of
the Acquired Company other than in the ordinary course of business within the
two (2) year period preceding the date of this Agreement.
(i) BRIBES; KICKBACKS. Neither the Acquired Company nor
Seller nor, to the best of the knowledge of the Acquired Company and the Seller,
any employee of the Acquired Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company to any government or
agency thereof or any agent of any supplier or customer any bribe, kick-back or
other similar payment or any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by the Company or as otherwise permitted by applicable law).
(j) FINANCIAL STATEMENTS. Attached hereto as SCHEDULE
4.01(k) are true and complete copies of the Acquired Company's balance sheet
(the "BALANCE SHEET") and related statement of income at and for the period
ended December 31, 1997 and December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). Such Financial Statements have not been audited, but are complete
and correct, have been prepared in accordance with GAAP, and fairly present the
financial condition of the Acquired Company and the results of operations at the
dates and for the periods indicated. Since December 31, 1998, there has been no
material adverse change in the financial conditions, results of operations or
business prospects of the Acquired Company and, to the best knowledge of the
Seller and the Acquired Company, no fact or condition exists or is contemplated
or threatened which might cause such a change in the future. The Acquired
Company is not liable for or obligated in any way to provide funds in respect of
or to guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Acquired Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount. No
person has guaranteed, indemnified or otherwise insured any obligation of the
Acquired Company.
(k) NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 4.01(k), the Acquired Company has no material liabilities or
obligations of any nature known by the Seller or the Acquired Company (whether
absolute, accrued or contingent) except for liabilities or obligations
adequately reflected or reserved against in the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business to the extent such liabilities are reflected on the Acquired Company's
books and records. Except as set forth on SCHEDULE 4.01(k), as at the Closing
Date there will not be any liability of any nature or in any amount that should
be properly reflected or reserved against in the Balance Sheet, in accordance
with generally accepted accounting principles consistently applied by the
Acquired Company according to its past practice, which will not be fully
reflected or reserved against in the Balance Sheet. Except as set forth on
SCHEDULE 4.01(k), the Acquired Company is not in default in any material respect
under the terms or conditions of any indebtedness for which it is obligated
directly, indirectly or as an endorser thereof.
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(l) TITLE TO ASSETS. Except as set forth on SCHEDULE
4.01(l), the Acquired Company has good, valid, marketable and insurable title to
all of the properties and assets which it owns or uses in its business, free and
clear of all security interests, liens, claims and encumbrances. The assets and
properties of the Acquired Company are adequate for the conduct of the Acquired
Company's business in the manner in which it is currently conducted and
contemplated to be conducted by the Acquired Company.
(m) REAL PROPERTY. The Acquired Company does not own any
interest (other than leasehold interests referred to on SCHEDULE 4.01(m)) in
real property. The leased real property referred to on SCHEDULE 4.01(m)
constitutes the only real property necessary for the conduct of the Acquired
Company's business as currently conducted.
(n) CONTRACTS. Except as set forth on SCHEDULE 4.01(n), the
Acquired Company is not a party to or bound by, nor is the Stock or any of the
Company's assets or properties subject to, or bound by, whether or not in
writing, any of the following (collectively, the "CONTRACTS"): (i) partnership
or joint venture agreement; (ii) guaranty or suretyship, indemnification or
contribution agreement or performance bond; (iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another; (iv) contract to purchase real property;
(v) agreement with sales agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $5,000 and which is not terminable on thirty (30)
days' notice or without penalty; (vi) agreement relating to any material matter
or transaction in which an interest is held by a person or entity that is an
officer, director, employee, stockholder or affiliate of the Acquired Company or
Seller; (vii) agreement for the acquisition of services, supplies, equipment,
inventory, fixtures or other property involving more than $5,000 in the
aggregate, except in the ordinary course of business; (viii) powers of attorney;
(ix) contracts containing non-competition covenants; (x) agreement providing for
the purchase from a supplier of all or substantially all of the requirements of
the Acquired Company of a particular product or services; (xi) any other
agreement or commitment in excess of $5,000 not made in the ordinary course of
business or that is material to the business, operations, condition (financial
or otherwise) or results of operations of the Company. Copies of all of the
Contracts have been delivered to the Holding Company. All of such Contracts are
valid and binding, enforceable in accordance with their respective terms (except
as may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies), in full
force and effect, and no defenses, off-sets or counterclaims have been asserted,
nor has the Company waived any material rights thereunder. There are no existing
events of default or events, which after the giving of notice or lapse of time
or both, would constitute a default or result in a right to accelerate or a loss
of rights in connection with any such Contract, and no penalties have been
incurred nor are amendments pending, with respect to the Contracts. The Acquired
Company has not received notice of any plan or intention of any other party to
any Contracts to exercise any right to cancel or terminate such Contracts, and
neither the Acquired Company nor Seller knows of any fact that would justify the
exercise of such a right. No consents or approvals are required under the terms
of any Contracts in connection with the transactions contemplated herein. None
of the Contracts is,
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either when considered singly or in the aggregate with others, unduly
burdensome, onerous or materially adverse to the Acquired Company's business,
properties, assets, earnings or prospects or is likely, either before or after
the Closing, to result in any material loss or liability.
(o) FIXED ASSETS. All of the fixtures, structures and
equipment reflected in the Financial Statements and used by the Acquired Company
in its business are in good operating condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Acquired Company has no actual
knowledge of any latent defects therein.
(p) LITIGATION; CLAIMS. Except as set forth in SCHEDULE
4.01(p), there is no claim, violation notice, legal action, suit, arbitration,
governmental investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or, to the Acquired
Company's or Seller's best knowledge, threatened, against or relating to the
Acquired Company, its directors, officers or employees, it properties, assets or
business, Seller, or the transaction contemplated by this Agreement and neither
the Acquired Company nor Seller know or has any reason to be aware of any basis
for the same, including any basis for a claim of sexual harassment or
discrimination based on race, age, sexual orientation or other protected class
of individuals, as well as health, safety or other environmental complaints or
exposure. Neither the Acquired Company nor Seller is subject to or in default of
any court or administrative order, judgment, writ, injunction or decree
applicable to the Acquired Company or to its business, assets, operations or
employees. All claims asserted, general liability incidents and incident reports
have been submitted to the Acquired Company's insurer therefor. All claims made
or threatened against the Acquired Company in excess of its deductible are
covered under its Insurance Policies.
(q) TAXES. All taxes, including without limitation, income,
property, special assessments, sales, use, franchise, intangibles, employees'
income withholding and social security taxes, imposed by the United States of
America, foreign government or any state, municipality, subdivision, authority
therein, which are due and payable, and all interest and penalties thereon,
unless disputed in good faith in proper proceedings and reserved for or set
aside, have been paid in full and all tax returns required to be filed in
connection therewith have been accurately prepared and timely filed
(collectively, the "TAX RETURNS") and all monies required to be withheld by the
Company and paid to governmental agencies for all income, social security,
unemployment insurance, sales, excise, use and other taxes have been collected
or withheld and paid to the respective governmental agencies. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. The
Acquired Company is not and has no reason to believe that it will be the subject
of an audit by any taxing authority. There is not now in force any extension of
time with respect to the date when tax return was or is due to be filed, or any
waiver or agreement by the Acquired Company for the extension of time for the
assessment of any tax and the Acquired Company is not a "consenting corporation"
within the meaning of Section 341(f)(1) of the Internal Revenue Code of 1986, as
amended; and, the Acquired Company has elected to be treated as an S corporation
for federal income tax purposes. All workers'
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compensation, disability and similar items due and payable under any
governmental program have been paid. The Acquired Company is not a party to any
tax sharing agreement with any other person or entity. Neither the Company nor
Seller is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code. None of the assets or properties of the Acquired Company constitutes
property that the Acquired Company, the Holding Company, or any affiliate of the
Holding Company, will be required to treat as being owned by another person
pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of the Code
prior to repeal by the Tax Equity and Fiscal Responsibility Act of 1982. None of
the assets of the Acquired Company are subject to a lease to a "tax exempt
entity" as such term is defined in Section 168(h)(2) of the Code. The Acquired
Company has not at any time consented, and Seller will not permit the Acquired
Company to elect, to have the provisions of Section 341(f)(2) of the Code apply
to it. The Acquired Company has not at any time participated in or cooperated
with any international boycott as defined in Section 999 of the Code. No payment
required or contemplated to be made by the Acquired Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(r) EMPLOYEE BENEFIT PLANS. The Acquired Company does not
have any employee benefit, pension or profit sharing plans subject to ERISA or
other similar retirement plans to which the Acquired Company is obligated or
required to make contributions. The Acquired Company does not have any
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired.
(s) EMPLOYEES. SCHEDULE 4.01(s) contains (i) a complete and
accurate list of the names, titles and annual cash compensation as of the
Closing Date, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "CASH
COMPENSATION") of all employees of the Acquired Company, (ii) a complete and
accurate description of all increases in Cash Compensation of employees of the
Acquired Company during the current fiscal year and the immediately preceding
fiscal year and any promised increases in Cash Compensation of employees of the
Acquired Company that have not yet been effected, (iii) a complete and accurate
list of all compensation plans, arrangements or practices (the "COMPENSATION
PLANS") sponsored by the Acquired Company or to which the Company contributes on
behalf of its employees, and (iv) a complete and accurate list of all employment
arrangements which the Acquired Company is a party to or affected by, including
without limitation, employee leasing, employee services, consulting and
non-competition agreements. The Acquired Company does not have any written
employment agreements with its employees. The Compensation Plans include without
limitation plans, arrangements or practices that provide for performance awards
and stock ownership or stock options. The Company has provided or made available
to the Holding Company a copy of each written Compensation Plan, including all
amendments to date, and a written description of each unwritten Compensation
Plan. Each of the Compensation Plans can be terminated or amended at will by the
Company. The Company has provided or made available to Holding Company a copy of
all employee manuals and all written material policies, procedures and
work-related rules, including all amendments to date, and a written description
of all material unwritten Employee policies and procedures.
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(t) EMPLOYEE MATTERS. The Acquired Company has been and is
in compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except for any such failures to be in compliance
that, individually or in the aggregate, would not result in a material adverse
effect, and the Acquired Company is not liable for any arrearages of wages or
penalties for failure to comply with any of the foregoing. The Acquired Company
has not engaged in any unfair labor practices or discriminated on the basis of
race, color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices and no such charges or complaints are pending
or, to the best knowledge of the Acquired Company and Seller, threatened against
the Acquired Company before any federal, state or local court, board,
department, commission or agency (nor, to the best knowledge of the Acquired
Company and Seller, does any valid basis therefor exist). No labor strikes,
disputes, grievances, controversies or other labor troubles affecting the
Acquired Company are pending or threatened (nor, to the best knowledge of the
Acquired Company and Seller, does any valid basis therefor exist).
(u) UNIONS; WORK STOPPAGES. The Acquired Company has never
been a party to any agreement with any union, labor organization or collective
bargaining unit. None of the Acquired Company's employees are represented by a
union, labor organization or collective bargaining unit or are subject to a
collective bargaining agreement and the Acquired Company considers its relations
with its employees as a whole to be good. The Acquired Company has not been
subject to any strikes, work stoppages or labor unrest. To the best knowledge of
the Acquired Company and Seller, none of the employees of the Company has
threatened to organize or join a union, labor organization or collective
bargaining unit. All employees of the Acquired Company are, to the best
knowledge of the Acquired Company and Seller, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
(v) ABSENCE OF CHANGES. Except as set forth on SCHEDULE
4.01(v) or as contemplated in this Agreement, since the date of the Balance
Sheet, the Acquired Company has not (i) suffered a material adverse effect; (ii)
contracted for the purpose of acquiring any capital asset having a cost in
excess of $5,000 or made any single expenditure for a capital asset in excess of
$5,000; (iii) incurred any indebtedness for borrowed money in excess of $5,000
(other than short-term borrowings in the ordinary course of business), or issued
or sold any debt securities; (iv) incurred or discharged any material
liabilities or obligations except in the ordinary course of business; (v) paid
any amount on any indebtedness prior to the due date, forgiven or canceled any
claims or any debt in excess of $5,000, or released or waived any rights or
claims except in the ordinary course of business; (vi) mortgaged, pledged or
subjected to any security interest, lien, lease or other charge or encumbrance
any of its properties or assets (other than statutory liens arising in the
ordinary course of business or other liens that do not materially detract from
the value or interfere with the use of such properties or assets); (vii)
suffered any damage or destruction to or loss of any assets (whether or not
covered by insurance) that has, individually or in the aggregate, resulted in a
material adverse effect; (viii) acquired or disposed of any assets having an
aggregate value in excess of $5,000, except in the ordinary course of
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business; (ix) written up or written down the carrying value of any of its
assets, other than accounts receivable in the ordinary course of business; (x)
changed the costing system or depreciation methods of accounting for its assets
in any material respect; (xi) lost or terminated any employee, customer or
supplier that has, individually or in the aggregate, resulted in a material
adverse effect; (xii) increased the compensation of any key employee (except for
increases in the ordinary course of business consistent with past practice) or
any director, officer or consultant, or hired any new employee who is expected
to receive annualized compensation of at least $5,000; (xiii) formed or acquired
or disposed of any interest in any corporation, partnership, joint venture or
other entity; (xiv) redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any of its capital stock, paid
any dividend or made any distribution or payment on any of its capital stock, or
agreed to change the terms and conditions of any such capital stock; (xv)
entered into any agreement providing for total payments in excess of $5,000 in
any twelve (12) month period with any person or group, or modified or amended in
any material respect the terms of any such existing agreement, except in the
ordinary course of business whereupon the sum of total payments shall not exceed
$5,000 in any twelve (12) month period; or (xvi) entered into any other
commitment or transaction or experienced any other event that would materially
interfere with its performance under this Agreement or any other agreement or
document executed or to be executed pursuant to this Agreement, or otherwise
has, individually or in the aggregate, resulted in a material adverse effect.
(w) SECURITIES LAWS COMPLIANCE. All offers and sales of
securities by the Acquired Company have been made in compliance with the
requirements of federal and applicable state securities laws.
(x) INSURANCE. The Acquired Company carries property,
liability, workers' compensation and such other types of insurance pursuant to
the insurance policies listed and briefly described on SCHEDULE 4.01(x) (the
"INSURANCE POLICIES"). All of the Insurance Policies are issued by licensed
insurers and, to the best knowledge of the Acquired Company, are valid and
enforceable policies. All Insurance Policies shall be maintained in force
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided or made available to
the Holding Company. Except as set forth on SCHEDULE 4.01(x), neither the
Acquired Company nor Seller has received any notice or other communication from
any issuer of any Insurance Policy canceling such policy, materially increasing
any deductibles or retained amounts thereunder, and to the best knowledge of the
Acquired Company and Seller, no such cancellation or increase of deductibles,
retainages or premiums is threatened. The Acquired Company does not have any
outstanding claims, settlements or premiums owed against any Insurance Policy,
and the Acquired Company has given all notices or has presented all potential or
actual claims under any Insurance Policy in due and timely fashion. SCHEDULE
4.01(x) also sets forth a list of all claims under any Insurance Policy in
excess of $10,000 per occurrence filed by the Acquired Company since its
inception. The Acquired Company has established and maintains all required
insurance company reserves in all of those states that it is required to do so
and has established and maintains all required deposits and bonds as are
necessary in such state.
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(y) INTELLECTUAL PROPERTY. SCHEDULE 4.01(Y) sets forth a
true and correct description of all trademarks, trade-names, service marks and
other trade designations, including common law rights, registrations and
applications therefor, and all patents and applications therefor currently
owned, in whole or in part, by the Acquired Company, and all licenses,
royalties, assignments and other similar agreements relating to the foregoing to
which the Acquired Company is a party (including the expiration date thereof if
applicable); and all agreements relating to technology, know-how or processes
that the Acquired Company is licensed or authorized to use by others (other than
technology, know-how or processes generally available to other healthcare
providers), or which it licenses or authorizes others to use (collectively, the
"PROPRIETARY RIGHTS"). The Acquired Company owns or has the legal right to use
the Proprietary Rights, and to the best knowledge of the Acquired Company, such
ownership or use does not conflict, infringe or violate the rights of any other
person. No consent of any person will be required for the use thereof by the
Holding Company upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. The Acquried Company has the
right to use, free and clear of any adverse claims or rights of others, all
trade secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or marketed
by it.
(z) RELATED PARTY TRANSACTION. No officer, director,
stockholder or employee of the Acquired Company, or their respective spouses,
children or affiliates owns, directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Acquired
Company or any organization that has a material contract or arrangement with the
Acquired Company, except for Seller's ownership interest in, and services as an
officer and director in, AccuData, Inc.. Neither the Acquired Company nor Seller
owns, directly or indirectly, any interest or has any investment in any person
or entity that is a competitor of the Acquired Company.
(aa) BANKRUPTCY. The Acquired Company is not, nor has it
ever been, under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(bb) BROKER'S AND FINDER'S FEES. The Acquired Company has
not incurred any obligation for any finder's, brokers or agent's fee in
connection with the transactions contemplated hereby.
(cc) DISTRIBUTIONS AND DIVIDENDS. No distribution, payment
or dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Balance Sheet Date.
(dd) COMPLIANCE WITH LAWS. The Acquired Company is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, orders, judgments and decrees of each and every
jurisdiction applicable to the Acquired Company. Within the last
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five (5) years the Acquired Company has not received any written notice or other
written communication from any governmental authority or agency regarding any
actual, alleged or potential violation of, or failure to comply with, any law,
rule, regulation, ordinance, order, judgment or decree and to the Seller's and
the Acquired Company's best knowledge, there does not exist any reasonable basis
for any claim of material default under or material violation of any such law,
rule, regulation, ordinance, order, judgment or decree.
(ee) GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. SCHEDULE
4.01(ee) lists all licenses, franchises, permits and other governmental
authorizations held by the Acquired Company material to the conduct of its
business. Such licenses, franchises, permits and other governmental
authorizations are valid, and the Acquired Company has not received any written
notice that any governmental authority intends to cancel, terminate or not renew
any such license, franchise, permit or other governmental authorization. The
Acquired Company holds all licenses, franchises, permits and other governmental
authorizations necessary for the operation of its business. The Acquired
Company's business is not being conducted, and no properties or assets of the
Acquired Company relating thereto are owned or are being used by it in violation
of any statute, law, ordinance, regulation, rule or permit of any governmental
entity or any judgment, order or decree.
