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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 000-27821
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LAKOTA TECHNOLOGIES, INC.
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4828 LOOP CENTRAL DRIVE, SUITE 150 HOUSTON, TEXAS 77081
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713) 838-8853
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1999 were
$257,316.
As of March 3, 2000, the aggregate market value of the registrant's
common stock (based on the closing sales price for the common stock as reported
on the OTC Bulletin Board on such date) held by non-affiliates of the registrant
was approximately $117,002,678. (Aggregate market value has been estimated
solely for the purpose of this report. For the purpose of this report it has
been assumed that all officers and directors are affiliates of the registrant.
The statements made herein shall not be construed as an admission for the
purposes of determining the affiliate status of any person.) As of March 3,
2000, the registrant had 63,501,339 shares of common stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
Documents incorporated by reference:
None.
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TABLE OF CONTENTS
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PART I ............................................................................................... 3
ITEM 1. DESCRIPTION OF BUSINESS .............................................................3
ITEM 2. DESCRIPTION OF PROPERTY .............................................................9
ITEM 3. LEGAL PROCEEDINGS ...................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................................9
PART II 9 ............................................................................................9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ............................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ..........................13
ITEM 7. FINANCIAL STATEMENTS ...............................................................15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE. ............................................15
PART III 15 ..........................................................................................15
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS ...................................................15
ITEM 10. EXECUTIVE COMPENSATION ............................................................16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .............................................................17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................................18
SIGNATURES ...........................................................................................21
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING INFORMATION
In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company notes that certain
statements in this Form 10-KSB and elsewhere which are forward-looking and which
provide other than historical information, involve risks and uncertainties that
may impact the Company's results of operations. These forward-looking statements
include, among others, statements concerning the Company's general business
strategies, financing decisions, and expectations for funding capital
expenditures and operations in the future. When used herein, the words
"believe," "plan," "continue," "hope," "estimate," "project," "intend,"
"expect," and similar expressions are intended to identify such forward-looking
statements. Although the Company believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no statements
contained in this Form 10-KSB should be relied upon as predictions of future
events. Such statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and may be incapable of being
realized. The risks and uncertainties inherent in these forward-looking
statements could cause actual results to differ materially from those expressed
in or implied by these statements.
Important risk factors that could cause actual results to differ
materially from the expectations reflected in any forward-looking statement
herein include among other things: (1) the ability of the Company to quickly
penetrate the market with its current method of technology against larger,
well-financed competitors within the marketplace; (2) the ability of the Company
to generate revenues is substantially dependent upon continued growth in the use
of the Internet and the infrastructure for providing Internet access and
carrying Internet traffic; (3) the ability of the Company to attract and retain
key officers, knowledgeable sales and marketing personnel and highly trained
technical personnel; (4) to the extent that our activities or third-party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers, or personal data information, the ability of the
Company to reduce exposure to a risk of loss or litigation and possible
liability; (5) the ability of the Company to minimize expenses and exposures
related to oil and gas properties in which other Companies have control over the
manner in which operations are conducted on such properties, including
compliance with safety and environmental standards; (6) the ability of the
Company to obtain additional financing from public and private equity markets to
fund operations and future growth; and (7) the ability of the Company to
generate revenues to cover operating losses and position the Company to achieve
positive cash flow.
Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The information contained in this Form 10-KSB is believed by the Company
to be accurate as of the date hereof. Changes may occur after that date, and the
Company will not update that information except as required by law in the normal
course of its public disclosure practices.
THE COMPANY OVERVIEW
The Company, through the operations of it's wholly owned subsidiaries,
has diversified into two very distinct business sectors. The primary business is
involved in the technology sectors of Internet access and voice and data product
sales and services. The secondary business, which the Company has been involved
in since 1995, is oil and gas exploration and operations.
In May and June 1999, the Company acquired two entities that provided
the entrance into the technology sector. The Company's subsidiary,
2-Infinity.com, Inc., is a provider of digital bundled services to the
commercial and residential market. Current services include digital subscriber
line (DSL), Internet protocol (IP), virtual private networking (VPN) and real
private networking (RPN). Digital cable and RPN are projected for release in the
3rd quarter of 2000. A predecessor business that has been merged into
2-Infinity.com., AirNexus, Inc., is a retail provider of commercial voice and
data products and services with an emphasis on LAN based telephony solutions.
2-Infinity.com, as a result of this merger, now possesses a direct
sales force to market digital bundled services to commercial building tenants.
2-Infinity and AirNexus merged on January 27, 2000 and formed the "2-I Voice
Solutions" division to continue the business formerly conducted by AirNexus.
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The Company's subsidiary, Lakota Oil and Gas, Inc., has historically
invested in oil and gas exploration projects with joint partners.
HISTORICAL BUSINESS AND EVOLUTION OF THE BUSINESS STRATEGY
On November 14, 1995, the Company formed Lakota Energy, Inc. ("Lakota
Energy") in the State of Colorado for the purpose of engaging in oil and gas
exploration and operations. On November 6, 1996, Lakota Energy was merged with
and into Chancellor Trading Group, Inc., a Colorado corporation. As part of the
merger agreement, Chancellor issued 9,187,500 shares to the shareholders of
Lakota Energy in exchange for 4,593,750 shares of Lakota Energy common stock and
an additional 118,000 shares were issued to third parties who assisted in
closing the transaction. Chancellor was a publicly traded corporation and had no
significant operations prior to the merger with the Company. Immediately
following the merger, the shareholders of Chancellor approved the name change to
Lakota Energy, Inc.
Historically, the strategic plan of the Company was to participate in
oil and gas exploration projects that have been developed by other successful,
well-financed companies. The Company narrowed its interest to projects in
certain confined geological areas, primarily in Texas and Louisiana, since they
were able to work with consultants that were familiar with the nuances of these
geological provinces. However, as a result of continued losses from these
ventures, the Company decided to diversify into other markets, primarily
technology and the Internet.
On August 4, 1999, the Company changed its name to Lakota Technologies,
Inc. to further promote its new diversified strategies.
On May 28, 1999, the Company acquired all of the outstanding stock of
2-Infinity.com, Inc. ("2-Infinity"), a Texas corporation. As consideration for
the acquisition, the Company issued 3,000,000 shares of its common stock to
Majed Jalali, the sole shareholder of 2-Infinity. The acquisition of 2-Infinity
triggered the beginning of the Company's desire to diversify into the technology
and Internet markets. 2-Infinity offers digital bundled services, focusing on
the Texas market during the next 12 months, and with plans to expand into six
additional markets in the near future.
On June 8, 1999, the Company acquired Voice Design, Inc., a Texas
corporation which later changed its name to AirNexus, Inc. ("AirNexus"). As
consideration for the acquisition, the Company issued 3,000,000 shares of its
common stock and $60,000 cash to the owners of AirNexus. This acquisition of a
Houston-based provider of business telephone and voice mail systems furthered
the business strategy to diversify into technology and Internet markets. The
Company also resells equipment manufactured by third parties, such as 3Com,
Panasonic and Estech Systems, Inc. through its 2-I Voice Solutions division.
Currently, 2-I Voice Solutions has approximately 130 customers.
On June 9, 1999, the Company organized a wholly owned Texas corporation
named Lakota Oil and Gas, Inc. ("Lakota Oil"). Subsequently, on June 14, 1999,
the Company transferred its interest in two oil exploration projects, which
constituted all of the Company's oil and gas related assets at the time, to
Lakota Oil. The purpose of forming Lakota Oil was to organize the oil and gas
related business into one operating subsidiary, separate and distinct from the
other operating subsidiaries, in order to more accurately reflect the
diversified operations. The Company is currently reviewing all existing
interests in oil and gas related projects and determining its strategy and
related prospects for the year 2000.
On January 18, 2000, the Company entered into an agreement with the
majority shareholders of AGM, Inc., a Nevada corporation ("AGM"), pursuant to
which the Company issued 2,200,000 shares of common stock to acquire 100% of
AGM. The Company acquired AGM in order to become a reporting company with the
SEC. As part of the acquisition, the Company elected to have successor issuer
status under Rule 12g-3 of the Securities Exchange Act of 1934, to be a SEC
reporting entity.
On January 27, 2000, AirNexus and 2-Infinity merged, with 2-Infinity
being the surviving corporation. Although the merger is expected to result in a
reduced amount of overhead expenses, it is not expected to have a material
effect on operations. The voice and data products and services originally sold
by AirNexus now constitute the 2-I Voice Solutions division.
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INDUSTRY OVERVIEW.
The DSL industry is still in its infancy. Industry analysts estimate
that there are less than 1 million DSL subscribers nationwide. Projections
estimate an approximate 180 percent growth rate by the end of year 2000.
Therecent Telecommunications Act of 1996 and the demand for a cost-effective
solution for high-speed dedicated access have spawned a new bread of Competitive
Local Exchange Carriers (CLECs). These new facility-based providers known as
data CLECs are leveraging DSL to obtain market share and increase margins.
Companies such as Covad, Rhythms and Northpoint have deployed DSL networks in
more than 25 major US cities. As a result, traditional local Internet service
providers have forged agreements to resell DSL services in an attempt to
increase margins and curtail the high rate of churn amongst existing dial-up
customers.
We anticipate the market for new DSL technologies will increase. The
Company believes the amount of data business and residential customers pass
across the Internet will be a major growth factor. Another is the recent surge
in telecommuters who demand broadband access to support desktop voice, data and
video applications. An effect of the 1996 Telecommunications Act has been an
increase of companies ready to deliver services to this market. Incumbent local
exchange carriers (ILECs), interexchange carriers (IXCs), Internet service
providers (ISPs), CLECs, and satellite and cable companies have restructured to
meet the demand. The need for affordable broadband transmission rates, and a
competitive telecom service environment all contribute to making DSL attractive.
DSL will dramatically increase the speed of copper wire-based transmission
systems without a major overhaul to the existing telephone infrastructure. New
DSL services are in the process of development that will require lower capital
requirements and generate a higher return on investment.
The recent trend of converging voice and data is reshaping the telecom
industry. National and local telephone equipment resellers have seen the demand
for integrated systems continue to grow. Traditional voice solution providers
have been slow to incorporate the newer technology into their product lines.
Data value added resellers (VARs) and network integrators have historically
remained isolated from voice services. With the introduction of Voice over IP
and Computer Telephony, network integrators have been drawn into the demand to
provide integrated applications. Today's voice solution providers are required
to be versed in network topology and telephone application programming interface
(TAPI).
Tomorrow's business phone systems will integrate with PCs and networks
and provide the highest level of integration between voice and data.
Manufacturers such as 3COM, Cisco, Nortel and AT&T have already unveiled their
versions of integrated solutions. Today's businesses have the ability to route
voice traffic across multiple broadband technologies. The corporate intranet
must be robust enough to support the bandwidth requirements of integrated
business phone systems.
The demand for LAN based business phone systems will continue to
generate phenomenal growth in the telecom industry. Resellers are now able to
offer organizations with multiple locations a true voice and data intranet for a
minimum monthly expense. As the cost of expensive leased network lines continues
to drop, small businesses are able to take advantage of technology and compete
at higher levels.
THE MARKET
High Speed Internet Access
2-Infinity has entered into a Channel Partners Agreement with Tut
Systems, Inc., which gives us the non-exclusive right to sell Tut System's
products. Under the terms of that agreement, 2-Infinity has the right to
purchase Tut's products at prices according to regularly published price lists
from Tut Systems and re-sell them to their customers. There are no limits on the
re-sale prices 2-Infinity can charge on the products. The agreement is
automatically renewed for successive one year terms, but can be terminated by
either party on 90 days notice or by Tut Systems if 2-Infinity fails to purchase
a minimum of $1,000,000 in products per year.
Tut's is in the business of delivering plug-and-play network solutions
across standard telephone lines. Tut's products deliver high-speed data over
normal telephone wires using their FastCopper -TM- technology. Tut's products
are easy to install and use, providing customers with a dedicated connection 24
hours a day, while still allowing full use of the telephone line for voice use.
More importantly, Tut's products require no additional wiring or modifications
to
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the telephone lines. Through the Channel Partners Agreement, 2-Infinity can
offer its clients Tut's-enhanced Internet access at what we believe to be a
very reasonable price.
2-Infinity will market the Tut's products through existing contacts and
personal introductions, and is seeking to enter into agreements with the owners
and managers of multi-dwelling units, such as commercial properties, apartment
complexes, hotels, high rise apartment buildings, and residential developers to
become the Internet service provider for the entire developments.
2-Infinity offers its digital bundled services in two different
packages. The first option allows the subscriber to rent equipment monthly on
a low cost-per-unit basis. The second option allows the subscriber to
purchase the equipment. In addition to the basic high speed Internet access,
subscribers can purchase services including:
-- Local dial tone
-- Voice over IP
-- Creation of web sites
Voice and Data Products and Services
2-I Voice Solutions continues to market the 3COM NBX 100 LAN based
business phone system. INTERNET TELEPHONY magazine deemed the NBX 100
communications system one of the "Products of the Year." In November 11, 1999,
PC MAGAZINE awarded the NBX 100 communications system with the "1999 Technical
Excellence Award." Because the NBX 100 uses standard network cabling to support
voice traffic, it affords businesses the ability to consolidate voice, video and
data on one single cable. We believe computers, telephone networks and the
Internet to be integrated in a more functional manner.
Under the terms of an agreement between 3COM and the Company, the
Company has the non-exclusive rights to license and distribute specific 3COM
products in Houston, Texas and surrounding areas. 3COM may terminate the
agreement under certain circumstances, including after our breach of the
agreement or our failure to purchase a minimum of $200,000 of product per year.