(ff) DISCLOSURE. Disclosure made by the Acquired Company
and/or the Seller in any Exhibit or Schedule shall be deemed disclosure for
purposes of all representations and warranties contained in this Agreement. No
representation or warranty of the Acquired Company or the Seller in this
Agreement or in any schedule, agreement or certificate delivered in accordance
with the terms hereof by the Acquired Company or the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which made, in order to make the statements
contained herein or therein not misleading. There is no fact that affects, or in
the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present of prospective), properties,
assets or liabilities of the Acquired Company in any material respect that is
not set forth in this Agreement or the schedules hereto.
SECTION 4.02. THE SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Holding Company that, except as set forth in the
Disclosure Schedule, the following are true and correct as of the date first
above written and shall be true and correct on the Closing Date:
(a) LEGAL CAPACITY. This Agreement has been and each other
agreement to be executed in connection herewith upon such execution and delivery
will have been duly executed and delivered by the Seller, and all such
agreements constitute legal, valid and binding obligations of such Seller,
enforceable against Seller in accordance with their respective terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. Seller
has the legal capacity to enter into and perform this Agreement and such other
agreements to which it is a party.
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(b) NO CONFLICTS. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provision of or result in the breach of or entitle
any party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation under, any mortgage, lien, lease, material contract,
license, permit, instrument or any other material agreement to which Seller is a
party, (ii) result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon the Stock, or (iii) violate or
conflict with any order, award, judgment or decree or other restriction or
conflict with any law, ordinance, rule or regulation to which Seller or his
property is subject or by which Seller or his property may be bound or affected.
(c) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State or
subdivision thereof or any self-regulatory body to which the Seller is subject
is required in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby on the part of the
Seller.
(d) STOCK TRANSACTIONS. Set forth on SCHEDULE 4.02(d) is an
accurate and complete list of all transfers or other transactions involving
capital stock of the Acquired Company made by Seller since January 1, 1997. All
transfers of capital stock of the Acquired Company by Seller have been made for
valid business reasons and not in anticipation or contemplation of the
consummation of the transactions contemplated by this Agreement.
(e) BRIBES; KICKBACKS. Seller has not paid or caused to be
paid, directly or indirectly, in connection with the business of the Acquired
Company, to any government or agency thereof or any agent of any supplier or
customer any bribe, kick-back or other similar payment; or any contribution to
any political party or candidate (other than from personal funds not reimbursed
by the Company or as otherwise permitted by applicable law).
(f) BROKER'S AND FINDER'S FEES. Seller has not incurred any
obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
(g) RELATED PARTY TRANSACTIONS. Neither Seller, nor his
spouse, children or affiliates, owns directly or indirectly, on an individual or
joint basis, any interest in, has a compensation or other financial arrangement
with, or serves as an officer or director of, any customer or supplier of the
Acquired Company or any organization that has a material contact or arrangement
with the Acquired Company. Neither Seller nor any of his affiliates is, or with
the last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any communications company, internet company or other person
which is in a position to make or influence referrals to, or otherwise generate
business for, the Acquired Company.
(h) INTEREST IN COMPETITORS. Seller does not own directly or
indirectly any interests or have any investment in any person other than the
Acquired Company that is a competitor of the Holding Company, except for
Seller's ownership interest in Accu-Data, Inc.
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(i) LITIGATION AND CLAIMS. There are no claims, actions,
suits, proceedings (arbitration or otherwise) or investigations pending or, to
the best of Seller's knowledge, threatened against Seller at law or at equity in
any court or before or by any governmental authority, and, to Seller's
knowledge, there are no, and have not been any, facts, conditions or incidents
that may result in any such actions, suits, proceedings (arbitration or
otherwise) or investigations.
(j) DISCLOSURE. No representation or warranty of the Seller
in this Agreement or in any schedule, agreement or certificate delivered in
accordance with the terms hereof by the Seller contains any untrue statement of
a material fact or omits to state any material fact necessary, in light of the
circumstances under which made, in order to make the statements contained herein
or therein not misleading.
SECTION 4.03. THE HOLDING COMPANY'S REPRESENTATIONS AND WARRANTIES. The
Holding Company represents and warrants to the Acquired Company and the Sellers,
except as set forth in the Holding Company's disclosure schedule annexed hereto,
that the following are true and correct as of the date first above written and
shall be true and correct on the Closing Date:
(a) ORGANIZATION AND GOOD STANDING. The Holding Company is a
corporation duly organized, validly existing and in good standing under the laws
of its State of incorporation. The Holding Company is duly qualified and
licensed to do business and is in good standing in every jurisdiction where the
conduct of its business or the nature of its properties require it to be
qualified.
(b) CORPORATE AUTHORITY. The Holding Company has full
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been and all
other agreements to be executed hereunder upon such execution and delivery will
have been duly and validly authorized, executed and delivered by the Holding
Company and constitute the legal, valid and binding obligation of the Holding
Company enforceable against the Holding Company in accordance with their terms
subject, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of, relating to or affecting shareholders and creditors rights
generally and to general equitable principles.
(c) NO CONFLICTS. The execution and delivery of this
Agreement and consummation of the transaction contemplated hereby will not (i)
violate or conflict with any provision of the Holding Company's articles of
incorporation or bylaws, (ii) violate any provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, any mortgage, lien, lease, material
contract, license, permit, instrument or any other material agreement to which
the Holding Company is a party, (iii) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon any
property of the Holding Company, (iv) violate or conflict with any order, award,
judgment or decree or other restriction or conflict with any law, ordinance,
rule or regulation
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to which the Holding Company or its property is subject or by which the Holding
Company or its property may be bound or affected.
(d) CAPITALIZATION. The Holding Company's authorized capital
stock consists of 50,000,000 shares of common stock and 10,000,000 shares of
preferred stock, of which 2,377,000 shares of common stock and -0- shares of
preferred stock are issued and outstanding. The issuance and delivery of the
Preferred Stock to be issued by the Holding Company in connection with this
Agreement have been duly and validly authorized and, when issued pursuant
hereto, will be validly issued, fully paid and nonassessable, and shall be free
and clear of all liens, pledges, restrictions, voting trusts, security interests
or other encumbrances of any nature whatsoever. The shares of Preferred Stock to
be issued pursuant to this Agreement will not be issued and disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any of the Holding Company's stockholders.
(e) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State
subdivisions thereof or any self-regulatory body to which the Holding Company is
subject, is required in connection with the execution and delivery of this
Agreement by the Holding Company and the consummation of the transactions
contemplated hereby.
(f) THIRD PARTY APPROVALS. There are no authorizations,
consents or approvals of the parties under any contracts, commitments or
understandings to which the Holding Company is a party or of any other person
(including any public body or authority) required to permit the consummation on
the part of the Holding Company of the transactions contemplated by this
Agreement.
(g) FINDER'S AND BROKER'S FEE. The Holding Company has not
incurred any obligation for any finder's, brokers or agent's fee in connection
with the transactions contemplated hereby.
(h) CLAIMS AND LITIGATION. Except as set forth on SCHEDULE
4.03(h), there is no claim, violation notice, legal action, suit, arbitration,
governmental investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or, to the Holding
Company's best knowledge, threatened, against or relating to the Holding
Company, its directors, officers or employees, it properties, assets or
business, or the transaction contemplated by this Agreement and the Holding
Company does not know or have any reason to be aware of any basis for the same,
including any basis for a claim of sexual harassment or discrimination based on
race, age, sexual orientation or other protected class of individuals, as well
as health, safety or other environmental complaints or exposure. The Holding
Company is not subject to or in default of any court or administrative order,
judgment, writ, injunction or decree applicable to the Holding Company or to its
business, assets, operations or employees. All claims asserted, general
liability incidents and incident reports have been submitted to the Holding
Company's insurer therefor. All claims made or threatened against the Holding
Company in excess of its deductible are covered under its Insurance Policies.
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(i) COMPLIANCE WITH LAWS. The Holding Company is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, orders, judgments and decrees of each and every
jurisdiction applicable to theHolding Company. Within the last five (5) years
the Holding Company has not received any written notice or other written
communication from any governmental authority or agency regarding any actual,
alleged or potential violation of, or failure to comply with, any law, rule,
regulation, ordinance, order, judgment or decree and to the Holding Company's
best knowledge, there does not exist any reasonable basis for any claim of
material default under or material violation of any such law, rule, regulation,
ordinance, order, judgment or decree.
(j) GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. The Holding
Company holds all licenses, franchises, permits and other governmental
authorizations necessary for the operation of its business. All such licenses,
franchises, permits and other governmental authorizations are valid, and the
Holding Company has not received any written notice that any governmental
authority intends to cancel, terminate or not renew any such license, franchise,
permit or other governmental authorization. The Holding Company's business is
not being conducted, and no properties or assets of the Holding Company relating
thereto are owned or are being used by it in violation of any statute, law,
ordinance, regulation, rule or permit of any governmental entity or any
judgment, order or decree.
(k) DISCLOSURE. No representation or warranty of the Holding
Company in this Agreement or in any schedule, agreement or certificate delivered
in accordance with the terms hereof by the Holding Company contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which made, in order to make the statements
contained herein or therein not misleading. There is no fact that affects, or in
the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present of prospective), properties,
assets or liabilities of the Holding Company in any material respect that is not
set forth in this Agreement or the schedules hereto.
SECTION 4.04. NATURE AND SURVIVAL OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained in this Agreement shall survive the
Closing Date for a period of one (1) year; provided, that (i) the
representations and warranties contained in Sections 4.01 (p), (q) and (t) shall
survive for the applicable statute of limitations periods, (ii) the
representations and warranties contained in in Section 4.01(a), (b), (d) and (l)
shall survive indefinitely.
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ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. COVENANTS OF THE PARTIES. Each of the respective parties
identified in the following sections of this Article V covenants and agrees, as
provided in the sections which are applicable to it. Except as otherwise
provided herein, these covenants shall be in full force and effect until this
Agreement is terminated by one of the parties as provided herein or this
Agreement has terminated according to its terms.
SECTION 5.02. CONDUCT OF THE ACQUIRED COMPANY'S BUSINESS PRIOR TO
CLOSING.
(a) From the date hereof to the Closing, the Acquired
Company will conduct its business and affairs in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve its
assets and properties in good condition and repair and maintain insurance
thereon in accordance with present practices, it will use all reasonable efforts
(i) to preserve its business and organization intact, (ii) to preserve for the
Acquired Company's goodwill of suppliers, customers, distributors, landlords and
others having business relations with it, and (iii) to cooperate and use its
best efforts to assist the Holding Company in obtaining the consent of any
landlord or other party to any lease or contract with the Acquired Company where
the consent of such landlord or other party may be required by reason of the
transactions contemplated hereby.
(b) From the date hereof to the Closing, the Acquired
Company will not (i) dispose of any of the customers, tariffs, licenses,
contracts or supplier agreements other than in the ordinary course of business,
(ii) engage in any extraordinary transactions, including but not limited to,
directly or indirectly, soliciting, entertaining, encouraging inquiries or
proposals or entering into negotiation or agreement with any third party for or
acquisition of the aforementioned assets or business as a going concern, sale of
equity securities or rights of any kind to acquire equity securities of the
Acquired Company or acquisition, consolidation, reverse acquisition, business
combination or similar transaction with any other entity, without the prior
written consent of the Holding Company (iii) enter into any employment agreement
or grant any salary or compensation increase or bonus to any employee, or
otherwise change or increase commission and compensation schedules of its
employees without the prior written approval of the Holding Company, which shall
not be unreasonably withheld, (iv) terminate, waive, not renew or allow to lapse
any tariff; (v) make any commitment for capital expenditures, other than as
disclosed to the Holding Company and approved by it, (vi) offer or sell any
equity securities or obligations entitling the holder thereof to purchase equity
securities of the Acquired Company, or (vii) enter into any contracts,
commitments or obligations or otherwise take any actions or enter into any
transactions other than in the ordinary course of business consistent with its
previous and current business plans, practices, policies and procedures.
(c) Notwithstanding anything contained in this Section 5.02,
the Acquired Company will not take or fail to take any action that, in the
Acquired Company's reasonable judgment, is likely to give rise to a substantial
penalty or a claim for damages by any third party
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against the Acquired Company, or is likely to result in losses either to the
Acquired Company or to the Holding Company, or is otherwise likely to prejudice
in any material respect or unduly interfere with the conduct of its business and
operations in the ordinary course consistent with prior practice, or is likely
to result in a breach by the Acquired Company of any of its representations,
warranties or covenants contained in this Agreement (unless any such breach is
first waived in writing by the Holding Company).
SECTION 5.03. CONDUCT OF SELLER PRIOR TO CLOSING. The Seller shall not
offer for sale or solicit or entertain offers to purchase its Stock prior to
Closing.
SECTION 5.04. NOTICE OF CHANGES IN INFORMATION. Each party shall give
the other party prompt written notice of any material change(s) in any of the
information contained in their respective representations and warranties made in
Article IV, or elsewhere in this Agreement, or the exhibits and schedules
referred to herein or any written statements made or given in connection
herewith which occurs prior to the Closing.
SECTION 5.05. NOTICE OF EXTRAORDINARY CHANGES. The Acquired Company
shall advise the Holding Company with respect to any of the following which are
outside of the ordinary course of business or which are materially adverse: (i)
the entering into, cancellation or breach of contracts, agreements, commitments,
tariffs, or other understandings or arrangements to which the Acquired Company
is a party, including, without limitation, purchase orders for any item of
inventory and commitments for capital expenditures or improvements, orderly and
gradual discontinuance of particular items or (ii) any changes in purchasing,
pricing or selling policy (including, without limitation, selling merchandise at
discounts
SECTION 5.06. ACCESS TO INFORMATION AND DOCUMENTS. Upon reasonable
notice and during regular business hours, each party will give the other party,
its attorneys, accountants and other representatives full access to its
personnel, accountants, attorneys and other professional advisors (subject to
reasonable approval as to the time thereof) and all properties, documents,
contracts, books and records and will furnish copies of such documents
(certified by officers, if so requested) and with such information with respect
to its business, operations, affairs and prospects (financial and otherwise) as
it may from time to time request, and the party to whom the information is
provided will not improperly disclose the same prior to the Closing. Any such
furnishing of such information or any investigation shall not affect that
party's right to rely on the other party's representations and warranties made
in this Agreement or in connection herewith or pursuant hereto.
SECTION 5.07. COOPERATION BY THE PARTIES. Each party hereto shall
cooperate and shall take such further action as may be reasonably requested by
any other party in order to carry out the provisions and purposes of this
Agreement.
SECTION 5.08. RESTRICTIONS ON TRANSFER OF STOCK. The Holding Company
shall not sell, exchange, assign, transfer, dispose of, pledge, mortgage,
hypothecate or otherwise encumber, transfer or permit to be transferred all or
any of the Stock at any time prior to the termination of
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the Security Agreement. The shares of Stock issued to the Holding Company on the
Closing Date shall bear a legend in substantially the following form:
The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition
pursuant to the laws of bankruptcy) of the shares of stock
evidenced by the within certificate is restricted under the
terms of an Acquisition Agreement dated July 2, 1999, by and
among the Issuer, the Registered Holder and, as defined in
said Agreement, the Seller.
SECTION 5.09. COOPERATION IN AUDITS. The Seller will cooperate with the
Holding Company and make such books and records of the Acquired Company
available as may be requested by the independent auditor engaged by the Acquired
Company to audit the financial statements of the Acquired Company and in any
audit by the Internal Revenue Service, foreign government, State, municipal or
other regulatory taxing authority. The period covered by such books and records
shall be the fiscal periods required for audit in order to comply with the
registration and reporting requirements promulgated under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, and the
Internal Revenue Code of 1986, as amended, or State income tax law, as may be
the case.
SECTION 5.10. CONFIDENTIALITY. The Seller covenants and agrees to
maintain in strictest confidence and refrain at all times from disclosing to any
other person for any purpose any confidential or proprietary information of or
pertaining to the Acquired Company or the Holding Company. For purposes hereof,
confidential or proprietary information shall include, but not be limited to,
all supplier and customer lists and files, techniques, processes, know how,
advertising, distribution and sales methods, sales and profit figures, budgets,
capital spending plans, acquisition and divestiture plans, marketing data,
financial information, employee lists, real property information (leasing or
otherwise) and the like.
SECTION 5.11. EXCLUSIVE DEALING. Until the date this Agreement is
terminated in accordance with ARTICLE VIII hereof (the "EXCLUSIVITY PERIOD"),
neither the Seller nor the Acquired Company will, directly or indirectly,
through any representative or otherwise, solicit or entertain offers from,
negotiate with or in any manner encourage, discuss, accept or consider any
proposal of any other person relating to the acquisition of the Acquired
Company, its capital stock, its assets or its business, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation or
otherwise (other than sales of inventory in the ordinary course of business).
The Seller or the Acquired Company shall immediately notify the Holding Company
regarding any contact between the Seller or the Acquired Company and any
potential acquirer or their respective representatives or any other person
regarding any such offer or proposal or related inquiry.
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ARTICLE VI
SECURITIES LAW MATTERS AND STATUS OF SHARES
SECTION 6.01. "RESTRICTED" STOCK. The Seller acknowledges that the
Preferred Stock issued in the Acquisition and the common stock of the Holding
Company issuable upon the conversion of the Preferred Stock (the "HOLDING
COMPANY COMMON STOCK," and together with the Preferred Stock, the "SECURITIES")
will not be registered under the Securities Act of 1933, as amended,
("SECURITIES ACT") or the securities laws of the Seller's state of residence,
that the Securities are not transferable, except as permitted under various
exemptions contained in the Securities Act and applicable state securities law
and that the Securities are defined as "restricted securities" in, and subject,
to the provisions of Rule 144 under the Securities Act. The provisions contained
in the following sections are intended to ensure compliance with the Securities
Act and applicable state securities law.