The target market for 2-I Voice Solutions are businesses between 20-100
employees. This sector of the market typically does not have a systems manager
or network administrator on staff and requires outsourcing of the expertise to
maintain these services. A high percentage of these companies have a network in
place and are receptive to new advancements and technology. We intend to provide
this sector with a convenient and easily acceptable avenue to outsource voice,
data and Internet services by utilizing our product line and by continually
seeking business solutions the customer desires.
We obtain leads for potential customers in the following ways:
-- Manufacturers provide leads from their customers;
-- Internal sales force;
-- Outside telemarketers are utilized;
-- Referrals from existing customers;
-- Marketing lists are purchased;
-- Yellow Pages advertising; and
-- Print advertising.
All leads are given to individual account managers to follow-up with
each customer. Once a customer has agreed to purchase the equipment and
services, 2-I Voice Solutions does the installation and provides all the
follow-up customer support.
2-I Voice Solutions has designed the following strategy intended to
make the Company a leader in the telephone marketplace:
-- Market product lines which give clients the latest features at
a discount over competing systems.
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-- Focus on LAN based business phone systems
-- Build an interactive demonstration room that provides
potential clients a hands-on approach to the products and
services.
Oil and Gas Exploration Projects and Operations
The Company is currently reviewing all existing interests in oil and
gas related projects and determining its strategy and related prospects for the
year 2000.
The Company invested in the South Halter Island Prospect, located in
St. Mary and Tennebonne Parishes, Louisiana, in which the Company is under
contract with Panaco, Inc., York Resources, Inc., Janivo Realty, Inc., and
Carson Energy, Inc., which entitles the Company to a 7.5% working interest and a
75% net revenue interest in a specific oil well. The Company's initial
investment into the project was $24,000, plus an additional $163,748, which
represented the Company's share of the operating expenses. On July 27, 1999,
this well was plugged and abandoned. The Company accrued an additional $17,772
at December 31, 1999 for it's portion of the costs to complete the plug and
abandonment of the well.
The Company invested in the Union Central Life Insurance Co. Well No.
1, located in Colorado County, Texas, in which the Company contracted with
Everest Minerals Corporation and Cummins & Walker Oil Company, Inc. The Company
owns a 20% working interest and a 75% net revenue interest in this oil well. The
Company's initial investment into the project was $57,225, plus an additional
$36,649, which represented the Company's share of the operating expenses.
Development of this well is currently ongoing.
The Company invested in the VUA: Bernard #1 Well, located in Lafayette
Parish, Louisiana, and owns a 100% working interest and a 73.74% net revenue
interest in this oil well. The Company's initial investment in this project was,
$35,000, plus an additional $55,112, which represented the operating and
work-over expenses. The Company received $8,765 for its portion of the revenue
from production in 1999. Production on the well has ceased and the Company plans
to plug and abandon the well in 2000.
COMPETITION.
The markets in which we operate are highly competitive and we believe
that competition is increasing. We may not be able to compete in those markets
effectively, especially against established industry leaders competitors with
greater marketplace presence and financial resources. The competitive
environments for our different sectors are as follows:
Internet Access and Voice and Data Product Sector
Presently, there are no direct competitors in the Houston, Texas market
to our approach to digital bundled services. However, there are many competitors
offering DSL services in the Houston, Texas market and elsewhere. For instance,
two of our competitors outside the Houston, Texas market would include CAIS
Internet, Inc. and LMKI, Inc. Additionally, we compete with many other companies
offering alternative forms of Internet access, such as coaxial cable, wireless
facilities and fiber optic cable. Lastly, we also compete with smaller, regional
Internet service providers and cable companies that operate in the same
geographical areas that we serve. The lack of substantial barriers to entry into
the Internet services market will likely result in additional competition. There
can be no assurance that the public will accept, on a widespread basis, our
products and services over the available alternatives. Likewise, it is not
certain that we will be able to compete in our current marketplace against some
of our competitors who are larger, well-financed, and currently hold stronger
market positions.
Oil and Gas Exploration Sector
All phases of the oil and gas industry are highly competitive. Our
competitors include major oil and gas companies, as well as numerous other
independent oil and gas concerns and individual producers and operators. Many of
these competitors have financial and other resources that are substantially
greater than those available to us. Oil and gas producers also compete with
other industries that supply energy and fuel.
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GOVERNMENT REGULATIONS.
Internet Access and Voice and Data Product Sector
As an Internet service provider, we are not currently subject to direct
regulation by the Federal Communications Commission ("FCC"). Nevertheless,
Internet-related regulatory policies are continuing to develop and vigorous
public debates regarding the costs and benefits of regulating the Internet have
emerged in federal, state and local legislative, executive and regulatory agency
forums. It is possible that we could be exposed to regulation in the future. For
example, the FCC has stated its intention to consider whether to regulate voice
and fax telephony services provided over the Internet as "telecommunications"
even though Internet access itself would not be regulated; and the FCC recently
initiated a Notice of Inquiry to examine this issue. The FCC is also considering
whether such Internet-based telephone service should be subject to universal
service support obligations, or pay carrier access charges on the same basis as
traditional telecommunications companies.
A decision by Congress or the FCC to regulate Internet telephony or
Internet access services may limit the growth of the Internet, increase our cost
of doing business or increase our legal exposure, any of which could cause our
revenues to decrease.
We also face government regulation regarding the content and
communications provided by third parties and carried over, or hosted on, our
facilities. For instance, we are obligated to comply with the requirements of
the Digital Millennium Copyright Act concerning responses to claims of copyright
infringement. We also are required to comply with state and federal privacy
requirements, including the Electronic Communications Privacy Act ("ECPA") and
the Children's Online Privacy Protection Act ("COPPA"). The ECPA imposes
limitations on the interception, disclosure and use of communications
transmitted over and stored on our facilities. COPPA, and the Federal Trade
Commission rules implementing that statute, requires us to safeguard personal
information that we know to be transmitted to our web site by children under 13.
We also are subject to federal and state laws that regulate the
advertising and sale of certain products and services over the Internet. In
addition to existing statutes of this kind, such as state statutes that prohibit
advertisement of gambling, a number of bills are pending in the Congress and
state legislatures that would prohibit or regulate particular marketing
practices (such as the transmission of unsolicited commercial email) or the
advertisement or sale of certain goods and services.
Oil and Gas Exploration Sector
The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
gas industry and its individual members, some of which carry substantial
penalties for the failure to comply. Because these laws and regulations are
frequently amended, reinterpreted or expanded, we are unable to predict the
future cost or impact of complying with such laws and regulations.
The production of oil and gas in Texas is regulated by The Texas
Railroad Commission, and in Louisiana, by The Louisiana Department of Natural
Resources. Both agencies have enacted various levels of regulations governing
various actions in the oil and gas industry, such as requiring permits for the
drilling of wells, maintaining bonding requirements in order to drill or operate
wells, regulating the location of wells, the method of drilling and casing
wells, the surface use and restoration of properties upon which wells are
drilling and the plugging and abandonment of wells.
Our operations are also subject to various conservation laws and
regulations. These include the regulation of the size of drilling and spacing
units or proration units and the density of wells which may be drilled and
unitization or pooling of oil and gas properties. In addition, conservation laws
establish maximum rates of production requirements regarding the ratability of
production.
Our oil and gas operations are subject to extensive federal, state and
local laws and regulations dealing with environmental protection, including, but
not limited to, the Comprehensive Environmental Response, Compensation
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and Liability Act ("CERCLA"), also known as "Superfund," and similar state
statutes. Failure to comply with these laws and regulations may result in the
assessment of administrative, civil, or criminal penalties.
Our onshore operations are subject to numerous laws and regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment. These laws and regulations, among
other things, may: impose absolute liability on the lessee under a lease for the
cost of clean-up of pollution resulting from a lessee's operations; subject the
lessee to liability for pollution damages; require suspension or cessation of
operations in affected areas; and impose restrictions on the injection of
liquids into subsurface aquifers that may contaminate groundwater. Persons who
are or were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the remediation and clean-up costs
and for damages to natural resources.
Our oil and gas operations are also subject to the Clean Water Act and
the Clean Air Act, as amended, and comparable state statutes. Our operations may
generate or transport both hazardous and nonhazardous solid wastes that are
subject to the requirements of the Resource Conservation and Recovery Act
("RCRA") and comparable state laws and regulations. In addition, we currently
own or lease, and have in the past owned or leased, properties that have been
used for oil and gas operations for many years. Although we have utilized
operating and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by us or on or under other locations where such
wastes have been taken for disposal. Many of these properties have been operated
by third parties whose operations were not under our control. These properties
and the wastes disposed thereon may be subject to CERCLA, RCRA, and analogous
state laws, and we could be required to remove or remediate previously disposed
wastes or property contamination or perform remedial plugging operations to
prevent future contamination.
EMPLOYEES.
As of April 12, 2000, the Company had 28 full-time employees. None of
our employees is covered by any collective bargaining agreement. We believe that
our relations with our employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices are located at 4828 Loop
Central Drive, Suite 150, Houston, Texas 77081, which is occupied under a lease
ending October 31, 2007 for $8,722.13 per month. At the end of such term, we
believe that we can lease the same or comparable offices at approximately the
same monthly rate.
AirNexus maintains executive offices located at 333 N. Sam Houston
Parkway East, Suite 870, Houston, Texas 77060, which they occupy under a lease
ending October 1, 2004 for $5,492.00 per month. The Company is currently
involved in negotiations to sublease this space.
Lakota Oil maintains executive offices located at 3303 FM 1960 West
Suite F, Houston, Texas 77068, which they occupy under a lease ending July 31,
2000 for $495.00 per month. At the end of such term the lease will be terminated
and all operations will move to the executive offices.
ITEM 3. LEGAL PROCEEDINGS.
The Company filed a complaint in December 1999 in the 80th District
Court of Harris County, Texas against Tiger Petroleum, Inc. and Mr. Kenny
Vincent. This claim is based on a breach of a settlement agreement entered into
by the Company and the defendants on March 25, 1999. The Company is seeking the
return of 300,000 shares of common stock, plus attorneys' fees and court costs.
Discovery has been commenced and it is anticipated that if this case is not
resolved in mediation, it will be docketed for trial in the last quarter of
2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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In January 1999 and April 1999, the Company sold an aggregate of
1,040,000 units in a private placement under Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933 to the following accredited
investors:
<TABLE>
<CAPTION>
A Warrant B Warrant
Person Shares Share Price Exercise Price Exercise Price
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<S> <C> <C> <C> <C>
Michael A. Hancock 125,000 $.10 .10 .15
Steven Morrison 125,000 $.10 .10 .15
Dipak Bhatt 750,000 $.10 .15 .20
Michael McGrey 40,000 $.09 .12 .15
</TABLE>
Each Unit consisted of one share of restricted common stock, one "A"
warrant to acquire one share of common stock within twelve (12) months from the
date of purchase, and one "B" warrant to acquire one share of common stock
within twenty four (24) months of the date of purchase.
In February 1999, the Company issued an aggregate of 1,000,000 shares
of restricted common stock under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933 to Cactus Petroleum, Inc., an entity controlled by
John B. Hayes, a former Director of the Company. These shares were issued as
consideration for the services provided pursuant to an agreement with Optima
Investments, Inc. in connection with the private placement of securities under
Rule 504 of Regulation D. Mr. Hayes assisted in the identification, negotiation,
and closing of the transaction with Optima. Mr. Hayes was also issued 300,000
shares of restricted common stock in July 1999 as consideration under a verbal
employment agreement with the Company.
In March 1999, the Company issued an aggregate of 18,520 shares of
common stock under Rule 504 of Regulation D to MRC Legal Services Corporation
(16,668 shares) and Brian Lebrecht, Esq. (1,852 shares), accredited investors
acting as securities counsel to the Company, in exchange for legal services
rendered. In July 1999, an aggregate of 75,000 shares of restricted common stock
was issued to MRC Legal Services Corporation under Section 4(2) of the
Securities Act of 1933 for legal services rendered. In September 1999, an
aggregate of 400,000 shares of restricted common stock was issued to MRC Legal
Services Corporation (300,000 shares) and Brian Lebrecht, Esq. (100,000 Shares)
under Section 4(2) of the Securities Act of 1933 for legal services rendered.
In March 1999, the Company sold $10,000 aggregate principal amount of
convertible debentures to Southwest Securities, an accredited entity under Rule
504 of Regulation D. The debenture was convertible into shares of common stock
of the Company at the discretion of the holder thereof. The entire debenture was
converted into an aggregate of 100,000 shares of common stock.
In March and April 1999, the Company issued an aggregate of 160,000
shares of common stock under Rule 504 of Regulation D to PMR & Associates, an
accredited entity providing public relations services to the Company, in
exchange for services rendered.
In March 1999, the Company sold aggregate principal amount of $550,000
aggregate principal amount of convertible debentures to the following three
individuals located outside the United States under Rule 504 of Regulation D:
10
<PAGE>
<TABLE>
<CAPTION>
Person Shares Conversion Price Range
- ------ ------ ----------------------
<S> <C> <C>
Y. L. Hirsch 3,062,609 $.05 - $.10
Amram Rothman 2,739,842 $.05 - $.10
Joshua Heimlich 1,883,130 $.05 - $.10
</TABLE>
The debentures were convertible into shares of common stock of the
Company at the discretion of the holder thereof. All of the debentures have been
converted into an aggregate of 7,685,581 shares of common stock.