SECTION 6.02. NO TRANSFERS IN VIOLATION OF SECURITIES ACT. The Seller
will not offer, sell, assign, pledge, hypothecate, transfer or otherwise dispose
of the Securities, except after full compliance with all of the applicable
provisions of the Securities Act and applicable State securities laws and this
Agreement.
SECTION 6.03. INVESTMENT INTENT. The Seller represents and warrants to
and covenants with the Holding Company that the Seller is acquiring and will
acquire the Securities for its own account for investment, and not with a view
to resale or other distribution; that the Seller currently has no intention of
selling, assigning, transferring, pledging, hypothecating or otherwise disposing
of all or any part thereof at any particular time, for any particular price, or
on the happening of any particular event or circumstance; and the Seller
acknowledges that the Holding Company is relying on the truth and accuracy of
the covenants, warranties and representations of the Seller in issuing
Securities without first registering them under the Securities Act.
SECTION 6.04. CONDITIONS TO SALE AND INVESTMENT LEGEND ON CERTIFICATES.
The Seller agrees not to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of any of the Securities, otherwise than by bona fide gift, by
inheritance or in a private sale, for two years following the Closing, unless
and until (i) the Seller has delivered to the Holding Company a written legal
opinion in form and substance satisfactory to counsel for the Holding Company to
the effect that the disposition is permissible under the terms of the Securities
Act; (ii) the Holding Company has registered the Securities for resale by the
Seller pursuant to an effective registration statement; or (iii) the Seller has
presented the Holding Company with satisfactory evidence that the transfer will
comply with Rule 144 under the Securities Act. The Seller further agree that the
certificates evidencing the Securities shall contain the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND IS A "RESTRICTED SECURITY" AS DEFINED UNDER
SAID ACT. ACCORDINGLY, NEITHER THIS SECURITY NOR ANY INTEREST
THEREIN MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED,
PLEDGED OR HYPOTHECATED, EXCEPT BY BONA FIDE GIFT OR
INHERITANCE, IN THE ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT AS TO THIS SECURITY UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED.
The Seller acknowledges the Holding Company will also place a "stop transfer"
order against any transfer of the Securities until one of the conditions set
forth in this section has been met.
SECTION 6.05. INDEMNIFICATION BY THE SELLER. If at any time in the
future, the Seller should offer, sell, assign, pledge, hypothecate, transfer or
otherwise dispose of any of the Securities without registration under the
Securities Act, unless an exemption from registration is available, the Seller
agrees to indemnify and hold harmless the Holding Company against any and all
claims, liabilities, penalties, costs and expenses which may be asserted against
or suffered by the Holding Company as a result of such disposition.
SECTION 6.06. FUTURE REGISTRATIONS. If at any time the Holding Company
registers securities under the Securities Act to be sold in an underwritten
public offering, the Holding Company may include at the Seller's request, and at
the Holding Company's expense, the Holding Company Common Stock then held by the
Seller in the registration statement, provided that sales of the Holding Company
Common Stock issued to the Seller included in the registration statement shall
be subject to the approval of the Holding Company's investment banker and
provided that the Seller agrees to reasonable volume and other limitations
required or desirable to maintain an orderly market.
SECTION 6.07. THE ACQUIRED COMPANY'S OUTSTANDING SECURITIES. The
Acquired Company represents and warrants to the Holding Company that all offers
and sales which it has made of its securities prior to the date of this
Agreement and to the Closing date have been made in compliance with an exemption
from the registration requirements of the Securities Act and applicable state
securities laws.
SECTION 6.08. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Securities and Exchange
Commission (the "COMMISSION") which may at any time permit the sale of the
Securities to the public without registration, after such time as a public
market exists for the Securities of the Holding Company, the Holding Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act (at any
time after it has become subject to such reporting requirements); and
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(c) So long as the Seller owns any of the Securities, to
furnish to the Seller forthwith upon request a written statement by the Holding
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety days after the effective date of the first registration
statement filed by the Holding Company for an offering of its securities to the
general public), and of the Securities Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Holding Company, and such other reports and documents of
the Holding Company and other information in the possession of or reasonably
obtainable by the Holding Company as the Seller may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Seller
to sell any of the Securities without registration.
ARTICLE VII
FEDERAL INCOME TAX MATTERS AND ELECTIONS
SECTION 7.01. TAX TREATMENT. The parties intend that the Acquisition
herein shall qualify as a tax free reorganization for federal (and all other
taxing authorities, as applicable) income tax purposes.
SECTION 7.02. TAX EFFECT ON THE SELLER. In the event the Acquired
Company has made an election under Chapter S of the Internal Revenue Code of
1986, as amended, the effect of the Acquisition on the Seller is the
responsibility of the Seller.
ARTICLE VIII
TERMINATION
SECTION 8.01. TERMINATION FOR DEFAULT.
(a) The Holding Company may, by notice to the Acquired Company and the
Seller given in the manner provided below on or at any time prior to the Closing
Date, terminate this Agreement if default shall be made by the Acquired Company
or by the Seller in the observance or in the due and timely performance of any
of the conditions, obligations, covenants and agreements contained, made by or
imposed upon it, in this Agreement, if the defaulting party has not commenced
curing such default within thirty (30) days after receipt of the notice
specifying the default.
(b) The Acquired Company and the Seller may, by notice to the Holding
Company given in the manner provided below on or at any time prior to the
Closing Date, terminate this Agreement if default shall be made by the Holding
Company in the observance or in the due and timely performance of any of the
conditions, obligations, covenants and agreements contained, made by or imposed
upon it, in this Agreement, if the default has not been fully cured within
thirty (30)days after receipt of the notice specifying the default.
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(c) The party giving notice of the other party's default, if the
default is not cured as provided in subsection (a) or (b), above, will be
entitled to recover its reasonable costs incurred in connection with this
Agreement.
SECTION 8.02. TERMINATION FOR FAILURE TO CLOSE. If the Closing does not
occur by July 31, 1999, any party, if that party is not then in default in the
observance or in the due or timely performance of any covenants and conditions
under this Agreement, may at any time terminate this Agreement by giving written
notice to the other parties; provided, that the parties may extend the Closing
Date in writing and the Closing Date shall be automatically and reasonably
extended if the failure of the parties to Close is a result of delay in
receiving from the independent accountant the completed audited financial
statement of the Acquired Company.
SECTION 8.03. EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to this ARTICLE VIII, this Agreement shall become void and
of no effect and there shall be no liability on the part of the parties hereto;
provided, however, that SECTIONS 2.05 and 5.10 hereof shall survive any
termination.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION BY SELLER. Subject to the terms and
conditions of this Agreement, the Seller agrees to indemnify, defend and hold
the Holding Company and its directors, officers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "DAMAGES") asserted against or
incurred by the Holding Company or any of such individuals or entities, arising
out of or resulting from:
a. a breach of any representation or warranty of the
Acquired Company or the Seller contained herein or in any agreement, schedule or
certificate delivered hereunder;
b. the Seller's or the Acquired Company's failure to perform
or observe any covenant, agreement, or condition to be performed or observed by
them under this Agreement or any agreement, schedule or certificate delivered
hereunder;
c. any taxes of the Acquired Company with respect to any tax
year or portion thereof ending on or before the Closing Date to the extent such
taxes are not reflected in the reserve for tax liability in the Balance Sheet
for the Acquired Company;
d. any matters set forth on Schedules 4.01(k) and (p); or
e. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.01.
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SECTION 9.02 INDEMNIFICATION BY HOLDING COMPANY. Subject to the terms
and conditions of this Agreement, the Holding Company hereby agrees to
indemnify, defend and hold Seller harmless from and against all Damages asserted
against or incurred by Seller arising out of or resulting from:
a. a breach by the Holding Company of any representation,
warranty or covenant of the Holding Company contained therein or in any
agreement, schedule or certificate delivered hereunder;
b. the Holding Company's failure to satisfy any liability of
the Acquired Company arising from events or occurrences after the Closing Date;
or
c. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.02.
SECTION 9.03 CONDITIONS OF INDEMNIFICATION. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under this Agreement (an
"INDEMNIFIED PARTY") shall promptly (and, in any event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "INDEMNIFYING
PARTY") of any third-party claim or claims asserted against the Indemnified
Party ("THIRD PARTY CLAIM") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("CLAIM NOTICE") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. Except as set forth in Section 4.04, the failure to promptly deliver
a Claim Notice shall not relieve the Indemnifying Party of its obligations to
the Indemnified Party with respect to the related Third Party Claim except to
the extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"ELECTION PERIOD"), the Indemnifying Party shall notify the Indemnified Party
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article 9 with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Third Party
Claim.
b. If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
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Indemnifying Party in accordance with this Section. The Indemnifying Party shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party (it being understood and
agreed that if an Indemnified Party takes any such action that is prejudicial
and causes a final adjudication that is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations hereunder with respect
to such Third Party Claim). If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
c. If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 9.03(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 9.03(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided; however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article 9 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnifying Party's defense pursuant to this
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Section or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all costs and expenses of such litigation. The Indemnifying
Party may participate in, but not control any defense or settlement controlled
by the Indemnified Party pursuant to this Section 9.03(b), and the Indemnifying
Party shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
d. In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "INDEMNITY NOTICE") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, and if the parties do not reach a settlement of such dispute
within thirty (30) days after notice of a dispute is given, any such dispute
shall be submitted to arbitration in Tampa, Florida to a member of the American
Arbitration Association mutually appointed by the Indemnified and Indemnifying
Parties (or, in the event the Indemnified and Indemnifying Parties cannot agree
on a single such member, to a panel of three members selected in accordance with
the rules of such Association), who shall promptly arbitrate such dispute in
accordance with the rules of such Association and report to the parties upon
such disputed items, and such report shall be final, binding and conclusive on
the parties. Judgment upon the award by the arbitrator(s) may be entered in any
court having jurisdiction. The prevailing party in any such arbitration may, as
determined by the arbitrator or arbitrators in his or their discretion, recover
from, and have paid by, the other party hereto, all fees and disbursements of
such arbitrator or arbitrators and reasonable attorney's fees, costs and
expenses incurred by the prevailing party in such arbitration.
e. Payments of all amounts owing by an Indemnifying Party
pursuant to this Article 9 relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by an Indemnifying
Party pursuant to Section 9.03(d) shall be made within thirty (30) days after
the later of (i) the expiration of the sixty (60) day Indemnity Notice period or
(ii) the expiration of the period for appeal, if any, of a final adjudication or
arbitration of the Indemnifying Party's liability to the Indemnified Party under
this Agreement.
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SECTION 9.04 EXCLUSIVITY OF REMEDIES. The remedies provided in this
Agreement shall be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity; provided however such
remedies shall not be exclusive as to any claim based on fraud. This Article 9
regarding indemnification shall survive Closing.
SECTION 9.05 COSTS, EXPENSES AND LEGAL FEES. Each party hereto agrees
to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of the
terms of this Agreement, or (b) proving that another party breached any of the
terms of this Agreement.
ARTICLE X
NOTICES
SECTION 10.01. PROCEDURE FOR GIVING NOTICES. Any and all notices or
other communications required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered (excluding telephone facsimile and
including receipted express courier and overnight delivery service) or mailed by
first class certified U.S. mail, return receipt requested showing name of
recipient, addressed to the proper party.
SECTION 10.02. ADDRESSES FOR NOTICES. For purposes of sending notices
under this Agreement, the addresses of the parties are as follows:
As to the Acquired Company David Seal
and the Seller DSA Computer, Inc.
10001 Northwest 50th Street, Suite 104
Sunrise, Florida 33351
Copy To: Richard Entin
Entin & Canarick
8411 W. Oakland Park Blvd, Suite 202
Sunrise, Florida 33351
As to the Holding Company: Mark Cobb, President
P.O. Box 172574
Tampa, Florida 33672
Copy to: Gregory Yadley, Esquire
Shumaker, Loop & Kendrick LLP
101 East Kennedy Blvd, Suite 2800
Tampa, Florida 33602
SECTION 10.03. CHANGE OF ADDRESS. A party may change its address for
notices by sending a notice of such change to all other parties by the means
provided in Section 9.01.
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SECTION 10.04. NOTICES TO THE ACQUIRED COMPANY BY THE HOLDING COMPANY
AFTER CLOSING. Any notice required or permitted by this Agreement to be given to
the Acquired Company by the Holding Company after the Closing shall be given by
the Holding Company to the Seller.
ARTICLE XI
LEGAL AND OTHER COSTS
SECTION 11.01. PARTY ENTITLED TO RECOVER. In the event that any party
(the "DEFAULTING PARTY") defaults in his or its obligation under this Agreement
and, as a result thereof, the other party (the "NON-DEFAULTING PARTY") seeks to
legally enforce his or its rights hereunder against the Defaulting Party
(whether in an action at law, in equity or in arbitration), then, in addition to
all damages and other remedies to which the Non-Defaulting Party is entitled by
reason of such default, the Defaulting Party shall promptly pay to the
Non-Defaulting Party an amount equal to all reasonable costs and expenses
(including reasonable attorneys' and expert witness fees) paid or incurred by
the Non-Defaulting Party in connection with such enforcement.
SECTION 11.02. INTEREST. In the event the Non-Defaulting Party is
entitled to receive an amount of money by reason of the Defaulting Party's
default hereunder, then, in addition to such amount of money, the Defaulting
Party shall promptly pay to the Non-Defaulting Party a sum equal to interest on
such amount of money accruing at the rate of 1.5% per month during the period
between the date such payment should have been made hereunder and the date of
the actual payments thereof, unless otherwise adjudicated by court order,
arbitration or mediation agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. ENTIRE AGREEMENT. This Agreement, including the
Disclosure Schedule, Exhibits, Schedules, certificates and other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein, superseding all prior oral or written agreements, understandings,
representations and warranties. The Exhibits and Schedules attached or to be
attached to this Agreement are incorporated herein and shall be deemed to be a
part of this Agreement for all purposes.
SECTION 12.02. CERTAIN TRANSACTION COSTS. The Seller shall be liable
for and pay any and all excise, sales, use, stamp, documentary, filing,
recordation and other transfer taxes arising in connection with the transfer of
the Stock to the Holding Company hereunder and the Seller shall indemnify,
defend and hold the Holding Company harmless against any and all such transfer
taxes. The Holding Company shall be liable for and pay any and all excise,
sales, use, stamp, documentary, filing, recordation and other transfer taxes
arising in connection with the
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transfer of the Preferred Stock to the Seller hereunder and the Holding Company
shall indemnify, defend and hold the Seller harmless against any and all such
transfer taxes.
SECTION 12.03. WAIVERS. No waiver of any provision, requirement,
obligation, condition, breach or default hereunder, or consent to any departure
from the provisions hereof, shall be considered valid unless in writing and
signed by the party giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
SECTION 12.04. AMENDMENTS. This Agreement may not be modified, amended
or terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto and amendment, modification or
alteration of, addition to or termination of this Agreement or any provision of
this Agreement shall not be effective unless it is made in writing and signed by
the parties.
SECTION 12.05. CONSTRUCTION. This Agreement has been negotiated by the
parties, section by section, and no provision hereof shall be construed more
strictly against one party than against the another party by reason of such
party having drafted such provision. The order in which the provisions of this
Agreement appear are solely for convenience of organization; and later appearing
provisions shall not be construed to control earlier appearing provisions.
SECTION 12.06. INVALIDITY. It is the intent of the parties that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision hereof shall be
prohibited, invalid, illegal or unenforceable, in any respect, under applicable
law, such provision shall be ineffective to the extent of such prohibition,
invalidity or non enforceability only, without invalidating the remainder of
such provision or the remaining provisions of this Agreement; and, there shall
be substituted in place of such prohibited, invalid, illegal or unenforceable
provision a provision which nearly as practicable carries out the intent of the
parties with respect thereto and which is not prohibited and is valid, legal and
enforceable.
SECTION 12.07. MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be an original and, taken
together, shall be deemed one and the same document.
SECTION 12.08. ASSIGNMENT, PARTIES AND BINDING EFFECT. This Agreement,
and the duties and obligations of any party shall not be assigned without the
prior written consent of the other party(ies). This Agreement shall benefit
solely the named parties and no other person shall claim, directly or
indirectly, benefit hereunder, express or implied, as a third-party beneficiary,
or otherwise. Wherever in this Agreement a party is named or referred to, the
successors (including heirs and personal representative of individual parties)
and permitted assigns of such party, if any, shall be deemed to be included, and
all agreements, promises, covenants and stipulations in this Agreement shall be
binding upon and inure to the benefit of their respective successors and
permitted assigns.
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SECTION 12.09. ARBITRATION. Unless a court of competent jurisdiction
shall find that a particular dispute or controversy cannot, as a matter of law,
be the subject of arbitration, any dispute or controversy arising hereunder,
other than suit for injunctive relief which can be granted only by a court of
competent jurisdiction, shall be settled by binding arbitration in Tampa,
Florida, by a panel of three arbitrators in accordance with the rules of the
American Arbitration Association; provided, that the rules of discovery of the
U.S. District Court with jurisdiction of the state of the arbitration shall
apply. Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties may pursue all other remedies
with respect to any claim that is not subject to arbitration.
SECTION 12.10. JURISDICTION AND VENUE. Any action or proceeding for
enforcement of this Agreement and the instruments and documents executed and
delivered in connection herewith which is determined by a court of competent
jurisdiction not, as a matter of law, to be subject to arbitration as provided
in Section 12.09 or which seeks injunctive relief shall be brought and enforced
in the courts of the State of Florida in and for Broward County and in the 17th
Judicial Circuit, and the parties irrevocably submit to the jurisdiction of each
such court in respect of any such action or proceeding.
SECTION 12.11. "BEST KNOWLEDGE". "Best knowledge" means, with respect
to Acquired Company or Holding Company, the actual knowledge of their respective
executive officers after they have made due and diligent inquiry as to the
matters that are the subject of such representations and warranties and, with
respect to Seller, the actual knowledge of Seller after he has made due and
diligent inquiry as to the matters that are the subject of such representations
and warranties.
SECTION 12.12. APPLICABLE LAW. This Agreement and all amendments
thereof shall be governed by and construed in accordance with the law of the
State of Florida applicable to contracts made and to be performed therein (not
including the choice of law rules thereof).
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, the day and year first above
written
[Corporate Seal] USA DIGITAL, INC.
Attest: _____________________________ By: _____________________________
Secretary or Assistant Secretary Mark D. Cobb, President
[Corporate Seal] DSA COMPUTER, INC.
Attest: _____________________________ By: _____________________________
Secretary or Assistant Secretary David Seal, President
Witness SELLER
_____________________________________ __________________________________
David Seal, individually
36
EXHIBIT 10.8
AMENDMENT TO
ACQUISITION AGREEMENT
THIS AMENDMENT TO ACQUISITION AGREEMENT, made and entered into as of
July 9, 1999, by and among, USA Digital, Inc., a Nevada corporation (the
"Holding Company"), DSA Computers, Inc., a Florida corporation (the "Acquired
Company"), and David Seal, an individual residing in Florida (the "Seller").
W I T N E S S E T H:
WHEREAS, the Holding Company, the Acquired Company and Seller entered
into that certain Acquisition Agreement dated July 2, 1999 (the "Acquisition
Agreement");
WHEREAS, the parties to the Acquisition Agreement have agreed to amend
the Acquisition Agreement to correct an inacurracy and clarify a representation
as provided herein.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Section 2.02 of the Acquisition Agreement is hereby amended to
revise the designation of the preferred stock of the Holding Company from "Class
B Convertible Preferred Stock, Series 1" to "Class B Convertible Redeemable
Preferred Stock, Series 2".
2. All references to "DSA Computer, Inc". in the Acquisition Agreement
shall be deemed to mean "DSA Computers, Inc."
3. In Section 4.03(d) of the Acquisition Agreement, the Holding Company
represented that 2,377,000 shares of common stock were issued and outstanding.
This number does not include 325,000 shares of common stock which were issued,
and are still outstanding, in connection with a transaction which the Holding
Company is currently suing to rescind, as further described in Schedule 4.03(h)
of the Acquisition Agreement.
4. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Agreement.
5. Except as amended or clarified herein, the Acquisition Agreement
shall remain in full force and effect.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
USA DIGITAL, INC.
By:
------------------------
Mark D. Cobb, President
DSA COMPUTERS, INC.
By:
------------------------
David Seal, President
---------------------------
DAVID SEAL, individually
2
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this __ day of July, 1999, by and between DSA Computers, Inc., a Florida
corporation (the "Company"), and David Seal ("Executive").
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the computer and related services industry, and wishes to retain
the valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, the Executive is uniquely experienced and qualified to perform
certain employment services for the Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
WHEREAS, the Company is a wholly-owned subsidiary of USA Digital, Inc.,
a Nevada corporation ("USA Digital").
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company hereby
employs, engages and hires Executive to serve as President of the Company. The
Executive shall have the powers and shall perform the specific duties as set
forth on the job description attached hereto as ATTACHMENT A, and such other
duties as delegated to Executive by the Chief Executive Officer of the Company.
The Executive hereby accepts such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the Chief Executive Officer of the Company, who shall review the
Executive's performance annually, make upward adjustment's to Executive's
compensation and award such other bonuses and employee benefits as he shall deem
appropriate and as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the Company
shall ensure that Executive is provided, in a timely manner, all reasonable
resources necessary for the accomplishment of Executive's duties.
<PAGE>
2. TERM AND TERMINATION. This Agreement shall be effective July _, 1999
("Effective Date"), and shall remain in full force and effect for five (5) years
from the Effective Date, unless the Agreement is terminated sooner by the
parties pursuant to subsection 2.1 or 2.2 below.
2.1 Termination With Cause. This Agreement may be terminated by the
Company or the Executive for the following: (a) upon the other party's material
default or breach of any of its obligations hereunder, if such default or breach
remains uncorrected for a period of fifteen (15) days after the receipt by the
defaulting party of written notice of such default or breach; (b) upon the gross
negligence or willful misconduct of the other party during the term of this
Agreement, which is materially damaging to the Company or Executive, if such
gross negligence or misconduct remains uncorrected for a period of fifteen (15)
days after the receipt by the Company or Executive of written notice of such
negligence or misconduct; (c) upon the conviction of the Company or the
Executive during the term of this Agreement of a crime involving breach of trust
or moral turpitude; or (d) upon Executive's death. In the event that the Company
discharges the Executive alleging "cause" under this Section 2.1, such notice of
discharge shall be accompanied by a written and specific description of the
circumstances alleging such "cause". Further, in the event that the Company
discharges the Executive alleging "cause" under this Section 2.1, and it is
subsequently determined judicially that the termination was "without cause",
then such discharge shall be deemed a discharge without cause subject to the
provisions of Section 2.2 hereof.
2.2 Termination Without Cause. The Company or the Executive may, upon
sixty (60) days prior written notice to the other party, terminate this
Agreement without cause at any time commencing one year after the date of this
Agreement until expiration of this Agreement. If the Company terminates the
Executive without cause, the Company shall pay the Executive, as liquidated
damages in lieu of all other claims arising directly out of the Executive's
employment, an amount equal to the Base Salary which would otherwise be payable
to Executive for the remaining term of the Agreement, plus any bonuses which the
Executive would have earned if the Executive had remained employed by the
Company through the end of the bonus period then in effect, based upon a
reasonable extrapolation of the financial statements of the Company at the time
of such termination. Any such payments shall, at the option of the Company, be
made either in equal bi-monthly installments over the remaining term of this
Agreement, or in a lump sum cash payment on the date of termination. Further,
upon termination of the Executive without cause, all benefits of the Executive
which are in effect at the time of such termination shall remain in full force
and effect through the end of the original term of this Agreement. The
Liquidated damages payments and benefits due to the Executive if terminated
without cause as set forth above, are hereby unconditionally guaranteed in full
by USA Digital, Inc., the parent corporation to the Company.
2.3 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 2.1 or 2.2 hereof, such termination shall not
effect any of the obligations or covenants of any party arising prior to the
date of such termination, including, without limitation, the non-
2
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solicitation and non-disclosure covenants set forth in Sections 6.1 and 6.3
hereof, all of which shall continue as provided in this Agreement, nor shall
such termination effect any allegations, representations, promises or covenants
contained herein which are expressly made to extend beyond the term of this
Agreement. The Executive shall resign from any office that the Executive may
hold in the Company, and shall cooperate in the transfer of Executive's work
responsibilities to such consultants or employees of Company as may be
designated by the Company.
3. COMPENSATION.
3.1 Base Salary; Bonus. For all services rendered hereunder during the
term of this Agreement, the Executive shall be paid an annual base salary ("Base
Salary") of Sixty-Five Thousand Dollars ($65,000) per year. The Company and the
Executive agree that such base salary is reasonable and is based upon the fair
market rate in the marketplace for similar services by similarly qualified
executives. The Base Salary shall be paid in bi-monthly installments in
accordance with the Company's usual payroll practices. The Executive shall also
be eligible to receive an annual bonus based upon specific Company financial
performance criterion mutually developed by the parties and set forth on
ATTACHMENT B.
3.2 Benefits. During the term of this Agreement, the Executive will be
entitled to those executive benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement. In addition, Executive shall be
entitled to receive those benefits set forth on ATTACHMENT C.
3.3 Vacation. Executive shall be entitled to three (3) weeks annual
vacation leave with pay. Vacation shall be scheduled at reasonable times not in
conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings whatsoever
to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment hereunder.
4.2 Executive's execution of this Agreement and Executive's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and to the
best of Executive's ability, experience and talents perform all of the duties
that may be required of Executive pursuant to the express and implied terms of
this Agreement.
3
<PAGE>
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the consistency of
services provided by Executive, Executive agrees, during the effective terms of
this Agreement, that Executive shall devote such full-time attention to the
performance of the Executive's duties under this Agreement as necessary to
ensure Executive's full and complete compliance with Executive's covenants under
this Agreement. Notwithstanding the foregoing, Executive shall be permitted to
continue his existing relationship with AccuData.
6. NON-COMPETITION/NON-DISCLOSURE.
6.1 Non-Solicitation. During the term of this Agreement and for a
period of twelve (12) months after termination or expiration of this Agreement,
the Executive shall not without the prior written permission of the Company: (a)
directly or indirectly induce or attempt to influence any of Company's or USA
Digital's employees or other staff, including but not limited to their agent,
representatives and independent contractors, to terminate their relationship
with the Company or USA Digital, as the case may be; (b) directly or indirectly
induce or attempt to influence any of the Company's or USA Digital's business
associates, clients, customers, consultants or referral sources to terminate
their relationship with the Company or USA Digital, as the case may be; or (c)
divert or take away any corporate business or professional opportunity of the
Company or USA Digital that the Executive may become aware of during the term of
this Agreement which is competitive with the business of the Company or USA
Digital. This provision shall survive the termination or expiration of this
Agreement.
6.2 Non-Competition. During the term of this Agreement, the Executive
shall not, without the prior written permission of the Company, engage in or
have any interest in any sole proprietorship, partnership, corporation or other
business or be employed by or work for any other person or business entity
(whether as employee, officer, director, partner, agent, security holder,
consultant or otherwise) that directly or indirectly engages primarily in a
business in competition with the Company or USA Digital. Notwithstanding the
foregoing, Executive's relationship with AccuData shall not be deemed to be a
violation of this Section 6.2.
6.3 Non-disclosure. Executive, by virtue of Executive's employment, has
been and will continue to be introduced to confidential and/or proprietary
information concerning the Company and USA Digital, and their respective
operations. Because unauthorized disclosure of such confidential and/or
proprietary information will harm the Company and USA Digital, the Executive
shall not, except with the Company's and USA Digital's express, prior written
consent, directly or indirectly, communicate, disclose, divulge or use, for the
benefit of any person or entity other than the Company or USA Digital, any
information regarding the business, customer and/or client lists of the Company
or USA Digital or any other knowledge or information whether confidential or
proprietary of or about the Company or USA Digital acquired by the Executive
during the term of this Agreement. This Executive further agrees that all work
product produced by the Executive during the term of Executive's employment
shall remain the property of the Company, and may not reproduced or
communicated, disclosed or
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<PAGE>
divulged to any person or entity other than the Company or USA Digital. This
provision shall survive the termination or expiration of this Agreement.
6.4 Remedies. The Executive agrees that the Company's and USA Digital's
remedies at law for the Executive's breach of any of these
non-competition/non-disclosure provisions are inadequate and that the Company or
USA Digital may seek relief in equity by way of an injunction restraining any
violation of the non-competition/non-disclosure provisions by the Executive. If
any period of time or geographic area relative to these
non-competition/non-disclosure provisions should be adjudged to be unreasonable
in any proceedings, then the period of time or geographic area shall be reduced
by such amount of time or distance so that such restrictions may be enforced for
such time or geographic area as is adjudged to be reasonable by a court of
competent jurisdiction.
7. MISCELLANEOUS.
7.1 Indulgences, Etc. The failure or any delay on the part of the
Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any further
exercise of the same or of any other right, remedy, power or privilege. A waiver
of any right, remedy, power or privilege with respect to any occurrence shall
not be construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Florida.
7.3 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement and transactions contemplated herein
shall be in writing and shall be deemed to have been duly given, made and
received when delivered against receipt or when sent by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as set
forth below in subparagraphs (a) and (b). In addition, notice by mail shall be
air mail if posted outside the continental United States. Executive and Company
may alter the address to which communications of copies are to be sent by giving
notice of such change of address in conformity with the provisions of this
paragraph for the giving of notice.
(a) If to Company: DSA Computers, Inc.
P.O. Box 172574
Tampa, Florida 33672
Attn: Mark D. Cobb
(b) If to Executive: David Seal
10001 Northwest 50th Street
5
<PAGE>
Suite 104
Sunrise, Florida 33351
7.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of Company and its successors and assigns and shall be
binding upon and inure to the benefit of Executive, and Executive's heirs and
legal representatives.
7.5 Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire understanding
between Company and Executive with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance or usage of the trade or professions inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by any
agreement in writing.
7.7 Section Headings. The section headings in this Agreement are for
convenience only and form no part of this Agreement and shall not affect its
interpretation.
7.8 Gender, Etc. Words used in this Agreement, regardless of the number
and gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
7.9 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sunday or
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. This Agreement may not be assigned by the Executive.
This Agreement may be assigned by the Company to an entity under its control,
directly or indirectly, or the control of its principals without the consent of
the Executive, provided Executive's security herein is not impaired by the
assignment.
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7.12 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above.
DSA COMPUTERS, INC.
By:
----------------------------
Mark D. Cobb
Chief Executive Officer
------------------------------
DAVID SEAL
7
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ATTACHMENT A
JOB DESCRIPTION
(TO BE DEVELOPED)
8
<PAGE>
ATTACHMENT B
(BONUS SCHEDULE)
Executive shall receive the following cash bonus based on "Net Profit" of
DSA Computers, Inc., to be paid on a quarterly basis.
10% $0-$50,000
15% $50,001-100,000
20% $100,00+
9
<PAGE>
ATTACHMENT C
(EXECUTIVE BENEFITS)
1. Executive shall be entitled to receive a monthly car allowance in the amount
of $500.
2. Executive shall be entitled to receive $250 monthly in unaccountable
expenses.
3. Executive shall receive the following stock options in USA Digital on the
date indicated below (the "Date of Issuance") if the employment contract is in
full force and effect on such date. Each of these options shall be exercisable
in whole or in part at any time within five years of the Date of Issuance,
after which time any such options which have not been exercised shall terminate.
These options are in addition to any other options received under any employee
stock option plan.
Options for following
Date of Issuance: number of shares: Exercise Price:
---------------- ---------------- ---------------
July 9, 1999: 25,000 shares $3.00
July 9, 2000: 25,000 shares $5.50
July 9, 2001: 25,000 shares $6.00
July 9, 2002: 25,000 shares $6.50
July 9, 2003: 50,000 shares $7.00
4. The Company shall pay for, or reimburse Executive for, the expenses
related to the MCSE certification.
10
Exhibit 10.10
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, made and entered into as of June 7, 1999,
by and among, USA Digital, Inc., a Nevada corporation (the "Holding Company"),
Telephone Engineering and Maintenance, Inc., a Florida corporation (the
"Acquired Company"), and H. Ralph Cole, an individual residing in Florida (the
"Seller").
W I T N E S S E T H :
---------------------
WHEREAS, the Holding Company is engaged in the business of acquiring
internet service providers, switchless resellers, interconnect companies and
various other communication companies, so as to be able to offer its customer
base a complete variety of convergent communication products and services; and
WHEREAS, the Holding Company is publicly traded; and
WHEREAS, the Acquired Company is engaged in the business of a telephone
interconnect company and the sale of related products and services to
predominately small to medium sized businesses; and
WHEREAS, the Seller owns all of the issued and outstanding shares of
the Acquired Company (the "Stock") and desires to sell the Stock to the Holding
Company; and
WHEREAS, the Holding Company desires to purchase the Stock for the
purpose of owning and operating the Acquired Company as a wholly owned
subsidiary; and
WHEREAS, the parties desire the Holding Company to acquire from the
Seller all of the Stock in a transaction intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, in consideration of the premises herein set forth, and
the mutual promises and respective representations and warranties of the
parties, one to another made herein, and the reliance of each party upon the
other(s) based hereon, the parties hereto adopt this plan of reorganization and
agree, as follows:
ARTICLE I
PRELIMINARY MATTERS
SECTION 1.01. RECITALS. The parties acknowledge the recitals herein
above set forth in the preamble are correct, incorporated herein and are made a
part of this Agreement.
SECTION 1.02. EXHIBITS AND SCHEDULES. Exhibits (which are documents to
be executed and delivered at the Closing (as hereinafter defined) by the party
identified therein or in the provision requiring its delivery) and Schedules
(which are documents setting forth information about either
<PAGE>
the Acquired Company or the Holding Company) referred to herein and annexed
hereto are, by this reference, incorporated herein and made a part of this
Agreement, as if set forth fully herein.
SECTION 1.03. USE OF WORDS AND PHRASES. Natural persons may be
identified by last name, with such additional descriptors as may be desirable.
The words "herein," "hereby," "hereunder," "hereof," "herein before,"
"hereinafter" and any other equivalent words refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision hereof. The
words, terms and phrases defined herein and any pronoun used herein shall
include the singular, plural and all genders. The word "and" shall be construed
as a coordinating conjunction unless the context clearly indicates that it
should be construed as a copulative conjunction.
SECTION 1.04. ACCOUNTING TERMS. All accounting terms not otherwise
defined herein shall have the meanings assigned to them under the profession's
generally accepted accounting principles ("GAAP") unless specifically referenced
to regulatory accounting principles.
SECTION 1.05. CALCULATION OF TIME LAPSE OR PASSAGE; ACTION REQUIRED ON
HOLIDAYS. When a provision of this Agreement requires or provides for the
calculation of the lapse or passage of a time period, such a time period shall
be calculated by treating the event which starts the lapse or passage as zero;
provided, that this provision shall not apply to any provision which specifies a
certain day for action or payment, e.g. the first day of each calendar month.
Unless otherwise provided, the term "month" shall mean a period of thirty days
and the term "year" shall mean a period of 360 days, except that the term
"calendar year" shall mean the actual calendar year period. If any calendar day
on which action is required to be taken or payment is required to be made under
this Agreement is not a business day (meaning Monday through Friday, excluding
national holidays), then such action or payment shall be taken or made on the
next succeeding business day.
SECTION 1.06. USE OF TITLES, HEADINGS AND CAPTIONS. The titles,
headings and captions of Articles, sections, paragraphs and other subdivisions
contained herein are for the purpose of convenience only and are not intended to
define or limit the contents of said articles, sections, paragraphs and other
subdivisions.