In April 1999, the Company issued 1,676,429 and 1,229,643 shares of
common stock to Robert Kent Honeyman and Howard Wilson, respectively, in
exchange for deferred compensation due to them under verbal employment
agreements with the Company. The issuance was exempt under Section 4(2) of the
Securities Act of 1933.
In June 1999, the Company issued an aggregate of 3,000,000 shares at
$.38 per share of restricted common stock to Majed Jalali, the sole shareholder
of 2-Infinity.com, Inc., pursuant to the acquisition agreement between the
Company and Jalali. The issuance was exempt under Section 4(2) of the Securities
Act of 1933.
In June through November 1999, the Company issued an aggregate of
365,000 of restricted shares as follows:
<TABLE>
<CAPTION>
Person Shares Share price
- ------ ------- -----------
<S> <C> <C>
Jaime Benrey 160,000 $.12
Abraham Halpern 30,000 $.30
Donald Murray 100,000 $.30
William Kohler 20,000 $.30
Douglas Chadwick 10,000 $.10
Chrespin Noches 5,000 $.30
Michael McGrey 40,000 $.12
</TABLE>
The shareholders exercised warrants acquired in the previous unit
offering. As a result of the exercise, the Company received $79,700. The
issuance was exempt under Rule 506 and Section 4(2) of the Securities Act of
1933.
In June 1999, the Company issued an aggregate of 3,000,000 shares at
$.32 per share of restricted common stock to Patrick Cody Morgan, Charles H.
Downey, Jr. and Candus Morgan in connection with the acquisition of Voice
Design, Inc. The issuance was exempt under Section 4(2) of the Securities Act of
1933.
In July 1999, the Company sold $74,000 aggregate principal amount of
convertible debentures to HLKT Holdings, LLC, a Colorado limited liability
company, under Rule 504 of Regulation D. The debentures were ultimately
converted into an aggregate of 793,966 shares of common stock of the Company.
In July 1999, the Company issued 300,000 shares of common stock to John
B. Hayes in exchange for deferred compensation owed to him under a verbal
employment arrangement with the Company.
In July 1999, the Company issued an aggregate of 495,385 shares of
restricted common stock to Brent Cavazos, an accredited investor and litigation
counsel to the Company, in exchange for legal services rendered. The issuance
was exempt under Rule 506 and Section 4(2) of the Securities Act of 1933.
11
<PAGE>
In August 1999, the Company sold $23,500 aggregate principal amount of
convertible debentures to HLKT Holdings, LLC an accredited Colorado limited
liability company, under Rule 504 of Regulation D. The debentures were
ultimately converted into an aggregate of 391,250 shares of common stock of the
Company.
In August 1999, the Company issued $750,000 aggregate principal amount
of 8% convertible debentures exercisable at 75% of the fair market value of the
Company's common stock on the date of conversion. In addition, the Company
issued 5,000,000 warrants at an exercise price of 50% of the fair market value
of the Company's stock on the date of exercise. In addition, $250,000 of the
$750,000 of proceeds was held in escrow until all
covenants under the subscription agreements were met, including an effective
registration statement for the resale of the shares, which the Company did not
fulfill. Effective January 18, 2000, the Company completed a settlement with the
debenture holders, canceling all previous agreements in exchange for 1,500,000
shares of the Company's common stock to the investors listed below and $324,750
of 8% convertible debentures exercisable at 50% of the fair market value of the
Company's stock on the date of conversion. The debentures were subsequently
converted into 3,392,857 shares of common stock and issued to the investors
listed below. Total proceeds to the Company was $500,000 relating to the
transaction.
<TABLE>
<CAPTION>
Investor Shares Price per Share
- -------- ------ ---------------
<S> <C> <C>
HLKT Holdings, LLC 500,000 .17
HLKT Holdings, LLC 1,328,571 .081
DVH Holdings, LLC 500,000 .17
DVH Holdings, LLC 1,033,334 .105
M&B Trading 500,000 .17
M&B Trading 1,030,952 .105
</TABLE>
In September 1999, the Company issued 1,500,000 shares at $.14 per
share of restricted common stock to Mathew Hensley, an accredited investor, for
$210,000. Mr. Hensley also received warrants to acquire 500,000 shares of common
stock at $0.28 per share, exercisable until September 28, 2001. The issuance was
pursuant to an exemption under Rule 506 of Regulation D.
Currently, our common stock is traded on the OTC Bulletin Board. As
such, the market price of our common stock may be subject to significant
fluctuations in response to numerous factors, including: variations in our
annual or quarterly financial results or those of our competitors; changes by
financial research analysts in their estimates of our earnings or our failure to
meet such estimates; conditions in the economy in general or in the software and
other technology industries; announcements of key developments by competitors;
loss of key personnel; unfavorable publicity affecting our industry or us;
adverse legal events affecting us; and sales of our common stock by existing
shareholders.
From time to time, the stock market experiences significant price and
volume fluctuations, which may affect the market price of our common stock for
reasons unrelated to our performance. Recently, such volatility has particularly
impacted the stock prices of publicly-traded technology companies. In the past,
securities class action litigation has been instigated against companies
following periods of volatility in the market price of the companies'
securities. If similar litigation were instituted against us, it could result in
substantial costs and a diversion of our management's attention and resources,
which could have an adverse effect on our business.
The following table presents the high and low sales price of our common
stock for the listed quarters:
12
<PAGE>
<TABLE>
<CAPTION>
SALES PRICE
-----------
YEAR QUARTER HIGH LOW
- ---- ------- ---- ---
<S> <C> <C> <C>
1999 First Quarter 0.27 0.07
Second Quarter 0.62 0.06
Third Quarter 0.37 0.14
Fourth Quarter
1998 First Quarter 1.22 0.31
Second Quarter 0.44 0.06
Third Quarter 0.38 0.04
Fourth Quarter 0.38 0.02
</TABLE>
The number of beneficial holders of record of the common stock of
the Company as of the close of business on March 3, 2000 was approximately
195. The Company has never paid dividends on its common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
Since inception through May 1999, the Company devoted substantially all
of its efforts to invest with joint partners in oil and gas exploration
projects. However, as a result of minimal revenue and continued losses from
these ventures, the Company decided to diversify into other markets, primarily
technology and the Internet. The Company's acquisition of 2-Infinity and
AirNexus provided the ability to enter into the technology and Internet markets.
However, the Company has not operated profitably to date and there are no
assurances that there will be future profitable operations.
In January 2000, new board members and senior management were appointed
in connection with running operations and raising additional capital through a
private placement. The new management adopted new strategies for the Company and
developed a plan of action as follows:
-- The Company is pursuing additional strategic alliances to
expand the development and marketing of its core technological
products and services surrounding high-speed Internet access.
-- The Company is obtaining customers and a monthly revenue
stream by waiving activation fees and hardware costs in return
for long-term contracts.
-- The Company is implementing an aggressive marketing and sales
program targeting commercial customers with DSL high-speed
Internet access and with the ability to additionally deliver
other related products and services.
-- The Company is raising additional equity through private
placements to cover costs associated with its initial
marketing plan and the necessary infrastructure to effect its
business plan.
Management believes the successful completion of its plans, will
produce increased revenues and cash flows. However, no assurance can be given
that the Company will be successful in the implementation of its plans or that
the Company will be able to raise additional funds.
Results of Operations
Revenues for the year ended December 31, 1999 increased $257,316 from
no revenues reported for the year ended December 31, 1998. This increase was
primarily due to the acquisition of AirNexus and the sales of commercial voice
and data products and services.
13
<PAGE>
Cost of Sales for the year ended December 31, 1999 increased $159,209
from no such costs reported for the year ended December 31, 1998. This increase
was due to the acquisition of AirNexus and the cost of the commercial voice and
data products.
Amortization expense for the year ended December 31, 1999 increased
$2,172,528 from no amortization expense reported for the year ended December 31,
1998. This increase is due to the write-off of goodwill associated with
2-Infinity and the AirNexus acquisitions, which was determined to be impaired
because of the circumstances that exist indicating the carrying amount of those
assets may not be recoverable. The total goodwill was amortized because of the
impairment.
Oil and gas properties expenditures for the year ended December 31,
1999 increased to $341,444 from no such expenditures reported for the year ended
December 31, 1998. This increase was primarily due to the increase in activity
in 1999 in investments with joint partners in oil and gas exploration projects,
primarily in the following three projects:
-- The South Halter Island Prospect, located in St. Mary and
Terrebonne Parishes, Louisiana, in which the well was
non-producing and was plugged and abandoned in July 1999.
Total costs expensed relating to this well in 1999 were
$205,520.
-- The Union Central Life Insurance Co. Well No. 1, located in
Colorado County, Texas, in which the development of this well
is currently ongoing and production commenced at the end of
December 1999. Total costs expensed relating to this well in
1999 were $36,649.
-- The VUA: Bernard #1, located in Lafayette Parish, Louisiana,
in which the well produced $8,765 in 1999 and subsequent to
year-end it was determined that future costs to continue
production will exceed any potential revenue. As such, the
well will be plugged and abandoned in 2000. Total costs
expensed relating to this well in 1999 were $90,112.
General and administrative expenses for the year ended December 31,
1999, increased $9,383,149 or 2,672% to $9,734,288 from $351,139 in the year
ended December 31, 1998. The increase is primarily due to $7,934,529 of
additional compensation as a result of salary increases and stock awards issued
to current and former officers and employees for services performed in 1999,
$688,653 for the additional amount of general and administrative expense as a
result of acquiring 2-Infinity and AirNexus, and $547,959 of additional legal,
consulting and professional fees to complete the convertible debt and equity
financings and oil and gas related transactions in 1999.
Interest Expense for the year ended December 31, 1999, increased
$431,551 or 7,859% to $437,042 from $5,491 in the year ended December 31, 1998.
The increase is primarily due to the additional interest of $404,500 recorded as
a result of the settlement with the holders of $750,000 aggregate principal
amount of 8% convertible debentures completed in January, 2000. The Company
completed a settlement with the debenture holders, canceling all previous
agreements in exchange for 1,500,000 shares of the Company's common stock and
$324,750 aggregate principal amount of 8% convertible debentures exercisable at
50% of the fair market value of the Company's stock on the date of exercise. The
debentures were subsequently converted into 3,392,857 shares. Total proceeds to
the Company, net of the original $40,000 fee, was $460,000 relating to the
transaction. The Company recorded the transaction as if the settlement occurred
prior to year-end.
Net loss for the year ended December 31, 1999 increased by $12,231,681
to $12,588,149 from $356,468 for the comparable period in the prior year. The
Company expects to incur additional losses until its revised business strategy
results in sufficient revenues to offset its investment and operating expenses.
Liquidity and Capital Resources
The Company raised $1,147,500 from the sale of convertible debentures
during the year ended December 31, 1999. In addition the company raised $323,400
in private placements of common stock to accredited investors and $179,700 from
the exercise of common stock warrants.
In the fiscal year ended December 31, 1998, the Company raised $344,378
in private placements of common stock of accredited investors.
14
<PAGE>
The Company is currently operating at a loss and expects to continue to
depend on cash generated from the sale of debt and equity securities to fund its
operating deficit. There can be no assurance that the company will be able to
generate sufficient revenues to meet its operating cash and growth needs or that
any equity or debt funding will be available or at terms acceptable to the
Company in the future to enable it to continue operating in its current form.
The Company's loss for the fiscal year ended December 31,1999 was
$(12,588,150). The Company expects to incur losses for the foreseeable future
due to the ongoing activities of the Company to develop a network operations
center and continue its strategy of installing and maintaining DSL equipment
in facilities such as commercial buildings and multi-tenant dwellings. The
Company believes that this strategy, while initially requiring additional
cash outlays, will result in higher margins and longer customer retention.
The Company expects its existing operations to continue to result in negative
cash flow and working capital deficiencies that will require the Company to
continue to obtain additional capital.
Based on current commitments and on going working capital needs, the
Company believes that it will require substantial additional debt or equity
funding to continue to implement its revised business strategy, including
acquisitions. The Company's cash needs and usage may vary based on the outcome
of these initiatives. There can be no assurance that the necessary financing
will be available to the Company or, if available, that the same will be on
terms satisfactory or favorable to it. It is possible that additional equity
financing will be highly dilutive to existing shareholders.
ITEM 7. FINANCIAL STATEMENTS.
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report............................................................................ F-3
Consolidated Balance Sheet.............................................................................. F-4
Consolidated Statements of Operations................................................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)............................................... F-7
Consolidated Statements of Cash Flows.................................................................. F-10
Notes to the Consolidated Financial Statements......................................................... F-12
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lakota Technologies, Inc. and Subsidiaries
(A Development Stage Company)
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of Lakota
Technologies, Inc. and Subsidiaries (a development stage company) as of December
31, 1999 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1999 and 1998
and from inception on November 14, 1995 through December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lakota Technologies,
Inc. and Subsidiaries (a development stage company) as of December 31, 1999 and
the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998 and from inception on November 14, 1995 through
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, the Company is a development stage company
with no significant operating results to date, which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 4. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 14, 2000
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1999
-----------------
CURRENT ASSETS
<S> <C>
Cash $ 65,413
Accounts receivable, net of allowance for doubtful accounts
of $1,268 17,044
Loan receivable employees 1,290
Security deposit 16,191
-----------------
Total Current Assets 99,938
-----------------
PROPERTY AND EQUIPMENT
Furniture and fixtures 44,951
Equipment 39,140
Less: accumulated depreciation (12,263)
-----------------
Total Property and Equipment 71,828
-----------------
OIL AND GAS PROPERTIES (Notes 1 and 2) 57,225
-----------------
TOTAL ASSETS $ 228,991
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 110,795
Notes payable (Note 6) 545,000
Accrued expenses 126,739
Accrued compensation 7,509,459
Accrued interest payable 419,500
-----------------
Total Current Liabilities 8,711,493
-----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 25,000,000 shares authorized,
no par value; no shares outstanding -
Common stock 100,000,000 shares authorized, no par
value; 41,278,482 shares issued and outstanding 5,662,968
Deficit accumulated during the development stage (14,145,470)
-----------------
Total Stockholders' Equity (Deficit) (8,482,502)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $228,991
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
For the Years November 14,
Ended December 31, 1995 Through
------------------------------------ December 31,
1999 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
REVENUES $ 257,316 $ - $ 257,316
COST OF SALES 159,209 - 159,209
---------------- ---------------- -----------------
GROSS MARGIN 98,107 - 98,107
EXPENSES
Depreciation expense 14,449 1,200 16,849
Amortization expense 2,172,528 - 2,172,528
Loss on disposal of assets 3,520 - -
Oil and gas properties expenditures 341,444 - 342,644
General and administrative 9,730,768 351,139 10,496,143
--------------- ---------------- -------------------
Total Expenses 12,262,709 352,339 13,028,164
---------------- ---------------- -----------------
Loss from Operations (12,164,602) (352,339) (12,930,057)
---------------- ---------------- -----------------
OTHER INCOME (EXPENSE)
Interest expense (437,042) (5,491) (1,230,670)
Interest income 13,495 1,362 15,257
---------------- ---------------- -----------------
Total Other Income (Expense) (423,547) (4,129) (1,215,413)
---------------- ---------------- -----------------
NET LOSS $ (12,588,149) $ (356,468) $ (14,145,470)
================ ================ =================
BASIC LOSS PER SHARE $ (0.36) $ (0.03)
================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 34,569,693 13,371,602
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
--------------------------------------- Development
Shares Amount Stage
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balance at inception on
November 14, 1995 - $ - $ -
Net loss for the period ended
December 31, 1995 - - (1,683)
----------------- ----------------- ------------------
Balance, December 31, 1995 - - (1,683)
Issuance of common stock to founders
at approximately $0.00 per share 9,187,500 1,250 -
Issuance of common stock in merger with
Chancellor Trading Group, Inc. at $0.002 1,801,000 3,908 -
Issuance of common stock for cash 108,000 108,000 -
at $1.00 per share
Issuance of common stock for services 20,000 20,000 -
at $1.00 per share
Net loss for the year ended
December 31, 1996 - - (458,412)
----------------- ----------------- ------------------
Balance, December 31, 1996 11,116,500 133,158 (460,095)
Common stock issued for cash at $1.00
per share 212,500 212,500 -
Conversion of preferred stock to common
stock at $1.00 per share 812,500 812,500 -
Net loss for the year ended
December 31, 1997 - - (740,758)
----------------- ----------------- ------------------
Balance, December 31, 1997 12,141,500 $ 1,158,158 $ (1,200,853)
----------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
--------------------------------------- Development
Shares Amount Stage
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balance, December 31, 1997 12,141,500 $ 1,158,158 $ (1,200,853)
Common stock issued for cash at
approximately $0.10 per share 3,608,800 344,378 -
Common stock issued for services
at approximately $0.03 per share 4,928,433 147,853 -
Net loss for the year ended
December 31, 1998 - - (356,468)
----------------- ----------------- ------------------
Balance, December 31, 1998 20,678,733 1,650,389 (1,557,321)
Common stock issued for cash
at approximately $0.05 per share 1,520,000 77,600 -
Common stock issued for debt
at approximately $0.07 per share 7,685,581 550,000 -
Common stock issued in business
combination at $0.35 per share 6,000,000 2,100,000 -
Common stock issued for services
at approximately $0.14 per share 4,894,977 688,538 -
Options issued for cash at approximately
$0.10 per share - 100,000 -
Stock issued for debt at approximately
$0.08 per share 1,185,216 97,500 -
Funds received for stock to be issued 200,000 20,000 -
subsequent to year end, 200,000 shares at
$0.10 per share
Stock issued for cash at approximately
$0.12 per share 2,560,300 318,030 -
----------------- ----------------- ------------------
Balance forward 44,724,807 $ 5,602,057 $ (1,557,321)
----------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
--------------------------------------- Development
Shares Amount Stage
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balance forward 44,724,807 $ 5,602,057 $ (1,557,321)
Stock issued for services at approximately
$0.14 per share 400,000 60,911 -
Common stock canceled (Note 11) (3,846,325) - -
Net loss for the year ended
December 31, 1999 - - (12,588,149)
----------------- ---------------- ------------------
Balance, December 31, 1999 41,278,482 $ 5,662,968 $ (14,145,470)
================= ================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
For the Years November 14,
Ended December 31, 1995 Through
------------------------------------- December 31,
1999 1998 1999
------------------ ----------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (12,588,149) $ (356,468) $ (14,145,470)
Adjustments to reconcile net d(loss to net
cash flows from operating activities:
Depreciation expense 14,449 1,200 16,849
Loss on disposal of assets 3,520 - 3,520
Amortization expense 2,172,528 - 2,174,156
Common stock issued for services 8,600,566 147,853 8,768,419
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (71,044) - (17,044)
Increase (decrease) in accounts payable 108,691 2,104 108,691
Increase (decrease) in accrued expenses 106,924 6,476 126,739
(Increase) decrease in other assets (2,295) - (17,481)
Increase in related party receivable - (33,870) -
------------------ ----------------- ------------------
Net Cash (Used) by Operating Activities (1,600,810) (22,705) (2,979,517)
------------------ ----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (8,397) - (100,518)
------------------ ----------------- ------------------
Net Cash (Used) by Investing Activities (8,397) - (100,518)
------------------ ----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment from notes payable (44,600) (22,098) (95,132)
Proceeds from notes payable/debenture 1,187,500 - 1,242,414
Conversion of preferred stock to common stock - - 812,500
Issuance of common stock and options 515,630 344,378 1,185,666
------------------ ----------------- ------------------
Net Cash Provided by Financing Activities 1,658,530 322,280 3,145,448
------------------ ----------------- ------------------
NET INCREASE (DECREASE) IN CASH (26,677) 89,575 65,413
CASH AT BEGINNING OF PERIOD 92,090 2,515 -
------------------ ----------------- ------------------
CASH AT END OF PERIOD $ 65,413 $ 92,090 $ 65,413
================== ================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception on
For the Years November 14,
Ended December 31, 1995 Through
------------------------------------- December 31,
1999 1998 1999
------------------ ----------------- ------------------
<S> <C> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest $ 4,739 $ - $ 4,739
Income taxes $ - $ - $ -
NON-CASH TRANSACTIONS
Common stock and debt issued for services $ 8,600,566 $ 147,853 $ 8,804,962
Organization costs paid by related party $ - $ - $ 5,472
Issuance of preferred stock for oil and
gas properties $ - $ - $ 812,500
Common stock issued for business
acquisition $ 2,100,000 $ - $ 2,100,000
Common stock issued for debt $ 647,500 $ - $ 647,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - HISTORY AND ORGANIZATION
The consolidated financial statements presented are those of
Lakota Technologies, Inc. (formerly Lakota Energy, Inc.) ("the
Company" or "Lakota") (a development stage company) and its wholly
owned subsidiaries, 2- Infinity.com, Inc., Air Nexus, Inc., and
Lakota Oil and Gas, Inc. Lakota was incorporated in the State of
Colorado on July 14, 1995 to engage in the acquisition and
exploration of oil and gas properties. In 1999, management
diversified into the technology and Internet markets, acquiring
two companies 2-Infinity.com, Inc. (2-Infinity") and AirNexus,
Inc. ("AirNexus").
On May 28, 1999, the Company acquired all of the outstanding stock
of 2-Infinity, a Texas Corporation. As consideration for the
acquisition, the Company issued 3,000,000 shares of its common
stock to the sole shareholder and founder of 2-Infinity.
2-Infinity provides digital bundled services, including high-speed
Internet access. The acquisition was accounted for as a purchase.
On June 8, 1999, the Company acquired all of the shares of Voice
Design, Inc., a Texas Corporation that later changed its name to
AirNexus. As consideration for the acquisition, the Company issued
3,000,000 shares of its common stock and $60,000 cash to the
shareholders of AirNexus. AirNexus is a retail provider of
commercial voice and data products and services. The acquisition
was accounted for as a purchase.
On June 9, 1999, the Company formed Lakota Oil & Gas, Inc.
("Lakota Oil"), a 100% owned subsidiary. The Company transferred
the Company's interest in two active oil exploration projects into
Lakota Oil. As of December 31, 1999, Lakota Oil had minimal
operations with only one well in production.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
Principles of consolidation - The consolidated financial
statements include the accounts of Lakota Technologies, Inc. and
its wholly owned subsidiaries. All inter-company balances and
transactions have been eliminated in the consolidation.
Accounting for oil and gas producing activities - The Company uses
the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil
and gas properties, to drill and equip exploratory wells that find
proved reserves, and to drill and equip development wells are
capitalized. Costs to drill exploratory wells that do not find
proved reserves, geological and geophysical costs, and costs of
carrying and retaining unproved properties are expensed.
F-12
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
b. Revenue Recognition
The Company has recorded revenues from its percentage interest in
the oil production from the producing oil and gas wells. Revenue
from the production of oil is recognized when the oil is removed
from the well. Revenues for 1999 also include revenues from the
Company's newly acquired technology subsidiary, AirNexus since
June 8,1999. 2-Infinity reported no revenues in 1999. Revenue from
business telephone and voice mail systems products are recorded
when shipped and any related services revenue are recorded when
the services are rendered to the customer.
c. Basic and Diluted Loss Per Share
Basic loss per share excludes dilution and was computed by
dividing net loss by the weighted average number of shares of
common stock outstanding during the Period. Dilutive loss per
share reflects the potential dilution that could occur if
securities or other obligations to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings or
losses of the Company. For all periods presented, basic and
diluted loss per share were equal, as the inclusion of dilutive
securities would be antidilutive. Total warrants outstanding as of
December 31, 1999 were 5,002,500. There were no warrants
outstanding at December 31, 1998.
d. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
e. Provision for Taxes
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $5,375,000 that may be offset
against future taxable income through 2017. No tax benefit has
been reported in the consolidated financial statements. The
related benefit has been offset by a valuation allowance due to
historical operating losses and the uncertainty if the net loss
carryforwards will be utilized in future periods.
F-13
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
f. Amortization
Oil and gas wells will be amortized using the units-of-production
method on the basis of total estimated units of proven reserves.
Amortization will not be recorded until reserves are extracted.
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small
tools, ordinary maintenance and repairs are charged to operations
as incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line method over
estimated useful lives of the assets of 3 to 5 years.
Depreciation expense for the years ended December 31, 1999 and
1998 was $14,449 and $1,200, respectively.
h. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
i. Goodwill
The Company assesses long-lived assets for impairment under FASB
Statement No. 121, Accounting for the Impairment of long-Lived
Assets. Under those rules, goodwill associated with assets
acquired in a purchase business combination where determined to be
impaired because circumstances exist that indicate the carrying
amount of those assets may not be recoverable. The total goodwill
was amortized because of the impairment and recognized in 1999.
NOTE 3 - BUSINESS COMBINATIONS
On May 28, 1999, the Company acquired all of the outstanding
shares of 2-Infinity, a provider of high-speed Internet access
products and services, for 3,000,000 shares of the Company's
common stock. 2-Infinity had only been in existence for a short
period of time and had no prior operations. The acquisition has
been accounted for as a purchase. The agreement also provides
additional consideration based upon achieving certain revenue
performance goals for up to an additional 6,000,000 shares. In
January 2000, the additional consideration was cancelled.
On June 9, 1999, the Company acquired all of the outstanding
shares of Air Nexus, a retail provider of commercial voice and
data products and services. The Company issued 3,000,000 shares of
common stock in exchange for all of the outstanding shares of Air
Nexus. The acquisition has been accounted for as a purchase. The
agreement also provides additional consideration based upon
achieving certain revenue performance goals
F-14
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
for up to an additional 3,000,000 shares. In January 2000, the
additional consideration was cancelled.
Allocation of the purchase price for the acquisitions is as follows:
<TABLE>
<CAPTION>
2-Infinity AirNexus
------------------ -----------------
<S> <C> <C>
Goodwill $ 1,139,000 $ 1,020,000
Cash 104,479 515
Property and equipment 5,731 -
Other assets 1,669 9,238
Liabilities assumed (50,879) (129,753)
------------------ -----------------
Total Purchase Price $ 1,200,000 $ 900,000
================== =================
</TABLE>
The following pro forma financial information gives effect to the
2-Infinity and AirNexus acquisitions as if they had been acquired
at the beginning of fiscal years 1998 and 1999. The pro forma
results were prepared for comparative purposes only and are not
indicative of the results of operations which actually would
result had the acquisitions occurred on the date indicated, or
which may result in the future:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revenues $ 351,226 $ 201,451
Loss from operations (12,158,343) (295,051)
Net loss (12,581,854) (298,470)
Basic and diluted loss per share $ ( 0.53) $ (0.02)
Basic and diluted weighted average
common shares outstanding 34,613,638 13,371,602
</TABLE>
NOTE 4 - GOING CONCERN
Since inception through May 1999, the Company devoted
substantially all of its efforts to invest with joint partners in
oil and gas exploration projects. However, as a result of minimal
revenue and continued losses from these ventures, the Company
decided to diversify into other markets primarily technology and
the Internet. The Company's acquisition of 2-Infinity and AirNexus
provided the ability to enter into the technology, Internet
markets. However, the Company has
F-15
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
not operated profitably to date and there are no assurances that
future operations will be profitable.