ARTICLE II
TERMS OF THE TRANSACTION
SECTION 2.01. ACQUISITION. Upon and subject to the terms and conditions
of this Agreement, the Seller will sell, assign and transfer the Stock, free and
clear of all liens, pledges, security interests, claims, charges, restrictions,
equities or encumbrances of any kind whatsoever, to the Holding Company (the
"Acquisition") in exchange for, and the Holding Company will issue and deliver
to the Seller, fifty thousand (50,000) shares of preferred stock described in
Section 2.02 herein. (the "Preferred Stock").
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SECTION 2.02. PREFERRED STOCK The Preferred Stock will be designated as
Class B Convertible Preferred Stock, Series "1", of which each share (a) will
have a liquidation value of $4.00, (b) will be convertible into five (5) shares
of the Holding Company's common stock beginning one year after the Closing Date,
(c) will be entitled to one vote on matters submitted to a vote of the holders
of the common stock, (d) will be subject to cash redemption at the election of
either the Holding Company or the Seller beginning three years from the date
hereof, upon thirty days' written demand for redemption by either party, at
liquidation value.
SECTION 2.03. SECURITY FOR HOLDING COMPANY'S OBLIGATIONS. As security
for the Holding Company's obligation under Section 2.02 of this Agreement, the
Holding Company and the Acquired Company shall (a) grant to Seller a security
interest in all of the Stock of the Acquired Company, as evidenced by the Pledge
Agreement in the form of Exhibit B attached hereto (the "Pledge Agreement"), and
(b) grant to the Seller a security interest in all assets of the Acquired
Company, as evidenced by the Security Agreement in the form of Exhibit C
attached hereto (the "Security Agreement"). Any default by the Acquired Company
(after acquisition by the Holding Company, if maintained as a separate legal
entity) or the Holding Company under the Security Agreement or the Pledge
Agreement shall constitute a default under this Agreement.
SECTION 2.04. PRESS RELEASES. Promptly following the execution hereof,
the Holding Company may in its discretion issue a press release announcing the
transaction, summarizing its pertinent terms and providing such other
information as it deems necessary. Neither the Acquired Company nor the Seller
will make a public announcement regarding the transaction contemplated by this
Agreement or issue a press release with respect thereto.
SECTION 2.05. TRANSACTION COSTS. Each party to this Agreement shall
bear its own costs associated with the negotiation, drafting and closing of this
agreement and its related documents.
SECTION 2.06. CAPITAL INFUSION. The Holding Company agrees to lend to
the Acquired Company up to a maximum of ten thousand ($10,000) dollars per month
for a six month period, to be used to expand Acquired Company's business.
Disbursement of funds will be evidenced by, the parties will execute a mutually
agreed upon promissory note. The initial loan will be made available to Acquired
Company at closing, with subsequent loans to be made available on the first
business day of each of the following five months.
ARTICLE III
CLOSING OF THE TRANSACTION
SECTION 3.01. LOCATION, DATE AND TIME OF THE CLOSING. The closing of
the transaction herein contemplated (the "Closing") shall take place on or
before July 1, 1999 (the "Closing Date") at the offices of T.E.A.M, subject to
the satisfaction of the conditions to Closing set forth in Sections 3.08 and
3.09.
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SECTION 3.02. OBLIGATIONS OF THE ACQUIRED COMPANY AT CLOSING. At the
Closing, the Acquired Company will deliver the following documents:
(a) An Officer's Certificate and Secretary's Certificate of
the Acquired Company, in the respective forms of Exhibit "C" and Exhibit "D";
(b) A certificate of good standing issued by the Secretary
of State of its State of incorporation and of each State in which it is
qualified to do business as a foreign corporation; and
(c) A duly executed closing memorandum.
SECTION 3.03. OBLIGATIONS OF THE HOLDING COMPANY AT CLOSING. At the
Closing, the Holding Company will deliver the following documents:
(a) An officer's certificate and secretary's certificate of
the Acquired Company, in the respective forms of Exhibit "C" and Exhibit "D";
and
(b) A certificate of good standing issued by the Secretary
of State of its State of incorporation and of each State in which it is
qualified to do business as a foreign corporation; and
(c) A duly executed pledge agreement,
(d) Certificates for the Preferred Stock, bearing the
restrictive legend set forth in Section 6.04 hereof, issued to and registered to
the order of the Seller;
(e) A duly executed security agreement and;
(f) A duly executed closing memorandum.
SECTION 3.04. OBLIGATIONS OF THE SELLER AT CLOSING. At the Closing, the
Seller will deliver the following documents:
(a) The certificate(s) representing all forms, delineation's
and classes of the Stock of the Acquired Company, together with a duly executed
stock power in favor of the Holding Company;
(b) A certificate to the same tenor and effect as Exhibits
"C" and "D";
(c) A duly executed security agreement; and
(d) A duly executed closing memorandum.
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SECTION 3.05. CLOSING MEMORANDUM AND RECEIPTS. As evidence that all
parties deem the Closing to have been completed, the conditions precedent to
have been satisfied, and the transaction contemplated by this Agreement to have
been consummated, the parties will jointly execute and deliver a memorandum
acknowledging such completion and consummation, setting forth any matters or
conditions which the parties agree to complete after the Closing and containing
an acknowledgment receipt for the Stock referenced above.
SECTION 3.06. WAIVER OF CONDITIONS. Notwithstanding Section 11.03
herein, any condition to the Closing which is not satisfied at or prior to the
Closing will be deemed to be waived by each of the affected parties or satisfied
by virtue of such party's execution of the Closing memorandum; provided, that
any condition which is unsatisfied and is to be preserved for completion or
consummation after the Closing shall be set forth in the Closing memorandum and
thereupon will become a covenant for completion or consummation by the parties
obligated for the performance thereof.
SECTION 3.07. FURTHER ASSURANCES. At any time and from time to time
after the Closing, at the reasonable request of any party and without further
consideration, any other party shall execute and deliver such other instruments
and documents as such party may deem reasonably desirable or necessary to
complete the transactions contemplated by this Agreement.
SECTION 3.08. CONDITIONS PRECEDENT TO THE ACQUIRED COMPANY'S AND THE
SELLER'S OBLIGATION TO CLOSE. All obligations of the Acquired Company and the
Seller hereunder are subject to the fulfillment of each of the following
conditions at or prior to the Closing, and the Holding Company shall exert its
best efforts to cause each such condition to be fulfilled:
(a) All representations and warranties of the Holding
Company contained herein or in any document delivered pursuant hereto shall be
true and correct in all material respects when delivered and shall be deemed to
have been made again at and as of the date of the Closing, and shall then be
true and correct in all material respects except for changes in the ordinary
course of business after the date hereof in conformity with the covenants and
agreements contained herein.
(b) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Holding Company on or before the
Closing shall have been duly and properly performed in all material respects.
(c) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Holding Company not disclosed
to and acknowledged by the Acquired Company and the Seller.
(d) The Holding Company shall have delivered the certificate
set forth in Exhibit "G", certifying that the conditions set forth in paragraphs
(a), (b), (c) of this Section 3.08 have been fulfilled.
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(e) All documents required to be delivered by the Holding
Company at or prior to the Closing shall have been so delivered.
(f) The Holding Company shall have delivered an opinion of
counsel, as of the date of the Closing, confirming the legality of the Preferred
Stock issued to the Seller.
Section 3.09. CONDITIONS PRECEDENT TO THE HOLDING COMPANY'S OBLIGATION
TO CLOSE. All obligations of the Holding Company at the Closing are subject to
the fulfillment of each of the following conditions at or prior to the Closing,
and the Acquired Company and the Seller shall each exert their best efforts to
cause each such condition to be fulfilled.
(a) All representations and warranties of the Acquired
Company and the Seller contained herein or in any document delivered pursuant
hereto shall be true and correct in all material respects when delivered and
shall be deemed to have been made again at and as of the date of the Closing,
and shall then be true and correct in all material respects except for changes
in the ordinary course of business after the date hereof in conformity with the
covenants and agreements contained herein.
(b) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Acquired Company and the Seller
on or before the Closing shall have been duly and properly performed in all
material respects.
(c) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Acquired Company not disclosed
to and acknowledged by the Holding Company.
(d) The Acquired Company shall have delivered the
certificate set forth in Exhibit "G", certifying that the conditions set forth
in paragraphs (a), (b), (c) of this Section 3.09 have been fulfilled.
(e) All documents required to be delivered by the Acquired
Company and by the Seller on or before the Closing shall have been so delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 4.01. THE ACQUIRED COMPANY AND THE SELLER'S REPRESENTATIONS AND
WARRANTIES. The Acquired Company and the Seller, jointly and severally,
represent and warrant to the Holding Company that:
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(a) The Acquired Company is a corporation duly organized,
validly existing and in good standing under the laws of its State of
incorporation, with all requisite corporate power and authority to carry on the
business in which it is engaged, to own the properties it owns, to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Acquired Company is duly qualified and licensed to do business and is in
good standing in every jurisdiction where the conduct of its business or the
nature of its properties require it to be qualified. The Acquired Company has
delivered to the Holding Company true, correct and complete copies of its
articles of incorporation, as amended, bylaws and the records of proceeding of
its board of directors and stockholders, to the extent such records exist, since
the inception of the Acquired Company. The Acquired Company does not own,
directly or indirectly, any of the capital stock of any other corporation or any
equity, profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
(b) The Acquired Company has the power to conduct its
business as it is now being conducted and to own and lease the properties
associated therewith shown on its most recent balance sheet and used in the
conduct of its business.
(c) This Agreement has been duly and validly authorized by
all necessary corporate action of the Acquired Company (including the approval
of the board of directors and stockholders), executed and delivered by the
Acquired Company and the Seller and constitutes the legal, valid and binding
obligation of each of them enforceable against them individually and severally,
in accordance with its terms subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of, relating to or affecting
shareholders and creditors rights generally and to general equitable principles.
(d) The execution of this Agreement and consummation of the
transaction contemplated hereby does not conflict with and will not (i) violate
any provision of the Acquired Company's articles of incorporation or bylaws,
(ii) violate any provision of or result in the breach of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
obligation under, any mortgage, lien, lease, material contract, license, permit,
instrument or any other material agreement to which the Acquired Company is a
party, (iii) result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon any property of the Acquired
Company, (iv) violate or conflict with any order, award, judgment or decree or
other restriction or conflict with any law, ordinance, rule or regulation to
which the Acquired Company or its property is subject or by which the Acquired
Company or its property may be bound or affected, or (v) result in the loss,
forfeiture or waiver of any rights or franchise owned by the Acquired Company,
from which the Acquired Company benefits or which is desirable in the conduct of
the Acquired Company's business.
(e) The Acquired Company's authorized capital stock consists
of 7,500 shares of common stock, of which 100 shares are issued and outstanding.
The Acquired Company's issued and outstanding capital stock has been duly and
validly authorized, is validly issued and fully paid and nonassessable. All of
the outstanding capital stock of the Acquired
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Company is legally and beneficially owned by the Seller, free of any security
interests, liens, claims, encumbrances, equities, proxies, shareholder
agreements, or other restrictions of any kind. No shares of the Acquired
Company's Common Stock are owned by the Acquired Company in treasury. No shares
of the Acquired Company's Common Stock have been issued or disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any of the Acquired Company's stockholders. The Acquired Company has no bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the stockholders of the Acquired Company on any matter.
(f) The Acquired Company has not acquired any capital stock
of the Acquired Company within the two (2) year period preceding the execution
of this Agreement. There exist no options, warrants, subscriptions or other
rights to purchase, or securities convertible into or exchangeable for, any of
the authorized or outstanding securities of the Acquired Company, and no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Acquired Company to issue any of its authorized but unissued capital stock.
The Acquired Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Acquired Company nor the ownership of shares
among its stockholders has been altered or changed within the two (2) year
period preceding the date of this Agreement.
(g) No action by or before any governmental body or
authority of the United States of America, any State or subdivision thereof or
any self-regulatory body to which the Acquired Company is subject is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby on the part of the Acquired
Company.
(h) Except as contemplated by this Agreement, there has not
been any sale, distribution or spin-off of significant assets of the Acquired
Company other than in the ordinary course of business within the two (2) year
period preceding the date of this Agreement.
(i) The information the Acquired Company and the Seller have
delivered to the Holding Company relating to the Acquired Company, its business,
its operations and its prospects (financial and otherwise) was on the date
reflected in each such item of information accurate in all material respects and
such information at the date hereof taken as a whole provides full and fair
disclosure of all material information relating to the Acquired Company, its
business, its operations, its financial condition and its prospects (financial
and otherwise) and does not contain any untrue statements, misstatements or
omissions of material fact (which have not been subsequently corrected)
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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(j) Neither the Acquired Company nor Seller nor, to the best
of the knowledge of the Acquired Company and the Seller, any employee of the
Acquired Company, has paid or caused to be paid, directly or indirectly, in
connection with the business of the Company to any government or agency thereof
or any agent of any supplier or customer any bribe, kick-back or other similar
payment or any contribution to any political party or candidate (other than from
personal funds of directors, officers or employees not reimbursed by the Company
or as otherwise permitted by applicable law).
(k) Attached hereto as Schedule "A" are true and complete
copies of the Acquired Company's balance sheet (the "Balance Sheet") and related
statement of income at and for the period ended December 31, 1997, December 31,
1998, and April 30, 1999 (collectively, the "Financial Statements"). Such
Financial Statements have not been audited, but are complete and correct, have
been prepared in accordance with GAAP, and fairly present the financial
condition of the Acquired Company and the results of operations at the dates and
for the periods indicated. Since April 30, 1999, there has been no material
adverse change in the financial conditions, results of operations or business
prospects of the Acquired Company and, to the best knowledge of the Seller and
the Acquired Company, no fact or condition exists or is contemplated or
threatened which might cause such a change in the future. Except as disclosed in
the notes to the Financial Statements, the Acquired Company does not have any
accrued, contingent, undisclosed or hidden liabilities. The Acquired Company is
not liable for or obligated in any way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Acquired Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount. No
person has guaranteed, indemnified or otherwise insured any obligation of the
Acquired Company.
(l) The Acquired Company has good, valid, marketable and
insurable title to all of the properties and assets which it owns or uses in its
business, free and clear of all security interests, liens, claims and
encumbrances. The assets and properties of the Acquired Company are adequate for
the conduct of the Acquired Company's business in the manner in which it is
currently conducted and contemplated to be conducted by the Acquired Company.
(m) The Acquired Company does not own any interest (other
than leasehold interests referred to on Schedule "B") in real property. The
leased real property referred to on Schedule "B" constitutes the only real
property necessary for the conduct of the Acquired Company's business as
currently conducted.
(n) Except as set forth on Schedule "C", the Acquired
Company is not a party to or bound by, nor is the Stock or any of the Company's
assets or properties subject to, or bound by, whether or not in writing, any of
the following (collectively, the "Contracts"): (i) partnership or joint venture
agreement; (ii) guaranty or suretyship, indemnification or contribution
agreement or performance bond; (iii) debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another; (iv) contract to purchase
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real property; (v) agreement with sales agents, public relations or advertising
agencies, accountants or attorneys (other than in connection with this Agreement
and the transactions contemplated hereby) involving total payments within any
twelve (12) month period in excess of $5,000 and which is not terminable on
thirty (30) days' notice or without penalty; (vi) agreement relating to any
material matter or transaction in which an interest is held by a person or
entity that is an officer, director, employee, stockholder or affiliate of the
Acquired Company or Seller; (vii) agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate, except in the ordinary course of business; (viii)
powers of attorney; (ix) contracts containing non-competition covenants; (x)
agreement providing for the purchase from a supplier of all or substantially all
of the requirements of the Acquired Company of a particular product or services;
(xi) any other agreement or commitment in excess of $5,000 not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of the Company.
Copies of all of the Contracts have been delivered to the Holding Company. All
of such Contracts are valid and binding, enforceable in accordance with their
respective terms (except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies), in full force and effect, and no defenses, off-sets or
counterclaims have been asserted, nor has the Company waived any material rights
thereunder. There are no existing events of default or events, which after the
giving of notice or lapse of time or both, would constitute a default or result
in a right to accelerate or a loss of rights in connection with any such
Contract, and no penalties have been incurred nor are amendments pending, with
respect to the Contracts. The Acquired Company has not received notice of any
plan or intention of any other party to any Contracts to exercise any right to
cancel or terminate such Contracts, and neither the Acquired Company nor Seller
knows of any fact that would justify the exercise of such a right. No consents
or approvals are required under the terms of any Contracts in connection with
the transactions contemplated herein. None of the Contracts is, either when
considered singly or in the aggregate with others, unduly burdensome, onerous or
materially adverse to the Acquired Company's business, properties, assets,
earnings or prospects or is likely, either before or after the Closing, to
result in any material loss or liability.
(o) All of the fixtures, structures and equipment reflected
in the Financial Statements and used by the Acquired Company in its business are
in good operating condition and repair, subject to normal wear and tear, and
conform in all material respects with all applicable ordinances, regulations and
other laws, and the Acquried Company has no actual knowledge of any latent
defects therein.
(p) Except as set forth in Schedule "D", there is no claim,
violation notice, legal action, suit, arbitration, governmental investigation,
or other legal or administrative proceeding, nor any order, decree or judgment
in progress, pending or in effect, or, to the Acquired Company's or Seller's
best knowledge, threatened, against or relating to the Acquired Company, its
directors, officers or employees, its properties, assets or business, Seller, or
the transaction contemplated by this Agreement and neither the Acquired Company
nor Seller know or has any reason to be aware of any basis for the same,
including any basis for a claim of sexual harassment or discrimination based on
race, age, sexual orientation or other protected class of
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individuals, as well as health, safety or other environmental complaints or
exposure. Neither the Acquired Company nor Seller is subject to or in default of
any court or administrative order, judgment, writ, injunction or decree
applicable to the Acquired Company or to its business, assets, operations or
employees. All claims asserted, general liability incidents and incident reports
have been submitted to the Acquired Company's insurer therefor. All claims made
or threatened against the Acquired Company in excess of its deductible are
covered under its Insurance Policies.