The Company incurred net losses of $(12,588,149) and $(356,468)
for the years ended December 31, 1999 and 1998, respectively. The
Company's ability to operate as a going concern is contingent upon
its ability to effectively market its newly acquired technology
products and services and get it to the marketplace. Future
success is also dependent on the Company's ability to obtain
additional equity financing. The aforementioned factors raise
substantial doubt about the Company's ability to continue as a
going concern.
In January 2000, new board members and senior management were
appointed in connection with running operations and raising
additional capital through the private placement (Note 13). The
new management adopted new strategies for the Company and
developed a plan of action as follows:
- The Company is pursuing additional strategic
alliances to expand the development and marketing of
its core technological products and services
surrounding high-speed Internet access.
- The Company is obtaining customers and monthly
revenue stream by waiving activation fees and
hardware costs in return for long-term contracts.
- The Company is implementing an aggressive marketing
and sales program targeting commercial customers with
DSL ("Digital Subscriber Line"), high-speed Internet
access with the ability to additionally deliver other
related products and services.
- The Company is raising additional equity through
private placements to cover the initial marketing plan
and infrastructure to acquire and maintain
anticipated revenue stream.
Management believes the successful completion of its plans, will
produce revenues and cash flows. However, no assurance can be
given that the Company will be successful in the implementation of
its plans or that the Company will be able to raise additional
funds. In the event the Company's activities do not result in
increased revenues and cash flows and the Company is not able to
raise additional financing to meet its operating needs, the
Company may no longer be able to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going
concern.
F-16
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 5 - RELATED PARTY TRANSACTIONS
In February 1999, the Company issued 1,000,000 shares of
restricted common stock to an entity controlled by the President
of Lakota Oil, as consideration for services valued at $100,000
related to the negotiation and consummation of a transaction with
an oil and gas project.
In April 1999 and July 1999, the Company issued a total of
3,206,072 shares of restricted common stock to three officers of
the Company as consideration for compensation of past services
valued at $328,486.
In January and February 2000, the Company mutually separated from
three officers and directors, its CEO, CFO and the President of
Lakota Oil. Included in the settlement agreements with the former
CEO, the Company issued 5,000,000 shares to compensate him for
past service, the Company paid, subsequent to year-end, total cash
of $140,000 for future consulting and the execution of the
agreement and each party mutually discharged any indebtedness owed
to the other and Cam Am Resources, Inc, a related party of the
CEO. As a result, the Company has accrued in the 1999 financial
statements, $500,000 of additional compensation expense for the
fair market value of the shares issued as a result of this
agreement. In addition, at December 31, 1999, all related notes
payable, notes receivable and any related accrued interest were
written-off, the amounts offsetting. In addition, included in the
settlement agreements with the former CFO and the President of
Lakota Oil, the Company issued 6,500,000 shares to compensate them
for past service and the Company paid subsequent to year-end,
total cash of $165,000 for future consulting and the execution of
the agreements. As a result, the Company has accrued in the 1999
financial statements, $2,660,500 of additional compensation
expense at the fair market value of the shares issued as a result
of these agreements.
Effective August 1, 1999, the Company approved and implemented the
Omnibus Stock Option Plan ("the Plan") and the board of directors
granted 2,000,000 options to purchase the Company's common stock
under the plan. In January 2000, the options granted under the
plan were cancelled as part of the settlement and separation
agreements with the option holders and the Plan was terminated.
In April 2000, the board of directors approved the issuance of
4,040,000 common shares to employees and directors of the Company
as compensation for services performed in 1999. The Company has
accrued in the 1999 financial statements, $4,141,960 of additional
compensation expense, which represents the fair market value of
the shares on the date the shares, were granted by the board.
F-17
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 6 - NOTES PAYABLE
Notes payable as of December 31, 1999 are detailed in the following
summary:
<TABLE>
<S> <C>
$750,000, 8% Convertible Debentures, $250,000
held in escrow (see Note 9) $ 500,000
Notes payable to individuals; convertible to stock at the option
of the holder within one to three years; interest at 9.75%, paid quarterly
until converted; unsecured. 40,000
Notes payable, due on demand, unsecured, non-interest bearing. 5,000
------------------
Total notes payable 545,000
Less: current portion (545,000)
------------------
Long-term portion $ -
==================
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
As a result of the acquisitions in 1999, the Company leases four
offices under lease agreements accounted for as operating leases,
three in Houston and one in Atlanta. Real estate taxes, insurance
and maintenance expenses are obligations of the Company.
Minimum rental payments under the non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Periods ended
December 31,
--------------------
<S> <C>
2000 $ 175,861
2001 173,693
2002 159,258
2003 72,597
2004 55,607
-------------------
$ 637,016
===================
</TABLE>
Rent expense was $89,652 and $26,013 for the years ended December 31,
1999 and 1998, respectively.
F-18
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
Contingencies
The Company is arbitrating a claim arising in the ordinary
course of business. In the opinion of the Company's legal counsel
and management, any liability resulting from such litigation would
not be material in relation to the Company's financial position
NOTE 8 - INCOME TAXES
The income tax benefit differs from the amount computed at federal
statutory rates of approximately 38% as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------------
1999 1998
------------------------ ----------------------
<S> <C> <C>
Income tax benefit at statutory rate $ 4,783,000 $ 135,000
Change in valuation allowance (4,783,000) (135,000)
------------------------ ----------------------
$ - $ -
======================== ======================
</TABLE>
Deferred tax assets (liabilities) at December 31, 1999 are
comprised of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1999 1998
----------------------- ----------------------
<S> <C> <C>
Net operating loss carryforward $ 5,375,000 $ 592,000
Valuation allowance (5,375,000) (592,000)
----------------------- ----------------------
$ - $ -
======================= =======================
</TABLE>
Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax
reporting purposes are subject to annual limitations. Should a
change in ownership occur, net operating loss carryforwards maybe
limited as to use in future years.
NOTE 9 - CONVERTIBLE DEBENTURES
In March 1999, the Company issued $550,000 of 8% convertible and
incurred a fee of $44,000 on the issuance. All the debentures were
converted prior to December 31, 1999 into 7,685,581 shares of
common stock.
F-19
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
In August 1999, the Company issued $23,500 of 3% Convertible
Debentures and $74,000 of 1% Convertible Debentures. All the
debentures were converted prior to December 31, 1999 into
1,185,216 shares of common stock.
In August 1999, the Company issued $750,000 of 8% convertible
debentures exercisable at 75% of fair market value of the
Company's common stock on the date of conversion. In addition, the
Company issued 5,000,000 warrants at an exercise price of 50% of
the fair market value of the Company's stock on the date of
exercise. The Company incurred a fee of $40,000 for the
transaction. In addition, $250,000 of the $750,000 was held in
escrow until all requirements under the agreements were met, to
include an effective registration statement, which the Company was
in default on January 1, 2000. Effective January 18, 2000, the
Company completed a settlement with the debenture holders,
canceling all previous agreements in exchange for 1,500,000 shares
of the Company's common stock and $324,750 of 8% convertible
debentures exercisable at 50% of the fair market value of the
Company's stock. The debentures were subsequently converted into
3,392,857 shares. Total cash received, net of the original $40,000
fee, was $460,000 relating to the transaction. The Company has
recorded the transaction as if the settlement occurred prior to
year-end. A charge to interest expense in the amount of $404,500
has been recorded at December 31, 1999 relating to this
transaction.
NOTE 10 - WARRANTS & OPTIONS
A summary of the status of the Company's warrants as of December 31,
1999 and changes during the period ending December 31, 1999:
<TABLE>
<CAPTION>
Average
Exercise
Shares Price
------------------ -------------------
<S> <C> <C>
Outstanding, December 31 1998 - $ -
Granted 14,505,000 0.21
Expired (3,132,200) 0.18
Exercised (1,370,300) 0.13
Cancelled (note 9) (5,000,000) 50% of share price
------------------- ------------------
Outstanding, December 31, 1999 5,002,500 $ 0.25
================== ==================
Exercisable, December 31, 1999 5,002,500 $ 0.25
================== ==================
</TABLE>
The Company issued 1,000,000 options to purchase the Company's
common stock in June 1999 at $0.10 per share. The options expired
December 31, 1999.
F-20
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 11 - COMMON STOCK TRANSACTIONS
In 1997, the Company issued approximately 4,500,000 shares for
services. In 1999, the Company renegotiated the number of shares
since the services had not been performed as anticipated. The
Company received back and canceled 3,846,325 shares.
NOTE 12 - OPERATING SEGMENTS
Effective June 30, 1999, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related
Information." The Company conducts its operations principally in
the oil and gas industry through Lakota Oil and technology
industry through 2-Infinity and Air Nexus.
Certain financial information concerning the Company's operations
in different industries is as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1999
------------------------------------------------------------
Oil and Gas
Exploration Technology Consolidated
--------------- --------------------- --------------------
<S> <C> <C> <C>
Net sales $ 8,765 $ 248,550 $ 257,316
Operating loss applicable to
industry segment (5,260,100) (6,904,502) (12,164,602)
Write-down of goodwill - (2,159,000) (2,159,000)
Other income (expenses) -
interest income (424,035) 488 (423,547)
Assets 92,605 136,386 228,991
Depreciation expense 2,505 11,944 14,449
Property and equipment acquisition 3,815 80,276 84,091
</TABLE>
Prior to 1999, the Company only operated in the oil and gas
industry.
F-21
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 13 - SUBSEQUENT EVENTS
In January 2000, the Company acquired all of the outstanding
shares of AGM, Inc., a Nevada Corporation, a reporting public
company with no operations. The Company elected to have successor
issuer status to become a reporting public entity. The purchase
price was 2,200,000 shares of the Company's common stock. In
connection with this transaction, the Company also issued
1,500,000 shares of stock and $50,000 for consulting services to
another corporation that assisted in the negotiation and
completion of the transaction.
In the first quarter of 2000, the Company completed a private
placement raising $2,000,000 by offering 20,000,000 shares of the
Company's common stock at $.10 per share. The offering also
includes for every two shares purchased, a warrant to acquire an
additional share of common stock at $.50, exercisable for a period
of one year from the date of issuance.
On March 22, 2000, the Company acquired a CLEC license, a contract
that entitles the Company to resale Southwestern Bell Telephone
Company products and services at a 32% discount, for $217,000 and
100,000 shares of common stock.
On April 7, 2000, the Company amended its lease agreement relating
to the primary office space in Houston. The agreement extends the
original lease to the year 2007 and provides the terms for the
expansion into additional office space commencing May 1, 2000. The
additional lease commitment under this amendment to the
non-cancelable operating lease is as follows:
<TABLE>
<CAPTION>
Periods ended
December 31,
--------------------
<S> <C>
2000 $ 77,849
2001 118,319
2002 139,024
2003 235,527
2004 237,667
Thereafter 741,930
-------------------
$1,550,316
===================
</TABLE>
On April 12, 2000, the shareholders of the Company approved the
increase in the number of authorized shares of common stock
outstanding to 300,000,000 shares and the Company's name changed
to 2-Infinity.com.
F-22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current
directors and executive officers of the Company. Our executive officers are
elected annually by the Board of Directors. Our directors serve one year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Majed M. Jalali 26 Chairman of the
Board, Chief Executive
Officer and President
Patrick Cody Morgan 33 Director, Chief Technology
Officer and Secretary
Kelly Nispel 37 Chief Financial Officer and
Treasurer
</TABLE>
MAJED M. JALALI has been the Chairman of the Board of Directors and
President and Chief Executive Officer of the Company since January 2000. Prior
to that he served as President of 2-Infinity.com beginning in March
15
<PAGE>
1999. From January 1998 to March 1999, Mr. Jalali served as Chief Executive
Officer of Infinity International School. Prior thereto, Mr. Jalali was a
university student.
PATRICK CODY MORGAN has been the Vice President and Chief Technology
Officer and Secretary of the Company since January 2000. Prior to that, he was
the President of AirNexus, Inc. beginning in May 1998, as well as a member of
the board of directors. From October 1996 until May 1998, Mr. Morgan was a
partner in Digiphone. From 1994 to October 1996, Mr. Morgan was the general
manager of Digitech Business Systems, a Houston, Texas company that provided
business telephones and voicemail systems.
KELLLY NISPEL has been Chief Financial Officer and Treasurer for the
Company since March 2000. From 1997 to 2000, Ms. Nispel was employed by
Corporate Express Delivery Systems, Inc. (CEDS), recently acquired by United
Shipping and Technology, Inc., in a variety of positions from Director of
Finance to Vice President of Finance. Her responsibilities included SEC
financial reporting, senior lender reporting, banking relations and other
financial, tax and treasury matters. From 1996 to 1997, Ms. Nispel was employed
with Corporate Express, Inc., the parent company of CEDS, as a Regional
Assistant Controller. From 1993 to 1996, Ms. Nispel was the Chief Financial
Officer for Ovation Data Services, Inc., where she was responsible for all
financial related matters. Ms. Nispel is a certified public accountant in the
state of Texas and Colorado.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The directors have not received any compensation for serving in such
capacity, and we do not currently contemplate compensating our directors in the
future for serving in such capacity.