(q) All taxes, including without limitation, income,
property, special assessments, sales, use, franchise, intangibles, employees'
income withholding and social security taxes, imposed by the United States of
America, foreign government or any state, municipality, subdivision, authority
therein, which are due and payable, and all interest and penalties thereon,
unless disputed in good faith in proper proceedings and reserved for or set
aside, have been paid in full and all tax returns required to be filed in
connection therewith have been accurately prepared and timely filed
(collectively, the "Tax Returns") and all monies required to be withheld by the
Company and paid to governmental agencies for all income, social security,
unemployment insurance, sales, excise, use and other taxes have been collected
or withheld and paid to the respective governmental agencies. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. The
Acquired Company is not and has no reason to believe that it will be the subject
of an audit by any taxing authority. There is not now in force any extension of
time with respect to the date when tax return was or is due to be filed, or any
waiver or agreement by the Acquired Company for the extension of time for the
assessment of any tax and the Acquired Company is not a "consenting corporation"
within the meaning of Section 341(f)(1) of the Internal Revenue Code of 1986, as
amended; and, the Acquired Company has elected to be treated as an S corporation
for federal income tax purposes. All workers' compensation, disability and
similar items due and payable under any governmental program have been paid. The
Acquired Company is not a party to any tax sharing agreement with any other
person or entity. Neither the Company nor Seller is a foreign person, as such
term is referred to in Section 1445(f)(3) of the Code. None of the assets or
properties of the Acquired Company constitutes property that the Acquired
Company, the Holding Company, or any affiliate of the Holding Company, will be
required to treat as being owned by another person pursuant to the "Safe Harbor
Lease" provisions of Section 168(f)(8) of the Code prior to repeal by the Tax
Equity and Fiscal Responsibility Act of 1982. None of the assets of the Acquired
Company are subject to a lease to a "tax exempt entity" as such term is defined
in Section 168(h)(2) of the Code. The Acquired Company has not at any time
consented, and Seller will not permit the Acquired Company to elect, to have the
provisions of Section 341(f)(2) of the Code apply to it. The Acquired Company
has not at any time participated in or cooperated with any international boycott
as defined in Section 999 of the Code. No payment required or contemplated to be
made by the Acquired Company will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code..
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(r) The Acquired Company does not have any employee benefit,
pension or profit sharing plans subject to ERISA or other similar retirement
plans to which the Acquired Company is obligated or required to make
contributions. The Acquired Company does not have any obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired.
(s) Schedule "E" contains (i) a complete and accurate list
of the names, titles and annual cash compensation as of the Closing Date,
including without limitation wages, salaries, bonuses (discretionary and
formula) and other cash compensation (the "Cash Compensation"), of all employees
of the Acquired Company, (ii) a complete and accurate description of all
increases in Cash Compensation of employees of the Acquired Company during the
current fiscal year and the immediately preceding fiscal year and any promised
increases in Cash Compensation of employees of the Acquired Company that have
not yet been effected, (iii) a complete and accurate list of all compensation
plans, arrangements or practices (the "Compensation Plans") sponsored by the
Acquired Company or to which the Company contributes on behalf of its employees,
and (iv) a complete and accurate list of all employment arrangements which the
Acquired Company is a party to or affected by, including without limitation,
employee leasing, employee services, consulting and non-competition agreements.
The Acquired Company does not have any written employment agreements with its
employees. The Compensation Plans include without limitation plans, arrangements
or practices that provide for performance awards and stock ownership or stock
options. The Company has provided or made available to the Holding Company a
copy of each written Compensation Plan, including all amendments to date, and a
written description of each unwritten Compensation Plan. Each of the
Compensation Plans can be terminated or amended at will by the Company. The
Company has provided or made available to Holding Company a copy of all employee
manuals and all written material policies, procedures and work-related rules,
including all amendments to date, and a written description of all material
unwritten Employee policies and procedures.
(t) The Acquired Company has been and is in compliance with
all applicable laws, rules, regulations and ordinances respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except for any such failures to be in compliance that, individually or in the
aggregate, would not result in a material adverse effect, and the Acquired
Company is not liable for any arrearages of wages or penalties for failure to
comply with any of the foregoing. The Acquired Company has not engaged in any
unfair labor practices or discriminated on the basis of race, color, religion,
sex, national origin, age, disability or handicap in its employment conditions
or practices and no such charges or complaints are pending or, to the best
knowledge of the Acquired Company and Seller, threatened against the Acquired
Company before any federal, state or local court, board, department, commission
or agency (nor, to the best knowledge of the Acquired Company and Seller, does
any valid basis therefor exist). No labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Acquired Company are pending
or threatened (nor, to the best knowledge of the Acquired Company and Seller,
does any valid basis therefor exist).
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(u) The Acquired Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. None
of the Acquired Company's employees are represented by a union, labor
organization or collective bargaining unit or are subject to a collective
bargaining agreement and the Acquired Company considers its relations with its
employees as a whole to be good. The Acquired Company has not been subject to
any strikes, work stoppages or labor unrest. To the best knowledge of the
Acquired Company and Seller, none of the employees of the Company has threatened
to organize or join a union, labor organization or collective bargaining unit.
All employees of the Acquired Company are, to the best knowledge of the Acquired
Company and Seller, citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
(v) Except as set forth on Schedule "F" or as contemplated
in this Agreement, since the date of the Balance Sheet, the Acquired Company has
not (i) suffered a material adverse effect; (ii) contracted for the purpose of
acquiring any capital asset having a cost in excess of $5,000 or made any single
expenditure for a capital asset in excess of $5,000; (iii) incurred any
indebtedness for borrowed money in excess of $5,000 (other than short-term
borrowings in the ordinary course of business), or issued or sold any debt
securities; (iv) incurred or discharged any material liabilities or obligations
except in the ordinary course of business; (v) paid any amount on any
indebtedness prior to the due date, forgiven or canceled any claims or any debt
in excess of $5,000, or released or waived any rights or claims except in the
ordinary course of business; (vi) mortgaged, pledged or subjected to any
security interest, lien, lease or other charge or encumbrance any of its
properties or assets (other than statutory liens arising in the ordinary course
of business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets); (vii) suffered any damage
or destruction to or loss of any assets (whether or not covered by insurance)
that has, individually or in the aggregate, resulted in a material adverse
effect; (viii) acquired or disposed of any assets having an aggregate value in
excess of $5,000, except in the ordinary course of business; (ix) written up or
written down the carrying value of any of its assets, other than accounts
receivable in the ordinary course of business; (x) changed the costing system or
depreciation methods of accounting for its assets in any material respect; (xi)
lost or terminated any employee, patient, customer or supplier that has,
individually or in the aggregate, resulted in a material adverse effect; (xii)
increased the compensation of any director, officer, key employee or consultant;
(xiii) increased the compensation of any employee (except for increases in the
ordinary course of business consistent with past practice) or hired any new
employee who is expected to receive annualized compensation of at least $5,000;
(xiv) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity; (xv) redeemed, purchased or
otherwise acquired, or sold, granted or otherwise disposed of, directly or
indirectly, any of its capital stock, paid any dividend or made any distribution
or payment on any of its capital stock, or agreed to change the terms and
conditions of any such capital stock; (xvi) entered into any agreement providing
for total payments in excess of $5,000 in any twelve (12) month period with any
person or group, or modified or amended in any material respect the terms of any
such existing agreement, except in the ordinary course of business whereupon the
sum of total payments shall not exceed $5,000 in any twelve (12) month period;
or (xvii) entered into any other commitment or transaction or experienced any
other event that would materially interfere
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with its performance under this Agreement or any other agreement or document
executed or to be executed pursuant to this Agreement, or otherwise has,
individually or in the aggregate, resulted in a material adverse effect.
(w) All offers and sales of securities by the Acquired
Company have been made in compliance with the requirements of federal and
applicable state securities laws.
(x) The Acquired Company carries property, liability,
workers' compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described on Schedule "G" (the "Insurance
Policies"). All of the Insurance Policies are issued by insurers of recognized
responsibility and, to the best knowledge of the Acquired Company, are valid and
enforceable policies. All Insurance Policies shall be maintained in force
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided or made available to
the Holding Company. Except as set forth on Schedule "G", neither the Acquired
Company nor Seller has received any notice or other communication from any
issuer of any Insurance Policy canceling such policy, materially increasing any
deductibles or retained amounts thereunder, and to the best knowledge of the
Acquired Company and Seller, no such cancellation or increase of deductibles,
retainages or premiums is threatened. The Acquired Company does not have any
outstanding claims, settlements or premiums owed against any Insurance Policy,
and the Acquired Company has given all notices or has presented all potential or
actual claims under any Insurance Policy in due and timely fashion. Schedule "G"
also sets forth a list of all claims under any Insurance Policy in excess of
$10,000 per occurrence filed by the Acquired Company since its inception. The
Acquired Company has established and maintains all required insurance company
reserves in all of those states that it is required to do so and has established
and maintains all required deposits and bonds as are necessary in such state.
(y) Schedule "H" sets forth a true and correct description
of all trademarks, trade-names, service marks and other trade designations,
including common law rights, registrations and applications therefor, and all
patents and applications therefor currently owned, in whole or in part, by the
Acquired Company, and all licenses, royalties, assignments and other similar
agreements relating to the foregoing to which the Acquired Company is a party
(including the expiration date thereof if applicable); and all agreements
relating to technology, know-how or processes that the Acquired Company is
licensed or authorized to use by others (other than technology, know-how or
processes generally available to other healthcare providers), or which it
licenses or authorizes others to use (collectively, the "Proprietary Rights").
The Acquired Company owns or has the legal right to use the Proprietary Rights,
and to the best knowledge of the Acquired Company, such ownership or use does
not conflict, infringe or violate the rights of any other person. No consent of
any person will be required for the use thereof by the Holding Company upon
consummation of the transactions contemplated hereby and the Proprietary Rights
are freely transferable. The Acquried Company has the right to use, free and
clear of any adverse claims or rights of others, all trade secrets, customer
lists and proprietary information required for the marketing of all merchandise
and services formerly or presently sold or marketed by it.
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(z) No officer, director, stockholder or employee of the
Acquired Company, or their respective spouses, children or affiliates owns,
directly or indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an officer or
director of, any customer or supplier of the Acquired Company or any
organization that has a material contract or arrangement with the Acquired
Company. Neither the Acquired Company nor Seller owns, directly or indirectly,
any interest or has any investment in any person or entity that is a competitor
of the Acquired Company.
(aa) The Acquired Company is not, nor has it ever been,
under the jurisdiction of a Federal or state court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
(bb) The Acquired Company has not incurred any obligation
for any finder's, brokers or agent's fee in connection with the transactions
contemplated hereby.
(cc) No distribution, payment or dividend of any kind has
been declared or paid by the Company on any of its capital stock since the
Company Balance Sheet Date.
(dd) Disclosure made by the Acquired Company and/or the
Seller in any Exhibit or Schedule shall be deemed disclosure for purposes of all
representations and warranties contained in this Agreement.
SECTION 4.02. THE SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Holding Company that:
(a) This Agreement and each other agreement to be executed
in connection herewith has been duly executed and delivered by the Seller, and
all such agreements constitute legal, valid and binding obligations of such
Seller, enforceable against Seller in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
Seller has the legal capacity to enter into and perform this Agreement and such
other agreements to which it is a party.
(b) The execution of this Agreement and consummation of the
transaction contemplated hereby does not conflict with and will not (i) violate
any provision of or result in the breach of or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both) any obligation
under, any mortgage, lien, lease, material contract, license, permit, instrument
or any other material agreement to which Seller is a party, (ii) result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon the Stock, or (iii) violate or conflict with any order, award,
judgment or decree or other restriction or conflict with any law, ordinance,
rule or regulation to which Seller or his property is subject or by which Seller
or his property may be bound or affected.
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(c) No action by or before any governmental body or
authority of the United States of America, any State or subdivision thereof or
any self-regulatory body to which the Seller is subject is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby on the part of the Seller.
(d) Set forth on Schedule "I" is an accurate and complete
list of all transfers or other transactions involving capital stock of the
Acquired Company made by Seller since January 1, 1997. All transfers of capital
stock of the Acquired Company by Seller have been made for valid business
reasons and not in anticipation or contemplation of the consummation of the
transactions contemplated by this Agreement.
(e) Seller has not paid or caused to be paid, directly or
indirectly, in connection with the business of the Acquired Company, to any
government or agency thereof or any agent of any supplier or customer any bribe,
kick-back or other similar payment; or any contribution to any political party
or candidate (other than from personal funds not reimbursed by the Company or as
otherwise permitted by applicable law).
(f) Seller has not incurred any obligation for any finder's,
broker's or agent's fee in connection with the transactions contemplated hereby.
(g) Neither Seller, nor his spouse, children or affiliates,
owns directly or indirectly, on an individual or joint basis, any interest in,
has a compensation or other financial arrangement with, or serves as an officer
or director of, any customer or supplier of the Acquired Company or any
organization that has a material contact or arrangement with the Acquired
Company. Neither Seller nor any of his affiliates is, or within the last three
(3) years was, a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement with
any communications company, internet company, or any other person which is in a
position to make or influence referrals to, or otherwise generate business for,
the Acquired Company.
(h) Seller does not own directly or indirectly any interests
or have any investment in any person other than the Acquired Company that is a
competitor of the Holding Company.
(i) Except as set forth on Schedule "J", there are no
claims, actions, suits, proceedings (arbitration or otherwise) or investigations
pending or, to the best of Seller's knowledge, threatened against Seller at law
or at equity in any court or before or by any governmental authority, and, to
Seller's knowledge, there are no, and have not been any, facts, conditions or
incidents that may result in any such actions, suits, proceedings (arbitration
or otherwise) or investigations.
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SECTION 4.03. THE HOLDING COMPANY'S REPRESENTATIONS AND WARRANTIES. The
Holding Company represents and warrants to the Acquired Company and the Sellers
that:
(a) The Holding Company is a corporation duly organized,
validly existing and in good standing under the laws of its State of
incorporation, with all requisite corporate power and authority to carry on the
business in which it is engaged, to own the properties it owns, to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Holding Company is duly qualified and licensed to do business and is in good
standing in every jurisdiction where the conduct of its business or the nature
of its properties require it to be qualified.
(b) The Holding Company has the power to conduct its
business as it is now being conducted and to own and lease the properties
associated therewith used in the conduct of its business.
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Holding Company and constitutes the legal, valid
and binding obligation of the Holding Company enforceable against the Holding
Company in accordance with its terms subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of, relating to or
affecting shareholders and creditors rights generally and to general equitable
principles.
(d) The execution of this Agreement and consummation of the
transaction contemplated hereby does not conflict with and will not (i) violate
any provision of the Holding Company's articles of incorporation or bylaws, (ii)
violate any provision of or result in the breach of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
obligation under, any mortgage, lien, lease, material contract, license, permit,
instrument or any other material agreement to which the Holding Company is a
party, (iii) result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon any property of the Holding Company,
(iv) violate or conflict with any order, award, judgment or decree or other
restriction or conflict with any law, ordinance, rule or regulation to which the
Holding Company or its property is subject or by which the Holding Company or
its property may be bound or affected.
(e) The Holding Company's authorized capital stock consists
of 50,000,000 shares of common stock and 10,000,000 shares of preferred stock,
of which 2,377,000 shares of common stock and zero shares of preferred stock are
issued and outstanding. The issuance and delivery of the Preferred Stock to be
issued by the Holding Company in connection with this Agreement have been duly
and validly authorized and, when issued pursuant hereto, will be validly issued,
fully paid and nonassessable, and shall be free and clear of all liens, pledges,
restrictions, voting trusts, security interests or other encumbrances of any
nature whatsoever. The shares of Preferred Stock to be issued pursuant to this
Agreement will not be issued and disposed of in violation of the preemptive
rights, rights of first refusal or similar rights of any of the Holding
Company's stockholders.
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(f) No action by or before any governmental body or
authority of the United States of America, any State subdivisions thereof or any
self-regulatory body to which the Holding Company is subject, is required in
connection with the execution and delivery of this Agreement by the Holding
Company and the consummation of the transactions contemplated hereby.
(g) The information the Holding Corporation has delivered to
the Acquired Company relating to the Holding Company, its business, its
operations and its prospects (financial and otherwise) was on the date reflected
in each such item of information accurate in all material respects and, to the
knowledge of the Holding Corporation, such information at the date hereof taken
as a whole provides full and fair disclosure of all material information
relating to the Holding Corporation, its business, its operations, its financial
condition and its prospects (financial and otherwise) and does not contain any
untrue statements, misstatements or omissions of material fact (which have not
been subsequently corrected) necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
SECTION 4.04. NATURE AND SURVIVAL OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained in this Agreement shall survive the
Closing Date for a period of one (1) year; provided, that (i) the
representations and warranties contained in Sections 4.01 (p), (q) and (t) shall
survive for the applicable statute of limitations periods, (ii) the
representations and warranties contained in in Section 4.01(a), (c), (e) and (l)
shall survive indefinitely.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. COVENANTS OF THE PARTIES. Each of the respective parties
identified in the following sections of this Article V covenants and agrees, as
provided in the sections which are applicable to it. These covenants shall be in
full force and effect until this Agreement is terminated by one of the parties
as provided herein or this Agreement has terminated according to its terms.
SECTION 5.02. CONDUCT OF THE ACQUIRED COMPANY'S BUSINESS PRIOR TO
CLOSING.
(a) From the date hereof to the Closing, the Acquired
Company will conduct its business and affairs in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve its
assets and properties in good condition and repair and maintain insurance
thereon in accordance with present practices, it will use all reasonable efforts
(i) to preserve its business and organization intact, (ii) to preserve for the
Acquired Company's goodwill of suppliers, customers, distributors, landlords and
others having business relations with it, and (iii) to cooperate and use its
best efforts to assist the Holding Company in obtaining the consent of any
landlord or other party to any lease or contract with the Acquired Company where
the consent of such landlord or other party may be required by reason of the
transactions contemplated hereby.