COMPENSATION OF EXECUTIVE OFFICERS
The Summary Compensation Table shows selected compensation information
for services rendered in all capacities for the fiscal year ended December 31,
1999. Other than as set forth below, no executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries and stock bonus awards, whether paid
or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation
------------------- ----------------------
Name and
Principal Position Year Salary ($) Restricted Stock Awards ($)
<S> <C> <C> <C>
R. K. ("Ken") Honeyman(2) 1999 222,328 134,114(4)
Former President and 1998 96,240 --
Director
Howard N. Wilson(2) 1999 123,746 98, 371(5)
Former Vice President and 1998 46,250 --
Secretary
John B. Hayes(3) 1999 76,903 196,000(6)
Former President of 1998 -- --
Lakota Oil & Gas
</TABLE>
(1) Excludes any perquisites and other benefits that do not exceed the
lesser of $50,000 or 10% of the total of annual salary and bonus
reported for any executive officer.
(2) No longer an executive of the company.
(3) Former President of Lakota Oil and Gas, Inc., a subsidiary of the
company.
16
<PAGE>
(4) The Company issued as compensation 1,676,429 shares with a closing
market price on the date of issue of $0.08 per share.
(5) The Company issued as compensation 1,229,643 shares with a closing
market price on the date of issue of $0.08 per share.
(6) The Company issued as compensation 1,000,000 shares with a closing
market price on the date of issue of $0.10 per share and 300,000 shares
with a closing market price on the date of issue of $0.32 per share.
Employment Agreements
In June 1999, the Company entered into an employment agreement with
Patrick Cody Morgan. The contract is for a term of three years at an annual
salary of $250,000 beginning on March 1, 2000 and may be terminated at any time
for cause or good reason, as defined in the agreement.
In June 1999, the Company entered into an employment agreement with
Majed Jalali. The contract is for a term of three years at an annual salary of
$325,000 beginning on March 1, 2000 and may be terminated at any time for cause
or good reason, as defined in the agreement.
Restricted Stock Issuances
In February 1999, we issued 1,000,000 shares of restricted common stock
to Cactus Petroleum, Inc., an entity controlled by John B. Hayes, a former
Director of the Company, as consideration for services provided pursuant to an
agreement with Optima Investments, Inc. in connection with the private placement
of securities under Rule 504 of Regulation D offering. Mr. Hayes assisted in the
identification, negotiation, and closing of the transaction with Optima.
In April 1999, we issued 1,676,429 and 1,229,643 shares of restricted
common stock to Ken Honeyman and Howard Wilson, respectively, as consideration
for accrued compensation for past services rendered. Mr. Honeyman and Mr. Wilson
had each verbally agreed to forego any cash compensation up to the date of
issuance for their services as chief executive officer and secretary,
respectively, in exchange for the shares.
In July 1999, we issued 300,000 shares of restricted common stock to
John B. Hayes as consideration for accrued compensation for past services
rendered. Mr. Hayes had verbally agreed to forego any cash compensation up to
the date of issuance for services rendered as president of the oil and gas
division of Lakota Energy, Inc., and subsequently as president of Lakota Oil and
Gas, Inc.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table presents information regarding the beneficial
ownership of all shares of the common stock at March 3, 2000 by:
-- each person who owns beneficially more than five percent of
the outstanding shares of the common stock;
-- each director of the Company;
-- each named executive officer of the Company; and
-- all named executive officers and directors as a group.
17
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of shares
Beneficial Owner of Common Stock Percent of Class
---------------- --------------- ----------------
<S> <C> <C>
R. K. Honeyman (1) 3,606,429 5.7
Howard N. Wilson (1) 1,329,643 2.1
John B. Hayes (1) 1,300,000 2.1
Majed Jalali (1) 3,000,000 4.7
Patrick Cody Morgan (1)(2) 2,000,000 3.2
Dipak Bhatt (2)(3) 4,200,000 6.6
4107 Vaughn Creek Court
Sugar Land, Texas 77479
All officers and directors as a group 11,236,072 17.7
</TABLE>
(1) The address for each of these shareholders is c/o Lakota Technologies,
Inc., 4828 Loop Central Drive, Suite 150, Houston, Texas 77081.
(2) Includes shares held as joint tenants with spouse, or directly in
spouse's name.
(3) Includes warrants to purchase an aggregate of 2,000,000 shares of
common stock, 1,250,000 of which are exercisable until November 30,
2000 at $0.15 per share and 750,000 of which are exercisable until
December 22, 2000 at $0.20 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In February 1999, the Company issued 1,000,000 shares of restricted
common stock to an entity controlled by John B. Hayes, as consideration for
services valued at $100,000 related to the negotiation and consummation of a
transaction with an oil and gas project.
In April 1999 and July 1999, the Company issued 1,676,249, 1,229,643
and 297,000 shares of restricted common stock to R. K. Honeyman, Howard N.
Wilson and John B. Hayes, respectively, as consideration for compensation of
past services valued at $328,486. In January and February 2000, the Company
mutually separated from these three officers and directors.
Included in the settlement agreements with Mr. Honeyman, the Company
also paid, subsequent to year-end, total cash of $140,000 for future
consulting and the execution of the agreement and each party mutually
discharged any indebtedness owed to the other and Cam Am Resources, Inc, a
related party to Mr. Honeyman. As a result, the Company has accrued in the
1999 financial statements, $500,000 of additional compensation expense for
the fair market value of the shares issued as a result of this agreement. In
addition, at December 31, 1999, all related notes payable, notes receivable
and any related accrued interest were written-off, the amounts offsetting.
Included in the settlement agreements with Mr. Wilson and Mr. Hayes,
the Company also paid subsequent to year-end, total cash of $165,000 for
future consulting and the execution of the agreements. As a result, the
Company has accrued in the 1999 financial statements, $2,660,500 of
additional compensation expense for the fair market value of the shares
issued as a result of these agreements.
Effective August 1, 1999, the Company approved and implemented the
Omnibus Stock Option Plan ("the Plan") and the board of directors granted
2,000,000 options to purchase the Company's common stock under the plan. In
January 1999, the options granted under the plan were cancelled as part of the
settlement and separation agreements with the option holders and the Plan was
terminated.
18
<PAGE>
In June 1999, the Company issued an aggregate of 3,000,000 shares at
$.38 per share of restricted common stock to Majed Jalali, the sole shareholder
of 2-Infinity.com, Inc., pursuant to the acquisition agreement between the
Company and Jalali.
In June 1999, the Company issued an aggregate of 2,000,000 shares at
$.32 per share of restricted common stock to Patrick Cody Morgan and Candus
Morgan in connection with the acquisition of Voice Design, Inc.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits.
<TABLE>
<CAPTION>
<S> <C>
2.1* Agreement and Plan of Reorganization dated November 6, 1996 between
Lakota Energy, Inc. and Chancellor Trading Group, Inc. (incorporated by
reference from the Registration Statement on Form SB-2 of Lakota
Technologies (Registration No. 333-88575)).
2.2* Reorganization and Stock Purchase Agreement dated May 28, 1999 between
Lakota Energy, Inc., 2-Inifinity.com, Inc., and Majed Jalali
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
2.3* Reorganization and Stock Purchase Agreement dated June 8, 1999 between
Lakota Energy, Inc. and Voice Design, Inc. and its shareholders
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
2.4* Stock Transfer Agreement dated June 14, 1999 between Lakota Energy,
Inc. and Lakota Oil and Gas, Inc. (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
3.1* Articles of Incorporation of Chancellor Trading Group, Inc. filed July
14, 1995 (incorporated by reference from the Registration Statement on
Form SB-2 of Lakota Technologies (Registration No. 333-88575)).
3.2* Articles of Merger between Lakota Energy, Inc. and Chancellor Trading
Group, Inc. filed December 27, 1996 (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
3.3* Articles of Amendment to the Articles of Incorporation of Lakota
Energy, Inc. filed August 4, 1999 (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
3.4* Bylaws of Lakota Energy, Inc., as amended (incorporated by reference
from the Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
10.1* Oil and Gas Lease dated October 21, 1995 (incorporated by reference
from the Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
10.2* Assignment of Oil, Gas and Mineral Lease dated March 15, 1996
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
10.3* Oil, Gas and Mineral Lease dated April 26, 1996.
10.4* Employment Agreement between 2-Infinity.com, Inc. and Majed Jalali
effective June 1, 1999 (incorporated by reference from the Registration
Statement on Form SB-2 of Lakota Technologies (Registration No.
333-88575)).
19
<PAGE>
10.5* Employment Agreement between Voice Design, Inc. and Patrick Cody Morgan
effective June 14, 1999 (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
10.6* Promissory Note payable to Paras Chokshi dated February 12, 1999
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
10.7* Promissory Note payable to Dipak Bhatt dated February 12, 1999
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
10.8* Tut Systems, Inc. Value Added Reseller Agreement dated May 20, 1999
(incorporated by reference from the Registration Statement on Form SB-2
of Lakota Technologies (Registration No. 333-88575)).
10.9* Warrant executed in favor of Dipak Bhatt to purchase 1,250,000 shares,
expiring November 30, 2000 (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
10.10* Warrant executed in favor of Dipak Bhatt to purchase 750,000 shares,
expiring December 22, 2000 (incorporated by reference from the
Registration Statement on Form SB-2 of Lakota Technologies
(Registration No. 333-88575)).
10.11* Warrant executed in favor of Michael A. Hancock and Steven D. Morrison
to purchase 500,000 shares, expiring December 10, 2000 (incorporated by
reference from the Registration Statement on Form SB-2 of Lakota
Technologies (Registration No. 333-88575)).
10.12* Warrant executed in favor of Michael A. Hancock and Steven D. Morrison
to purchase 250,000 shares, expiring December 17, 2000 (incorporated by
reference from the Registration Statement on Form SB-2 of Lakota
Technologies (Registration No. 333-88575)).
10.13 Letter Agreement and Amendment to Employment Agreement dated as of
March 1, 2000 between Lakota Technologies, Inc. and Majed Jalali.
10.14 Letter Agreement and Amendment to Employment Agreement dated as of
March 1, 2000 between Lakota Technologies, Inc. and Patrick Cody
Morgan.
10.15 Voice Solutions Reseller Agreement dated as of November 23, 1999,
between 3Com Corporation and Air Nexus, Inc.
10.16 Agreement for the Purchase and Sale of Assets dated as of March 22,
2000, between 2-Infinity.com, Inc. and Afaneh, Inc.
23.1 Consent of Jones, Jensen & Company, Certified Public Accountants.
27 Financial Data Schedule
</TABLE>
- ---------------------
*Incorporated by reference as indicated
(B) Reports on From 8-K.
None.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LAKOTA TECHNOLOGIES, INC.
Dated April 13, 2000
By: /s/ Majed Jalali
-------------------------
Name: Majed Jalali
Title: President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
on April 13, 2000 by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Majed Jalali Chairman, President and Chief April 13, 2000
- ---------------------------- Executive Officer (principal
Majed Jalali executive officer)
/s/ Patrick Cody Morgan Director April 13, 2000
- ---------------------------
Patrick Cody Morgan
/s/ Kelly Nispel Chief Financial Officer and April 13, 2000
- --------------------------- Treasurer (principal accounting and
Kelly Nispel financial officer)
</TABLE>
21
<PAGE>
LETTER AGREEMENT
AND
AMENDMENT TO EMPLOYMENT AGREEMENT
This LETTER AGREEMENT and AMENDMENT to EMPLOYMENT AGREEMENT ("Employment
Amendment") is being entered into by and between LAKOTA TECHNOLOGIES, INC.
("Lakota"), a Colorado corporation and successor in interest to Lakota Energy,
Inc, a Colorado corporation, and the sole shareholder of 2-Infinity.com, Inc., a
Texas corporation, with Lakota having its principal offices situated in Harris
County, Texas; and MAJED JALALI, an individual, principal officer, director and
shareholder of Lakota, whose principal residence is situated in Harris County,
Texas ("Jalali").
WHEREAS, Jalali and 2-Infinity.com, Inc. entered into an Employment Agreement on
or about June 1, 1999, which established certain rights, duties and obligations
between the parties, a true and correct copy of which is attached hereto and
made a part hereof as Exhibit "A"; and
WHEREAS, all of the outstanding shares of 2-Infinity.com, Inc. were subsequently
transferred to and acquired by Lakota Energy, Inc., thereby establishing
2-Infinity.com, Inc. as a wholly owned subsidiary of Lakota Energy, Inc.; and
WHEREAS, at the Annual Meeting of the Shareholders of Lakota Energy, Inc. held
on July 16, 1999, the shareholders of the corporation approved a resolution to
change the name of the corporation from Lakota Energy, Inc. to Lakota
Technologies, Inc.; and thereafter authorized the filing of Articles of
Amendment to the corporation's Articles of Incorporation, which were filed with
the Colorado Secretary of State's office on August 4, 1999 in compliance with
the shareholder resolution approved on July 16, 1999, thereby changing the name
of the corporation to Lakota Technologies, Inc. ("Lakota"); and
WHEREAS, the parties hereto have agreed to amend certain provisions of the
Employment Agreement between Jalali and 2-Infinity.com, Inc. (a wholly owned
subsidiary of Lakota), to assign said Employment Agreement to Lakota
Technologies, Inc., and to hereby agree that all remaining terms and conditions
contained in the Employment Agreement, as hereby amended and assigned, shall
remain in full force and effect, and by virtue of this amendment, are hereby
ratified and confirmed by the parties hereto as of the date hereof.
NOW, THEREFORE, for and in consideration of the premises, mutual benefits,
covenants and agreements contained herein, Lakota and Jalali do hereby agree as
follows:
I.
The parties hereto agree, that the "Base Salary Amount" described under
Article 1(a) in the Employment Agreement dated and effective as of June 1, 1999,
is hereby amended by deleting the original salary amount of "$96,000.00", and
replacing that figure with the amended sum of "$325,000.00", effective as of
March 1, 2000. All other terms and conditions remain unchanged.
II.
In consideration of Jalali's performance during the first nine (9)
months of the Employment Agreement, as both a bonus and inducement to remain
employed by Lakota under the terms of the Employment Agreement, as amended
hereby, Jalali shall be issued a one-time cash bonus payment of fifty-thousand
dollars ($50,000), to be paid on or before March 1, 2000.
III.
1
<PAGE>
All of the rights, duties and obligations of 2-Infinity.com, Inc., as
contained in the Employment Agreement, as amended hereby, are hereby assigned in
full, for the duration of the term of the Employment Agreement, to Lakota, in
its own right, and not as the sole shareholder of 2-Infinity.com, Inc.
IV.
All other terms and conditions contained in the Employment Agreement
attached hereto as Exhibit "A", shall remain in full force and effect, and the
parties hereto ratify and confirm the terms and conditions of the Employment
Agreement, as amended hereby, as of the date hereof.
V.
This Employment Amendment and the terms and conditions of the
Employment Agreement have been negotiated and executed in Harris County, Texas,
and shall be construed and enforced in accordance with the laws of the State of
Texas.
VI.
This Employment Amendment to the Employment Agreement attached hereto
as Exhibit "A", may be executed in multiple counterparts, each of which shall be
deemed and original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Employment Amendment consisting of two (2)
pages, has been executed by the parties hereto in multiple copies, as of the
date(s) indicated below, but to be effective for all purposes as of March 1,
2000.
LAKOTA TECHNOLOGIES, INC. ATTEST/SEAL;
("Lakota")
By: /s/ Patrick C. Morgan By: /s/ Patrick C. Morgan
------------------------------ --------------------------------
Name: Patrick C. Morgan Name: Patrick C. Morgan
Title: Director Title: Corporate Secretary
Date: February 10, 2000
MAJED JALALI ("Jalali") WITNESS:
/s/ Majed Jalali /s/ Candus Morgan
- --------------------------------- -----------------------------------
Majed Jalali Name: Candus Morgan
Date: February 10, 2000
ATTACHMENT: EXHIBIT "A" (Employment Agreement dated June 1, 1999)
2
<PAGE>
LETTER AGREEMENT
AND
AMENDMENT TO EMPLOYMENT AGREEMENT
This LETTER AGREEMENT and AMENDMENT to EMPLOYMENT AGREEMENT ("Employment
Amendment") is being entered into by and between LAKOTA TECHNOLOGIES, INC.
("Lakota"), a Colorado corporation and successor in interest to Lakota Energy,
Inc, a Colorado corporation, and the successor in interest to Voice Design,
Inc., a Texas corporation, with Lakota having its principal offices situated in
Harris County, Texas; and PATRICK "CODY" MORGAN, an individual, principal
officer, director and shareholder of Lakota, whose principal residence is
situated in Harris County, Texas ("Morgan").
WHEREAS, Morgan and Voice Design, Inc. entered into an Employment Agreement on
or about June 14, 1999, which established certain rights, duties and obligations
between the parties, a true and correct copy of which is attached hereto and
made a part hereof as Exhibit "A"; and
WHEREAS, all of the outstanding shares of Voice Design, Inc. were subsequently
transferred to and acquired by Lakota Energy, Inc., thereby merging Voice
Design, Inc. into Lakota Energy, Inc.; and
WHEREAS, at the Annual Meeting of the Shareholders of Lakota Energy, Inc. held
on July 16, 1999, the shareholders of the corporation approved a resolution to
change the name of the corporation from Lakota Energy, Inc. to Lakota
Technologies, Inc.; and thereafter authorized the filing of Articles of
Amendment to the corporation's Articles of Incorporation, which were filed with
the Colorado Secretary of State's office on August 4, 1999 in compliance with
the shareholder resolution approved on July 16, 1999, thereby changing the name
of the corporation to Lakota Technologies, Inc. ("Lakota"); and
WHEREAS, the parties hereto have agreed to amend certain provisions of the
Employment Agreement between Morgan and Voice Design, Inc. (now merged with
Lakota), to formally assign said Employment Agreement to Lakota Technologies,
Inc., and to hereby agree that all remaining terms and conditions contained in
the Employment Agreement, as hereby amended and assigned, shall remain in full
force and effect, and by virtue of this amendment, are hereby ratified and
confirmed by the parties hereto as of the date hereof.
NOW, THEREFORE, for and in consideration of the premises, mutual benefits,
covenants and agreements contained herein, Lakota and Morgan do hereby agree as
follows:
I.
The parties hereto agree, that the "Annual Base Compensation" described
under Article 3.1 in the Employment Agreement dated and effective as of June 14,
1999, is hereby amended by deleting the original salary amount of "$75,000.00",
and replacing that figure with the amended sum of "$250,000.00", effective as of
March 1, 2000. All other terms and conditions remain unchanged.
II.
In consideration of Morgan's performance during the first nine (9)
months of the Employment Agreement, as both a bonus under Article 3.2 of said
agreement, and as an inducement to remain employed by Lakota under the terms of
the Employment Agreement, as amended hereby, Morgan shall be issued a one-time
cash bonus payment of fifty-thousand dollars ($50,000), to be paid on or before
March 1, 2000.
III.
1
<PAGE>
All of the rights, duties and obligations of Voice Design, Inc., as
contained in the Employment Agreement, as amended hereby, are hereby assigned in
full, for the duration of the term of the Employment Agreement, to Lakota, in
its own right, as the successor in interest to Voice Design, Inc.
IV.
All other terms and conditions contained in the Employment Agreement
attached hereto as Exhibit "A", shall remain in full force and effect, and the
parties hereto ratify and confirm the terms and conditions of the Employment
Agreement, as amended hereby, as of the date hereof.
V.
This Employment Amendment and the terms and conditions of the
Employment Agreement have been negotiated and executed in Harris County, Texas,
and shall be construed and enforced in accordance with the laws of the State of
Texas.
VI.
This Employment Amendment to the Employment Agreement attached hereto
as Exhibit "A", may be executed in multiple counterparts, each of which shall be
deemed and original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Employment Amendment consisting of two (2)
pages, has been executed by the parties hereto in multiple copies, as of the
date(s) indicated below, but to be effective for all purposes as of March 1,
2000.
LAKOTA TECHNOLOGIES, INC. ATTEST/SEAL;
("Lakota")
By: /s/ Majed Jalali By: /s/ Patrick C. Morgan
------------------------------ --------------------------------
Name: Majed Jalali Name: Patrick C. Morgan
Title: Director Title: Corporate Secretary
Date: February 10, 2000
PATRICK "CODY" MORGAN ("Morgan") WITNESS:
/s/ Patrick C. Morgan /s/ Candus Morgan
- --------------------------------- -----------------------------------
Patrick "Cody" Morgan Name: Candus Morgan
Date: February 10, 2000
ATTACHMENT: EXHIBIT "A" (Employment Agreement dated June 14, 1999)
2
<PAGE>
Contract Number: C11494
VOICE SOLUTIONS RESELLER AGREEMENT
UNITED STATES AND CANADA
between
3COM CORPORATION
and
AIR NEXUS INC
("Reseller")
This Reseller Agreement ("Agreement") is made effective as of Nov.
23, 1999 (the "Effective Date"), by and between 3Com Corporation, a
Delaware corporation with its principal place of business at 5400
Bayfront Plaza, P.O. Box 58145, Santa Clara, CA 95052-8145 ("3Com")
and Air Nexus Inc, a Texas corporation with its principal place of
business at 333 N. Sam Houston Pkwy East, Suite 870, Houston, TX
77060.
Whereas, 3Com develops, manufactures and markets Voice
Solutions products, including selected telephony hardware, related
networking equipment and software as listed on the Reseller Price
List set forth in APPENDIX A attached hereto (the "Products"); and
whereas, the Reseller acts as value added reseller for
telecommunications hardware, telephony-related hardware and
software products and/or other related networking and computer
products; and whereas, 3Com and the Reseller desire the Reseller to
act as an independent, non-exclusive Reseller of the Products on
[LOGO] the terms and conditions set forth in this agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
herein, 3Com and Reseller agree as follows:
1. MINIMUM PURCHASE
Reseller intends to purchase from 3Com at least two hundred
thousand dollars ($200,000) of Products per year (at the price
invoiced to Reseller) during the term of this Agreement, and
to use its best efforts to promote the sale of the Products to
the satisfaction of 3Com. Reseller's failure to meet the minimum
purchase commitment level may result in termination of this
Agreement.
2. APPOINTMENT AS AUTHORIZED 3COM RESELLER
2.1 GRANT OF RIGHTS. 3Com hereby grants to Reseller, and
Reseller hereby accepts from 3Com, a nonexclusive right and license
to distribute the Products solely to end-users in the territory set
forth on APPENDIX B. For purposes of this Agreement, the term
"end-user" means any person or entity who obtains a 3Com Product
solely to fulfill its own internal needs and not for distribution or
resale.
2.2 RESERVED RIGHTS. All rights not specifically granted
to Reseller hereunder are reserved by 3Com. Except as expressly
provided hereunder in connection with the distribution
1
<PAGE>
of the Products, 3Com does not convey any intellectual property
rights to Reseller hereunder. 3Com reserves the right to
discontinue developing, producing, licensing, or distributing any
of the 3Com Products and to modify, replace or add to the 3Com
Products in its discretion at any time. 3Com further reserves the
right to modify the Product pricing set forth on the Reseller Price
List in APPENDIX A at any time. The appointment of Reseller
hereunder does not transfer or create a franchise, equity interest
or any other similar right, title or interest in any 3Com Product
to Reseller.
3. OBLIGATIONS OF RESELLER
3.1 PROMOTIONAL EFFORTS, SALES, SERVICE AND RELATED
ACTIVITIES. Reseller agrees to use commercially reasonable efforts
to promote, sell and service the Products in accordance with this
Agreement and 3Com's distribution policies as announced from time
to time. Reseller agrees to provide a suitable place of business
with adequate and efficient sales and service personnel as is
appropriate to maximize the sale and support of the Products to
Reseller's customers. 3Com Reseller will comply with the
obligations applicable to "3Com dealers" in the Terms and
Conditions attached hereto as APPENDIX C (the "End-User
Agreement"). Without limiting the generality of the foregoing,
Reseller agrees to honor all requests for repair or replacement
made by end-users pursuant to the terms of the End-User Agreement
pertaining to the defective units.
3.2 COMPLIANCE WITH LAWS. Reseller will comply with all
applicable laws and regulations in performing its duties hereunder
and in any of its dealings with respect to 3Com Products.
3.3 3COM PACKAGING. The Products will be packaged in
accordance with standard commercial practices for domestic
shipment. Except as otherwise agreed by the parties in writing,
Reseller will distribute 3Com Products with the End-User Agreement
and all other packaging, warranties, manuals, disclaimers and
license agreements intact as shipped from 3Com.
4. OBLIGATIONS OF 3COM
4.1 DOCUMENTATION. At no additional charge, 3Com will
provide to Reseller complete documentation for each Product and any
additional materials relating to Products made available directly by
3Com to resellers and end-users. In the event Reseller desires
additional documentation, 3Com will provide such documentation at
prices to be mutually agreed upon by 3Com and Reseller.
4.2 ASSISTANCE. 3Com will make available by
telephone, 24 hours, 7 days a week, a support representative to answer
questions regarding 3Com Products, clarify Product data, and make
recommendations concerning operating 3Com Products.
5. ORDER PROCEDURE; RETURNS
5.1 ORDERS. Reseller may place orders for Products by faxing
purchase orders to the appropriate order entry location as specified by
3Com from time to time in writing and stating the 3Com Product number,
applicable price, requested delivery date, bill to and ship to
2
<PAGE>
addresses, special shipping instructions (if any), partial/no partials
allowed, and any special order handling instructions. The minimum
order amount is U.S. $250.00, except in the case of Spares. 3Com may
decline to make shipments to Reseller if Reseller is delinquent in
making payments to 3Com or is otherwise in breach of this Agreement.
Purchase orders for Products should be submitted to the following
location. Ordering locations may change to best fit Reseller's needs.
Reseller should check with its 3Com Territory Manager to insure orders
are sent to the correct location.
3Com Corporation
Attn: Order Management
3Com Drive
Marlborough, Massachusetts 01752
U.S.A.
FAX: (508) 323-6058
Toll-Free phone (888) 3STATUS [(888) 378-2887]
5.2 BOOKING WINDOW. The standard booking window
is sixty (60) days from the date of order entry. This may be extended
to one hundred twenty (120) days with prior approval in writing from
3Com's Area Sales Manager and beyond 120 days with the approval of the
Distribution Services Group ("DSG") Director or if required due to
product availability.
5.3 RESCHEDULING. Reseller may reschedule shipping within
the booking window. Shipments delayed beyond the booking window will
be cancelled and five percent (5%) cancellation charge will be assessed.
5.4 3COM ACCEPTANCE. Orders shall be subject to written
acceptance by 3Com and delivery schedules established in
accordance with Product availability and Reseller's credit status.
Requested delivery dates may be no less than five (5) business days
after 3Com's receipt of Reseller's purchase order. 3Com will use
commercially reasonable efforts to ship on the scheduled dates but
will not be liable for failure to do so. All delivery dates are
contingent upon receipt of any necessary credit documents or export
licenses. If 3Com fails to make Product available on the scheduled
ship date, Reseller may reschedule or cancel without charge.
5.5 CONTROLLING TERMS. Although Reseller may use its standard
purchase order and other forms, the terms and conditions of this
Agreement will prevail over Reseller's forms and any inconsistent,
conflicting or different terms in such form will be of no effect.