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(b) From the date hereof to the Closing, the Acquired
Company will not (i) dispose of any of the customers, tariffs, licenses,
contracts or supplier agreements other than in the ordinary course of business,
(ii) engage in any extraordinary transactions, including but not limited to,
directly or indirectly, soliciting, entertaining, encouraging inquiries or
proposals or entering into negotiation or agreement with any third party for or
acquisition of the aforementioned assets or business as a going concern, sale of
equity securities or rights of any kind to acquire equity securities of the
Acquired Company or acquisition, consolidation, reverse acquisition, business
combination or similar transaction with any other entity, without the prior
written consent of the Holding Company (iii) enter into any employment agreement
or grant any salary or compensation increase or bonus to any employee, or
otherwise change or increase commission and compensation schedules of its
employees without the prior written approval of the Holding Company, (iv)
terminate, waive, not renew or allow to lapse any tariff; (v) make any
commitment for capital expenditures, other than as disclosed to the Holding
Company and approved by it, (vi) offer or sell any equity securities or
obligations entitling the holder thereof to purchase equity securities of the
Acquired Company, or (vii) enter into any contracts, commitments or obligations
or otherwise take any actions or enter into any transactions other than in the
ordinary course of business consistent with its previous and current business
plans, practices, policies and procedures.
(c) Not withstanding anything contained in this Section
5.02, the Acquired Company will not take or fail to take any action that, in the
Acquired Company's reasonable judgment, is likely to give rise to a substantial
penalty or a claim for damages by any third party against the Acquired Company,
or is likely to result in losses either to the Acquired Company or to the
Holding Company, or is otherwise likely to prejudice in any material respect or
unduly interfere with the conduct of its business and operations in the ordinary
course consistent with prior practice, or is likely to result in a breach by the
Acquired Company of any of its representations, warranties or covenants
contained in this Agreement (unless any such breach is first waived in writing
by the Holding Company).
SECTION 5.03. CONDUCT OF SELLER PRIOR TO CLOSING. The Seller shall not
offer for sale or solicit or entertain offers to purchase its Stock prior to
Closing.
SECTION 5.04. NOTICE OF CHANGES IN INFORMATION. Each party shall give
the other party prompt written notice of any material change(s) in any of the
information contained in their respective representations and warranties made in
Article IV, or elsewhere in this Agreement, or the exhibits and schedules
referred to herein or any written statements made or given in connection
herewith which occurs prior to the Closing.
SECTION 5.05. NOTICE OF EXTRAORDINARY CHANGES. The Acquired Company
shall advise the Holding Company with respect to any of the following which are
outside of the ordinary course of business or which are materially adverse: (i)
the entering into, cancellation or breach of contracts, agreements, commitments,
tariffs, or other understandings or arrangements to which the Acquired Company
is a party, including, without limitation, purchase orders for any item of
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inventory and commitments for capital expenditures or improvements, orderly and
gradual discontinuance of particular items or (ii) any changes in purchasing,
pricing or selling policy (including, without limitation, selling merchandise at
discounts
SECTION 5.06. ACCESS TO INFORMATION AND DOCUMENTS. Upon reasonable
notice and during regular business hours, each party will give the other party,
its attorneys, accountants and other representatives full access to its
personnel, accountants, attorneys and other professional advisors (subject to
reasonable approval as to the time thereof) and all properties, documents,
contracts, books and records and will furnish copies of such documents
(certified by officers, if so requested) and with such information with respect
to its business, operations, affairs and prospects (financial and otherwise) as
it may from time to time request, and the party to whom the information is
provided will not improperly disclose the same prior to the Closing. Any such
furnishing of such information or any investigation shall not affect that
party's right to rely on the other party's representations and warranties made
in this Agreement or in connection herewith or pursuant hereto.
SECTION 5.07. COOPERATION BY THE PARTIES. Each party hereto shall
cooperate and shall take such further action as may be reasonably requested by
any other party in order to carry out the provisions and purposes of this
Agreement.
SECTION 5.08. RESTRICTIONS ON TRANSFER OF STOCK. The Holding Company
shall not sell, exchange, assign, transfer, dispose of, pledge, mortgage,
hypothecate or otherwise encumber, transfer or permit to be transferred all or
any of the Stock at any time prior to the termination of the Security Agreement.
The shares of Stock issued to the Holding Company on the Closing Date shall bear
a legend in substantially the following form:
The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition
pursuant to the laws of bankruptcy) of the shares of stock
evidenced by the within certificate is restricted under the
terms of an Acquisition Agreement dated June 7, 1999, by and
among the Issuer, the Registered Holder and, as defined in
said Agreement, the Seller.
SECTION 5.09. COOPERATION IN AUDITS. The Seller will cooperate with the
Holding Company and make such books and records of the Acquired Company
available as may be requested by the independent auditor engaged by the Acquired
Company to audit the financial statements of the Acquired Company and in any
audit by the Internal Revenue Service, foreign government, State, municipal or
other regulatory taxing authority. The period covered by such books and records
shall be the fiscal periods required for audit in order to comply with the
registration and reporting requirements promulgated under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, and the
Internal Revenue Code of 1986, as amended, or State income tax law, as may be
the case.
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ARTICLE VI
SECURITIES LAW MATTERS AND STATUS OF SHARES
SECTION 6.01. "RESTRICTED" COMMON STOCK. The Sellers acknowledge that
the Holding Company Stock issued in the Acquisition (the "Securities") will not
be registered under the Securities Act of 1933, as amended, ("Securities Act")
or the securities laws of the Seller's state of residence, that the Securities
are not transferable, except as permitted under various exemptions contained in
the Securities Act and applicable state securities law and that the Securities
are defined as "restricted securities" in, and subject, to the provisions of
Rule 144 under the Securities Act. The provisions contained in the following
sections are intended to ensure compliance with the Securities Act and
applicable state securities law.
SECTION 6.02. NO TRANSFERS IN VIOLATION OF SECURITIES ACT. The Seller
will not offer, sell, assign, pledge, hypothecate, transfer or otherwise dispose
of the Securities, except after full compliance with all of the applicable
provisions of the Securities Act and applicable State securities laws and this
Agreement.
SECTION 6.03. INVESTMENT INTENT. The Seller represents and warrants to
and covenants with the Holding Company that the Seller is acquiring and will
acquire the Securities for its own account for investment, and not with a view
to resale or other distribution; that the Seller currently has no intention of
selling, assigning, transferring, pledging, hypothecating or otherwise disposing
of all or any part thereof at any particular time, for any particular price, or
on the happening of any particular event or circumstance; and the Seller
acknowledges that the Holding Company is relying on the truth and accuracy of
the covenants, warranties and representations of the Seller in issuing
Securities without first registering it under the Securities Act.
SECTION 6.04. CONDITIONS TO SALE AND INVESTMENT LEGEND ON CERTIFICATES.
The Seller agree not to sell, assign, transfer, pledge, hypothecate or otherwise
dispose of any of the Securities, otherwise than by bona fide gift, by
inheritance or in a private sale, for two years following the Closing, unless
and until (i) the Sellers have delivered to the Holding Company a written legal
opinion in form and substance satisfactory to counsel for the Holding Company to
the effect that the disposition is permissible under the terms of the Securities
Act; (ii) the Holding Company has registered the Securities for resale by the
Seller pursuant to an effective registration statement; or (iii) the Seller has
presented the Holding Company with satisfactory evidence that the transfer will
comply with Rule 144 under the Securities Act. The Seller further agree that the
certificates evidencing the Securities shall contain the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND IS A "RESTRICTED SECURITY" AS DEFINED UNDER
SAID ACT. ACCORDINGLY, NEITHER THIS SECURITY NOR ANY INTEREST
THEREIN MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED,
PLEDGED OR HYPOTHECATED, EXCEPT BY BONA FIDE GIFT OR
INHERITANCE, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS SECURITY UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS
NOT REQUIRED.
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The Seller acknowledge the Holding Company will also place a "stop transfer"
order against any transfer of the Securities until one of the conditions set
forth in this section has been met.
SECTION 6.05. INDEMNIFICATION BY THE SELLER. If at any time in the
future, the Seller should offer, sell, assign, pledge, hypothecate, transfer or
otherwise dispose of any of the Securities without registration under the
Securities Act, unless an exemption from registration is available, the Seller
agrees to indemnify and hold harmless the Holding Company against any and all
claims, liabilities, penalties, costs and expenses which may be asserted against
or suffered by the Holding Company as a result of such disposition.
SECTION 6.06. FUTURE REGISTRATIONS. If at any time the Holding Company
registers securities under the Securities Act, the Holding Company may include
at the Seller's request, and at the Holding Company's expense, the Holding
Company's common stock then held by the Seller in the registration statement,
provided that sales of the Holding Company's common stock issued to the Seller
included in the registration statement shall be subject to the approval of the
Holding Company's investment banker and provided that the Seller agrees to
reasonable volume and other limitations required or desirable to maintain an
orderly market.
SECTION 6.07. THE ACQUIRED COMPANY'S OUTSTANDING SECURITIES. The
Acquired Company represents and warrants to the Holding Company that all offers
and sales which it has made of its securities prior to the date of this
Agreement and to the Closing date have been made in compliance with an exemption
from the registration requirements of the Securities Act and applicable state
securities laws.
SECTION 6.08. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Securities and Exchange
Commission (the "Commission") which may at any time permit the sale of the
Securities to the public without registration, after such time as a public
market exists for the Securities of the Holding Company, the Holding Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act (at any time
after it has become subject to such reporting requirements); and
(c) So long as the Seller owns any of the Securities, to furnish
to the Seller forthwith upon request a written statement by the Holding Company
as to its compliance with the reporting requirements of Rule 144 (at any time
after ninety days after the effective date of the first registration statement
filed by the Holding Company for an offering of its securities to
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the general public), and of the Securities Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Holding Company, and such other reports and documents of
the Holding Company and other information in the possession of or reasonably
obtainable by the Holding Company as the Seller may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Seller
to sell any of the Securities without registration.
ARTICLE VII
FEDERAL INCOME TAX MATTERS AND ELECTIONS
SECTION 7.01. TAX TREATMENT. The parties intend that the Acquisition
herein shall qualify as a tax free reorganization for federal (and all other
taxing authorities, as applicable) income tax purposes.
SECTION 7.02. TAX EFFECT ON THE SELLER. In the event the Acquired
Company has made an election under Chapter S of the Internal Revenue Code of
1986, as amended, the effect of the Acquisition on the Seller is the
responsibility of the Seller.
ARTICLE VIII
SECTION 8.01. TERMINATION FOR DEFAULT.
(a) The Holding Company may, by notice to the Acquired Company
and the Seller given in the manner provided below on or at any time prior to the
Closing Date, terminate this Agreement if default shall be made by the Acquired
Company or by the Seller in the observance or in the due and timely performance
of any of the conditions, obligations, covenants and agreements contained, made
by or imposed upon it, in this Agreement, if the default has not been fully
cured within thirty (30) days after receipt of the notice specifying the
default.
(b) The Acquired Company and the Seller may, by notice to the
Holding Company given in the manner provided below on or at any time prior to
the Closing Date, terminate this Agreement if default shall be made by the
Holding Company in the observance or in the due and timely performance of any of
the conditions, obligations, covenants and agreements contained, made by or
imposed upon it, in this Agreement, if the default has not been fully cured
within thirty (30)days after receipt of the notice specifying the default.
(c) Notwithstanding Section 2.07, the party giving notice of the
other party's default, if the default is not cured as provided in subsection (a)
or (b), above, will be entitled to recover its reasonable costs incurred in
connection with this Agreement.
SECTION 8.02. TERMINATION FOR FAILURE TO CLOSE. If the Closing does not
occur by July 1, 1999, any party, if that party is not then in default in the
observance or in the due or timely performance of any covenants and conditions
under this Agreement, may at any time terminate this Agreement by giving written
notice to the other parties; provided, that the parties may
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extend the Closing Date in writing and the Closing Date shall be automatically
and reasonably extended if the failure of the parties to Close is a result of
delay in receiving from the independent accountant the completed audited
financial statement of the Acquired Company.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION BY SELLER. Subject to the terms and
conditions of this Agreement, the Seller agrees to indemnify, defend and hold
the Holding Company and its directors, officers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "Damages") asserted against or
incurred by the Holding Company or any of such individuals or entities, arising
out of or resulting from:
a. a breach of any representation, warranty or covenant of
the Acquired Company or the Seller contained herein or in any schedule or
certificate delivered hereunder;
b. the Acquired Company's failure to satisfy any liability
of the Acquired Company arising prior to the Closing Date; or
c. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.01.
SECTION 9.02 INDEMNIFICATION BY HOLDING COMPANY. Subject to the terms
and conditions of this Agreement, the Holding Company hereby agrees to
indemnify, defend and hold Seller harmless from and against all Damages asserted
against or incurred by Seller arising out of or resulting from:
a. a breach by the Holding Company of any representation,
warranty or covenant of the Holding Company contained therein or in any schedule
or certificate delivered hereunder;
b. the Holding Company's failure to satisfy any liability of
the Acquired Company arising from events or occurrences after the Closing Date;
or
c. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.02.
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SECTION 9.03 CONDITIONS OF INDEMNIFICATION. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (and, in any event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. Except as set forth in Section 4.04, the failure to promptly deliver
a Claim Notice shall not relieve the Indemnifying Party of its obligations to
the Indemnified Party with respect to the related Third Party Claim except to
the extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article 9 with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Third Party
Claim.
b. If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section. The Indemnifying Party shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party (it being understood and
agreed that if an Indemnified Party takes any such action that is prejudicial
and causes a final adjudication that is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations hereunder with respect
to such Third Party Claim). If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party
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and the Indemnified Party, and the Indemnified Party has been advised by counsel
that there may be one or more legal defenses available to it that are different
from or additional to those available to the Indemnifying Party, then the
Indemnified Party may employ separate counsel at the expense of the Indemnifying
Party, and upon written notification thereof, the Indemnifying Party shall not
have the right to assume the defense of such action on behalf of the Indemnified
Party; provided further that the Indemnifying Party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the Indemnified Party, which firm
shall be designated in writing by the Indemnified Party.
c. If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 9.03(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 9.03(b) but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided; however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article 9 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnifying Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9.03(b), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
d. In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within sixty (60) days from its receipt
26
<PAGE>
of the Indemnity Notice that the Indemnifying Party disputes such claim, the
claim specified by the Indemnified Party in the Indemnity Notice shall be deemed
a liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, and if the parties do not reach a
settlement of such dispute within thirty (30) days after notice of a dispute is
given, any such dispute shall be submitted to arbitration in Tampa, Florida to a
member of the American Arbitration Association mutually appointed by the
Indemnified and Indemnifying Parties (or, in the event the Indemnified and
Indemnifying Parties cannot agree on a single such member, to a panel of three
members selected in accordance with the rules of such Association), who shall
promptly arbitrate such dispute in accordance with the rules of such Association
and report to the parties upon such disputed items, and such report shall be
final, binding and conclusive on the parties. Judgment upon the award by the
arbitrator(s) may be entered in any court having jurisdiction. The prevailing
party in any such arbitration may, as determined by the arbitrator or
arbitrators in his or their discretion, recover from, and have paid by, the
other party hereto, all fees and disbursements of such arbitrator or arbitrators
and reasonable attorney's fees, costs and expenses incurred by the prevailing
party in such arbitration.
e. Payments of all amounts owing by an Indemnifying Party
pursuant to this Article 9 relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by an Indemnifying
Party pursuant to Section 9.03(d) shall be made within thirty (30) days after
the later of (i) the expiration of the sixty (60) day Indemnity Notice period or
(ii) the expiration of the period for appeal, if any, of a final adjudication or
arbitration of the Indemnifying Party's liability to the Indemnified Party under
this Agreement.
SECTION 9.04 EXCLUSIVITY OF REMEDIES. The remedies provided in this
Agreement shall be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity; provided however such
remedies shall not be exclusive as to any claim based on fraud. This Article 9
regarding indemnification shall survive Closing.
SECTION 9.05 COSTS, EXPENSES AND LEGAL FEES. Each party hereto agrees
to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of the
terms of this Agreement, or (b) proving that another party breached any of the
terms of this Agreement.
27
<PAGE>
ARTICLE X
NOTICES
SECTION 10.01. PROCEDURE FOR GIVING NOTICES. Any and all notices or
other communications required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered (excluding telephone facsimile and
including receipted express courier and overnight delivery service) or mailed by
first class certified U.S. mail, return receipt requested showing name of
recipient, addressed to the proper party.
SECTION 10.02. ADDRESSES FOR NOTICES. For purposes of sending notices
under this Agreement, the addresses of the parties are as follows:
As to the Acquired Company H. Ralph Cole
and the Seller T.E.A.M., Inc.
6702 Benjamin Road
Tampa, Florida 33634
Copy To: Name/title: N/A
-----------------------
Address:
--------------------------
--------------------------
As to the Holding Company: Mark Cobb, President
P.O. Box 172574
Tampa, Florida 33672
Copy to: Kathleen Bickelhaupt, Esq.
Shumaker, Loop & Kendrick
101 East Kennedy Blvd. Suite 2800
Tampa, Florida 33602
SECTION 10.03. CHANGE OF ADDRESS. A party may change its address for
notices by sending a notice of such change to all other parties by the means
provided in Section 9.01.
SECTION 10.04. NOTICES TO THE ACQUIRED COMPANY BY THE HOLDING COMPANY
AFTER CLOSING. Any notice required or permitted by this Agreement to be given to
the Acquired Company by the Holding Company after the Closing shall be given by
the Holding Company to the Seller.
ARTICLE XI
LEGAL AND OTHER COSTS
SECTION 11.01. PARTY ENTITLED TO RECOVER. In the event that any party
(the "Defaulting Party") defaults in his or its obligation under this Agreement
and, as a result thereof, the other party (the "Non-Defaulting Party") seeks to
legally enforce his or its rights hereunder against the
28
<PAGE>
Defaulting Party (whether in an action at law, in equity or in arbitration),
then, in addition to all damages and other remedies to which the Non-Defaulting
Party is entitled by reason of such default, the Defaulting Party shall promptly
pay to the Non-Defaulting Party an amount equal to all reasonable costs and
expenses (including reasonable attorneys' and expert witness fees) paid or
incurred by the Non-Defaulting Party in connection with such enforcement.
SECTION 11.02. INTEREST. In the event the Non-Defaulting Party is
entitled to receive an amount of money by reason of the Defaulting Party's
default hereunder, then, in addition to such amount of money, the Defaulting
Party shall promptly pay to the Non-Defaulting Party a sum equal to interest on
such amount of money accruing at the rate of 1.5% per month during the period
between the date such payment should have been made hereunder and the date of
the actual payments thereof, unless otherwise adjudicated by court order,
arbitration or mediation agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. EFFECTIVE DATE. The effective date of this Agreement
shall be June 7, 1999, subject to any conditions set forth herein.
SECTION 12.02. ENTIRE AGREEMENT. This writing constitutes the entire
agreement of the parties with respect to the subject matter hereof, superseding
all prior oral or written agreements, understandings, representations and
warranties.
SECTION 12.03. WAIVERS. No waiver of any provision, requirement,
obligation, condition, breach or default hereunder, or consent to any departure
from the provisions hereof, shall be considered valid unless in writing and
signed by the party giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
SECTION 12.04. AMENDMENTS. This Agreement may not be modified, amended
or terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto and amendment, modification or
alteration of, addition to or termination of this Agreement or any provision of
this Agreement shall not be effective unless it is made in writing and signed by
the parties.
SECTION 12.05. CONSTRUCTION. This Agreement has been negotiated by the
parties, section by section, and no provision hereof shall be construed more
strictly against one party than against the another party by reason of such
party having drafted such provision. The order in which the provisions of this
Agreement appear are solely for convenience of organization; and later appearing
provisions shall not be construed to control earlier appearing provisions.
SECTION 12.06. INVALIDITY. It is the intent of the parties that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable
29
<PAGE>
law. If any provision hereof shall be prohibited, invalid, illegal or
unenforceable, in any respect, under applicable law, such provision shall be
ineffective to the extent of such prohibition, invalidity or non enforceability
only, without invalidating the remainder of such provision or the remaining
provisions of this Agreement; and, there shall be substituted in place of such
prohibited, invalid, illegal or unenforceable provision a provision which nearly
as practicable carries out the intent of the parties with respect thereto and
which is not prohibited and is valid, legal and enforceable.
SECTION 12.07. MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be an original and, taken
together, shall be deemed one and the same document.
SECTION 12.08. ASSIGNMENT, PARTIES AND BINDING EFFECT. This Agreement,
and the duties and obligations of any party shall not be assigned without the
prior written consent of the other party(ies). This Agreement shall benefit
solely the named parties and no other person shall claim, directly or
indirectly, benefit hereunder, express or implied, as a third-party beneficiary,
or otherwise. Wherever in this Agreement a party is named or referred to, the
successors (including heirs and personal representative of individual parties)
and permitted assigns of such party, if any, shall be deemed to be included, and
all agreements, promises, covenants and stipulations in this Agreement shall be
binding upon and inure to the benefit of their respective successors and
permitted assigns.
SECTION 12.09. ARBITRATION. Unless a court of competent jurisdiction
shall find that a particular dispute or controversy cannot, as a matter of law,
be the subject of arbitration, any dispute or controversy arising hereunder,
other than suit for injunctive relief which can be granted only by a court of
competent jurisdiction, shall be settled by binding arbitration in Tampa,
Florida, by a panel of three arbitrators in accordance with the rules of the
American Arbitration Association; provided, that the rules of discovery of the
U.S. District Court with jurisdiction of the state of the arbitration shall
apply. Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties may pursue all other remedies
with respect to any claim that is not subject to arbitration.
Section 12.10. JURISDICTION AND VENUE. Any action or proceeding for
enforcement of this Agreement and the instruments and documents executed and
delivered in connection herewith which is determined by a court of competent
jurisdiction not, as a matter of law, to be subject to arbitration as provided
in Section 12.09 or which seeks injunctive relief shall be brought and enforced
in the courts of the State of Florida in and for Hillsborough County and in the
United States District Court for the Middle District of Florida, Tampa Division,
and the parties irrevocably submit to the jurisdiction of each such court in
respect of any such action or proceeding.
Section 12.11 "BEST KNOWLEDGE" means, with respect to Acquired Company
or Holding Company, the actual knowledge of their respective executive officers
after they have made due and diligent inquiry as to the matters that are the
subject of such representations and warranties
30
<PAGE>
and, with respect to Seller, the actual knowledge of Seller after he has made
due and diligent inquiry as to the matters that are the subject of such
representations and warranties.
12.11. APPLICABLE LAW. This Agreement and all amendments
thereof shall be governed by and construed in accordance with the law of the
State of Florida applicable to contracts made and to be performed therein (not
including the choice of law rules thereof).
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be signed by their respective officers thereunto duly authorized
and their respective corporate seals to be hereunto affixed, the day and year
first above written
[Corporate Seal] USA Digital, Inc.
Attest: _________________________ By: _____________________________
Secretary or Assistant Secretary Mark D. Cobb, President
[Corporate Seal] Telephone Engineering and Maintenance, Inc.
Attest: _________________________ By: _____________________________
Secretary or Assistant Secretary H. Ralph Cole, President
Witness Seller
__________________________________ __________________________________
H. Ralph Cole
31
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this __ day of August, 1999, by and between Telephone Equipment And Maintenance,
Inc., (the "Company"), a Florida corporation, whose principal place of business
is located at 6702 Benjamin Road, Tampa, Florida 33634, and H. Ralph Cole
("Executive"), an individual, whose address is 13920 Pepperel Drive, Tampa,
Florida 33624.
WITNESSETH:
WHEREAS, the Company recognizes the experience and knowledge of the
Executive in the telephone interconnect industry, and wishes to retain the
valuable services of the Executive,
WHEREAS, the Executive wishes to accept employment with the Company
under the terms and conditions set forth herein; and
WHEREAS, Executive is uniquely experienced and qualified to perform
certain employment services for Company, and the value of the services to be
provided by the Executive are considered to be so unique and vital to the
Company's business, that the parties are entering into this Agreement which
provides generous consideration for the Executive, performance obligations for
the Executive and protective covenants for the Company and Executive; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, and intending to be legally bound hereby, Company
and Executive agree as follows:
1. OFFICE AND DUTIES:
1.1 For the term of this Agreement as herein defined, Company
hereby employs, engages and hires Executive to serve as President of the
Company. The Executive shall have the powers and shall perform the specific
duties as set forth on the job description attached hereto as Attachment "A",
and such other duties as delegated to Executive the C.E.O. of the Company. The
Executive hereby agrees to such employment. It is hereby agreed between the
parties that primary responsibility for the supervision of the Executive shall
rest with the C.E.O. of the Company, who shall review the Executive's
performance annually, make upward adjustment's to Executive's compensation and
award such other bonuses and employee benefits as he shall deem appropriate and
as set forth in this Agreement.
1.2 To assist Executive in performing Executive's duties, the
Company shall ensure that Executive is provided, in a timely manner, all
reasonable resources necessary for the accomplishment of Executive's duties
2. TERM AND TERMINATION. This Agreement shall be effective August _,
1999 ("Effective Date"), and shall remain in full force and effect for five
(5)years from the Effective Date, unless the Agreement is terminated sooner by
the parties pursuant to subsection 2.1 or 2.2 below.
<PAGE>
2.1 Termination With Cause. This Agreement may be terminated
by the Company of the Executive for the following: (a) upon the other party's
material default or breach of any of its obligations hereunder, if such default
or breach remains uncorrected for a period of fifteen (15) days after the
receipt by the defaulting party of written notice of such default or breach; (b)
upon the gross negligence or willful misconduct of the other party during the
term of this Agreement, which is materially damaging to the Company or
Executive, if such gross negligence or misconduct remains uncorrected for a
period of fifteen (15) days after the receipt by the Company or Executive of
written notice of such negligence or misconduct; (c) upon the conviction of the
Company or the Executive during the term of this Agreement of a crime involving
breach of trust or moral turpitude; In the event that the Company discharges the
Executive alleging "cause" under this Section 2.1, such notice of discharge
shall be accompanied by a written and specific description of the circumstances
alleging such "cause". Further, in the event that the Company discharges the
Executive alleging "cause" under this Section 2.1, and it is subsequently
determined judicially that the termination was "without cause", then such
discharge shall be deemed a discharge without cause subject to the provisions of
Section 2.2 hereof.
2.2 Termination Without Cause. The Company or the Executive
may, upon sixty (60) days prior written notice to the other party, terminate
this Agreement without cause at any time during the term of this Agreement. If
the Company terminates the Executive without cause, the Company shall pay the
Executive, as liquidated damages in lieu of all other claims arising directly
out of the Executive's employment, an amount equal to the Base Salary which
would otherwise be payable to Executive for the remaining term of the Agreement,
plus any bonuses which the Executive would have earned if the Executive had
remained employed by the Company through the end of the bonus period then in
effect, based upon a reasonable extrapolation of the financial statements of the
Company at the time of such termination. Any such payments shall, at the option
of the Company, be made either in equal bi-weekly installments over the
remaining term of this Agreement, or in a lump sum cash payment on the date of
termination. Further, upon termination of the Executive without cause, all
benefits of the Executive which are in effect at the time of such termination
shall remain in full force and effect through the end of the original term of
this Agreement. The Liquidated damages payments and benefits due to the
Executive if terminated without cause as set forth above, are hereby
unconditionally guaranteed in full by USA Digital, Inc., the parent corporation
to the Company.
2.3 Effect of Termination. In the event of any expiration or
termination of this Agreement, such expiration or termination shall not effect
any of the obligations of any party arising prior to the date of such expiration
or termination, nor shall such expiration or termination effect any allegations,
representations, promises or covenants contained herein which are expressly made
to extend beyond the term of this Agreement. The Executive shall resign from any
office that the Executive may hold in the Company, and shall cooperate in the
transfer of Executive's work responsibilities to such consultants or employees
of Company as may be designated by the Company.
2
<PAGE>
3. COMPENSATION.
3.1 Base Salary. For all services rendered hereunder during
the term of this Agreement, the Executive shall be paid an annual base salary
("Base Salary") of Ninety-Thousand Dollars ($90,000) per year. The Company and
the Executive agree that such base salary is reasonable and is based upon the
fair market rate in the marketplace for similar services by similarly qualified
executives. The Base Salary shall be paid in bi-weekly installments in
accordance with the Company's usual payroll practices. The Executive shall also
be eligible to receive an annual bonus based upon specific Company financial
performance criterion to be mutually developed by the parties.
3.2 Benefits. During the term of this Agreement, the Executive
will be entitled to those executive benefits as set forth on Attachment "B" to
this Agreement, plus any other benefits consistent with personnel policies and
procedures which now exist or which may be developed for similar executive
employees during the term of this Agreement.
3.3 Vacation. Executive shall be entitled to three (3) weeks
annual vacation leave with pay. Vacation shall be scheduled at reasonable times
not in conflict with Executive's duties hereunder.
4. EXECUTIVE REPRESENTATIONS. Executive represents to Company that:
4.1 There are no restrictions, agreements or understandings
whatsoever to which Executive is a party that would prevent or make unlawful the
Executive's execution of this Agreement or the Executive's employment hereunder.
4.2 Executive's execution of this Agreement and Executive's
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Executive is a party or by which
Executive is bound.
4.3 Executive will at all times faithfully, industriously and
to the best of Executive's ability, experience and talents perform all of the
duties that may be required of Executive pursuant to the express and implied
terms of this Agreement.
5. CONTEMPORANEOUS BUSINESS ACTIVITY. In order to assure the
consistency of services provided by Executive, Executive agrees, during the
effective terms of this Agreement, that Executive shall devote such full-time
attention to the performance of the Executive's duties under this Agreement as
necessary to ensure Executive's full and complete compliance with Executive's
covenants under this Agreement.
6. NON-COMPETITION/DISCLOSURE.
6.1 Non-Competition. During the term of this Agreement, the
Executive shall not without the prior written permission of the Company: (a)
Directly or indirectly induce or attempt to influence any of Company's employees
or other staff, including but not limited to Company's agent, representatives
and independent contractors, to terminate their relationship
3
<PAGE>
with the Company; (b) Directly or indirectly induce or attempt to influence any
of the Company's business associates, clients, customers, consultants or
referral sources to terminate their relationship with the Company; (c) Divert or
take away any corporate business or professional opportunity of Company that the
Executive may become aware of during the term of this Agreement, whether
competitive or not competitive; (d) Engage in or have any interest in any sole
proprietorship, partnership, corporation or other business or be employed by or
work for any other person or business entity (whether as employee, officer,
director, partner, agent, security holder, consultant or otherwise) that
directly or indirectly engages primarily in a business in competition with the
Company.
6.2 Non-disclosure. Executive, by virtue of Executive's
employment, has been and will continue to be introduced to confidential and/or
proprietary information concerning the Company and its operations. Because
unauthorized disclosure of such confidential and/or proprietary information will
harm the Company, the Executive shall not, except with the Company's express,
prior written consent, directly or indirectly, communicate, disclose, divulge or
use, for the benefit of any person or entity other than the Company, any
information regarding the business, customer and/or client lists of Company or
any other knowledge or information whether confidential or proprietary of or
about the Company acquired by the Executive during the term of this Agreement.
This Executive further agrees that all work product produced by the Executive
during the term of Executive's employment shall remain the property of the
Company, and may not reproduced or communicated, disclosed or divulged to any
person or entity other than the Company.
6.3 Remedies. The Executive agrees that the Company's remedies
at law for the Executive's breach of any of these non-competition/non-disclosure
provisions are inadequate and that the Company may seek relief in equity by way
of an injunction restraining any violation of the non-competition/non-disclosure
provisions by the Executive. If any period of time or geographic area relative
to these non-competition/non-disclosure provisions should be adjudged to be
unreasonable in any proceedings, then the period of time or geographic area
shall be reduced by such amount of time or distance so that such restrictions
may be enforced for such time or geographic area as is adjudged to be reasonable
by a court of competent jurisdiction.
7. MISCELLANEOUS.
7.1 Indulgences, Etc. The failure or any delay on the part of
the Executive or Company to exercise any right, remedy, power or privilege under
this Agreement shall not operate as a waiver thereof. A single or partial
exercise of any right, remedy, power or privilege shall not preclude any further
exercise of the same or of any other right, remedy, power or privilege. A waiver
of any right, remedy, power or privilege with respect to any occurrence shall
not be construed as a waiver of such right, remedy, power or privilege with
respect to any other occurrence.
7.2 Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance and enforcement shall be governed
by and construed in accordance with the laws of the State of Florida.
4
<PAGE>
7.3 Notice. All notices, requests, demands and other
communications required or permitted under this Agreement and transactions
contemplated herein shall be in writing and shall be deemed to have been duly
given, made and received when delivered against receipt or when sent by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed as set forth below in subparagraphs (a) and (b). In addition, notice
by mail shall be air mail if posted outside the continental United States.
Executive and Company may alter the address to which communications of copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(a) If to Company:
USA Digital, Inc.
P.O. Box 172574
Tampa, Florida
Attn: Mark D. Cobb
(b) If to Executive:
Ralph Cole
13920 Pepperel Drive
Tampa, Florida 33624
7.4 Binding Nature of Agreement. This Agreement shall be
binding upon and inure to the benefit of Company and its successors and assigns
and shall be binding upon and inure to the benefit of Executive, and Executive's
heirs and legal representatives.
7.5 Provisions Separable. The provisions of this Agreement are
independent of and separable from each other. No provision shall be rendered
invalid or unenforceable by virtue of the fact that for any reason, any one or
more of them may be invalid or unenforceable in whole or in part.
7.6 Entire Agreement. This Agreement contains the entire
understanding between Company and Executive with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance or usage of the trade or professions inconsistent with any
of the terms hereof. This Agreement may not be modified or amended other than by
any agreement in writing.
7.7 Section Headings. The section headings in this Agreement
are for convenience only and form no part of this Agreement and shall not affect
its interpretation.
7.8 Gender, Etc. Words used in this Agreement, regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context requires.
7.9 Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sunday or holidays; provided,
5
<PAGE>
however, that if the final day of any time period falls on a Saturday, Sunday or
holiday, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or holiday.
7.10 Counterparts. This Agreement may be executed two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one and the same Agreement.
7.11 Assignment. No assignment by Executive of this Agreement
or the rights and obligations hereunder shall be valid without the specific
written consent of Company, which consent may be arbitrarily withheld. This
Agreement may be assigned by the Company to an entity under its control,
directly or indirectly, or the control of its principals without the consent of
the Executive, provided Executive's security herein is not impaired by the
assignment.
7.12 Construction. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted.
IN WITNESS WHEREOF, the parties hereto have executed this agreement or
caused their duly authorized representatives to execute this Agreement on the
day first stated above. COMPANY:
TELEPHONE EQUIPMENT AND MAINTENANCE, INC.
By:
---------------------------
------------------------------
H. RALPH COLE
6
<PAGE>
ATTACHMENT "A"
JOB DESCRIPTION
(TO BE DEVELOPED)
7
<PAGE>
ATTACHMENT "B"
(EXECUTIVE BENEFITS)
1. Executive shall be entitled to receive a monthly car allowance in
the amount of $1,000.
2. Executive shall have an unaccountable expense account, not to exceed
$1,500 monthly.
8
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Telephone Engineering and Maintenance, Inc.
DSA Computers, Inc.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form 10-SB of USA Digital, Inc. our review
report for the period from March 31, 1999 to June 30, 1999 dated August 3, 1999
relating to the financial statements of USA Digital, Inc. which appear in such
Form 10-SB.
WEINBERG & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
September 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001094563
<NAME> USA DIGITAL
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,676
<SECURITIES> 0
<RECEIVABLES> 70,943
<ALLOWANCES> 0
<INVENTORY> 752,873
<CURRENT-ASSETS> 143,459
<PP&E> 269,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,165,842
<CURRENT-LIABILITIES> 311,180
<BONDS> 0
2,722
0
<COMMON> 335,604
<OTHER-SE> (374,339)
<TOTAL-LIABILITY-AND-EQUITY> 1,165,842
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 160,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (160,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,370)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