5.6 3COM CANCELLATION. 3Com reserves the right to cancel or
suspend any orders placed by Reseller and accepted by 3Com, or refuse
or delay shipment thereof, if Reseller fails (1) to make any payment
as provided herein or in any invoice; (2) to meet credit or financial
requirements established by 3Com; or (3) otherwise to comply with the
terms and conditions of this Agreement.
5.7 RESELLER CANCELLATION. Once an order has been accepted
by 3Com, it may not be cancelled by Reseller unless (1) 3Com has
failed to ship the order, or any portion thereof, within thirty (30)
days of the date of 3Com's confirmation of such order; and (2)
Reseller provides written notice of such cancellation, and 3Com
acknowledges such cancellation in
3
<PAGE>
writing; and (3) 3Com has not yet shipped the order or portion thereof which
Reseller desires to cancel.
5.8 RETURNS. Return of Product to 3Com falls into two categories:
(a) Credit Return Authorizations (CRA) for the return of new/unused
Product under the discontinued products and limited product return
(where available) provisions of this Agreement, or necessitated by
incorrect shipments. Only credit is available for such returns. No
refunds will be made. Reseller must obtain a CRA number by
contacting 3Com Order Management with all required information.
(b) Return Material Authorizations (RMA) for the return of Product
under warranty or for non-warranty repair. No credit or refunds are
allowed except as otherwise provided for in the warranty.
(c) Shipping cartons that are not marked with a CRA or RMA number will
be rejected by 3Com. Materials must be packed securely to avoid
physical damage and electrostatic discharge. Products must be
shipped to 3Com F.O.B. Destination, within five (5) days of
issuance of CRA or RMA number. 3Com accepts no responsibility for
damage to goods that are being returned to 3Com. Reseller shall be
responsible for insuring the Products and parts while in transit to
3Com.
No Product may be returned to 3Com other than as stated above.
6. PAYMENT TERMS, DELIVERY AND RISK OF LOSS
6.1 PURCHASE AGREEMENT. Reseller agrees to purchase and to pay for all
Products ordered from 3Com, at the purchase prices listed in the Reseller
Price List set forth in APPENDIX A and on the payment terms set forth in this
Section 6. Prices are subject to change in accordance with Section 7.1.
6.2 DELIVERY. 3Com Products will be shipped Ex Works (1990 Incoterms),
3Com's shipping docks, freight collect. Title and risk of loss shall pass to
Reseller upon delivery to the first common carrier, except that shipments to
destinations outside of the United States are subject to Section 6.7 --
Reservation of Title. Reseller will pay all costs relating to transportation,
delivery, duties and insurance. Reseller will be responsible for filing
claims relating to any lost or damaged goods. Any additional charges incurred
due to expediting will be borne by Reseller.
6.3 EXPEDITED ORDERS. 3Com will make reasonable efforts to expedite
delivery of an "ASAP order" subject to Product availability, but is not
obligated to make such delivery on an expedited basis.
6.4 PAYMENT. Payment terms are net thirty (30) days from the date of
invoice. Reseller must give 3Com written notice of any discrepancies among
the purchase order, the invoice, and the Products received, within thirty
(30) days after receipt of the Products or the invoice, whichever occurs
later. Payment is not conditioned upon the Products meeting any
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acceptance testing procedures Reseller may have. If there is any dispute as
to a part of a shipment, Reseller will pay for the undisputed part of that
shipment. All payments to 3Com shall be in United States dollars, free of any
restrictions and less any Withholding Tax (pursuant to Section 6.8 -- Taxes).
Reseller may not deduct any debit memos from payment(s) made to 3Com on
outstanding invoice(s), unless 3Com is forty-five (45) days late in issuing a
credit associated with such debit memo on a complete and accurate claim
submitted by Reseller. The forty-five (45) day period shall commence upon
3Com's receipt of a complete and accurate claim from Reseller. Anticipation
of a credit due to Reseller from 3Com does not allow Reseller to extend the
agreed upon payment terms in order to apply such anticipated credit to an
outstanding invoice.
6.5 CREDIT. Credit limits and payment terms decisions are made, at 3Com's
sole discretion, by an analysis of Reseller's current and historical
financial information, bank references, trade references, payment practices,
Reseller's business plan, etc. To facilitate 3Com's determination of credit
limits and payment terms, Reseller must provide current financial information
to 3Com on an annual basis, or more frequently if so requested, unless such
information is readily available from public sources. 3Com may withdraw
credit upon notice to Reseller in the event 3Com determines, in its sole
discretion, that such credit would create an unreasonable credit risk. In the
event an adequate credit limit cannot be granted, is withdrawn or is pending
initial credit approval, deliveries will be available by negotiating
alternative payment terms such as cash in advance, irrevocable letter of
credit with a bank of 3Com's choice, etc.
6.6 INTEREST. 3Com reserves the right to charge Reseller interest on any
delinquent balance. This interest is computed on a daily basis for each day
that the payment is delinquent, at the lesser of (i) eighteen percent (18%)
per annum or (ii) the maximum rate permitted by law.
6.7 RESERVATION OF TITLE (For Products Delivered Outside of United
States). In order to ensure that 3Com is paid for the Products sold or
licensed to Reseller, 3Com reserves title in the Products until paid for in
full by Reseller. 3Com hereby authorizes Reseller to transfer title to the
Products in the ordinary course of its business (except for Software, in
which case only title to the media shall pass), provided that in such case,
any proceeds from the disposition of such Products shall belong to 3Com to
the extent of the sums due by Reseller.
6.8 TAXES. Reseller is responsible for payment of all taxes of every
kind imposed in connection with the sale to Reseller of Products or services
or which 3Com may incur in respect of this Agreement (except for taxes
imposed on 3Com's income), including all import duties, customs fees, levies
or imposts, and all sales, use, value added, gross receipts or other taxes of
any nature, and any penalties, interest and collection or withholding costs
associated with any of the foregoing items. All such amounts are in addition
to other amounts payable hereunder and this obligation shall survive
termination or expiration of this Agreement.
If applicable law requires Reseller to withhold any income taxes levied
by the authorities in Reseller's country of residence on payments to be made
pursuant to this Agreement ("Withholding Tax"), Reseller shall take advantage
of the reduced Withholding Tax provided for by the tax treaty then in force
between Reseller's country of residence and 3Com's country of residence, and
shall be entitled to deduct such Withholding Tax from the payments due to
3Com hereunder. Reseller shall promptly effect payment of the Withholding Tax
to the appropriate tax authorities and shall transmit to 3Com within thirty
(30) business days of such payment official tax receipts or other evidence
issued by the appropriate tax authorities sufficient to enable 3Com
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to support a claim for income tax credits in 3Com's country of residence.
Reseller further agrees to assist 3Com, upon request, if 3Com contests, by
appropriate legal or administrative proceedings, the validity or amount of
the Withholding Tax. In the event 3Com does not receive official tax receipts
or other evidence within thirty (30) days, 3Com shall have the right to
invoice Reseller for such Withholding Tax and Reseller agrees to pay such
amounts upon receipt of invoice.
Reseller may provide 3Com with a tax exemption certificate acceptable to
the taxing authorities in lieu of paying such taxes; however, Reseller shall
reimburse 3Com for any fines, penalties, taxes and other charges, including
expenses incurred by 3Com, due to Reseller's submission of invalid
information.
6.9 DUTIES AND RELATED IMPORT FEES. Reseller is responsible for
fulfilling quota terms, obtaining import licenses, paying import license or
permit fees, duties and customs fees (including without limitation
government, import, excise, sales, use value-added and other taxes or fees),
and preparing and submitting all required documentation in connection with
importing the Products.
7. PRICE CHANGES; PRODUCT CHANGES; AND DISCONTINUED PRODUCTS
7.1 PRICE CHANGES. 3Com may increase its published list prices on
thirty (30) days' notice. The increased prices will apply to all orders
issued after the effective date of the price increase as specified in the
notice. Orders issued after the notice date and before the effective date
will be at the old lower price provided they are scheduled for shipment
within sixty (60) days of the effective date. 3Com may decrease its published
list prices at any time with immediate effect and will attempt to provide
notice of planned decreases thirty (30) days in advance of such decrease.
Price decreases will apply to all orders in the 3Com backlog as of the notice
date. Price changes in this Section refer to actual list price changes and
are not intended to include any changes in price which occur as a result of
exchange rate fluctuations or temporary price changes pursuant to a promotion
or other special offer.
7.2 PRODUCT CHANGES. 3Com reserves the right to change, improve or add
any new Product at any time. 3Com shall provide written notice of any major
changes to Products purchased under this Agreement that affect form, fit or
function prior to their implementation.
7.3 DISCONTINUED HARDWARE PRODUCTS. 3Com may discontinue Products at
any time on sixty (60) days' written notice of their discontinuance or their
removal from the 3Com Price List. In such event, Reseller may exchange
discontinued Products shipped to Reseller within ninety (90) days prior to
the notice date for the same number of units of the replacement Product if
all of the following conditions are met:
(a) the discontinued Products to be exchanged are new, unused and in
factory-sealed boxes;
(b) the discontinued Products are in Reseller's stock on the date of the
notice;
(c) the exchange takes place within one hundred eighty (180) days of the
effective date of the discontinuation;
(d) a non-cancellable order for an equal or greater quantity of the
replacement Product is submitted at the time of the exchange; and
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(e) Reseller bears all shipping and other charges in connection with the
exchange and follows 3Com's instructions for disposal or return of the
discontinued Products.
If the new Product has a different list price than the discontinued
Product, Reseller will be invoiced or credited with the price difference, less
the applicable discount. Within seven (7) days after discontinuation notice,
Reseller may cancel all backlogged orders for the discontinued Product without
penalty.
If a Product is discontinued and not replaced with another Product, the
discontinued Products shipped to Reseller within ninety (90) days prior to the
notice of discontinuation may be returned to 3Com for up to one hundred eighty
(180) days after the effective date of the discontinuation, provided that:
(a) the discontinued Products are new, unused and in factory-sealed boxes;
(b) the discontinued Products are in Reseller's stock on the date of the
notice; and
(c) Reseller bears all shipping and other charges in connection with the
return.
A credit memo for returned Products will be issued in the amount of the
lesser of (i) current list price less current discount, or (ii) the price
invoiced to and actually paid by Reseller.
7.4 DISCONTINUED SOFTWARE PRODUCTS. 3Com may discontinue software
Products at any time on sixty (60) days' written notice of their discontinuance
or their removal from the 3Com Price List. 3Com will give thirty (30) days'
notice of the First Customer Shipment ("FCS") of any new software version.
Orders for the old version placed prior to FCS will be filled for sixty
(60) days after FCS. Old software versions may be exchanged for the same
number of units of the replacement versions if all the following conditions
are met:
(a) the old version was shipped to Reseller within ninety (90) days prior
to the FCS of the new version;
(b) the old version is new, unused and in factory-sealed boxes;
(c) the discounted Products are in Reseller's stock on the date of the
notice;
(d) the exchange takes place within one hundred eighty (180) days of the
effective date of the discontinuation;
(e) a non-cancellable order for an equal or greater quantity of the new
version is submitted at the time of the exchange; and
(f) Reseller bears all shipping charges in connection with the exchange and
follows 3Com's instructions for disposal or return of the old version.
If the new software Product has a different price than the discontinued
Product, Reseller will be invoiced or credited with the price difference, less
the applicable discount. Within seven (7) days after discontinuation notice,
Reseller may cancel all backlogged orders for the discontinued Product without
penalty.
If a software Product is discontinued and not replaced with a new version,
the discontinued version shipped to Reseller within ninety (90) days prior to
notice of discontinuation may be returned to 3Com for up to one hundred eighty
(180) days after the effective date of the discontinuation, provided that:
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(a) the software to be returned is new, unused and in factory-sealed boxes;
(b) the discontinued Products are in Reseller's stock on the date of the
notice; and
(c) Reseller bears all shipping and other charges in connection with the
return.
A credit memo for returned Products will be issued in the amount of the
lesser of (i) current list price less current discount, or (ii) the price
invoiced to and actually paid by Reseller.
7.5 BUNDLED PRODUCTS. If any Product includes both hardware and software
components, discontinuation will be treated based on the predominant character
of the components, as determined in 3Com's sole discretion.
8. TRADEMARKS, TRADE NAMES AND COPYRIGHTS
8.1 "3Com Trademarks" means those trademarks, trade names, service marks,
slogans, designs, distinctive advertising, labels, logos, and other
trade-identifying symbols as are or have been developed and used by 3Com or any
of its subsidiaries or affiliate companies anywhere in the world.
8.2 Reseller acknowledges that all 3Com Trademarks are vested in 3Com
absolutely. 3Com authorizes Reseller to use the 3Com name or 3Com Trademarks
associated with the Products and services which Reseller is authorized to sell
or license within the Territory in the normal course of business during the term
of this Agreement for the sole purpose of the sale and distribution of Products
and services hereunder. Reseller shall comply with 3Com's then current
trademark usage and style guidelines when using the 3Com Trademarks. Reseller
shall not use 3Com Trademarks for any other purpose and only in such manner as
to preserve all rights of 3Com. When using 3Com Trademarks, Reseller must
indicate that 3Com is the owner of the 3Com Trademark(s) and that Reseller is
using the 3Com Trademarks with permission from and on behalf of 3Com. Reseller
acquires no right to 3Com Trademarks by its use.
8.3 Reseller shall not remove, alter or modify the serial or
identification numbers, labels, 3Com Trademarks or other trade-identifying
symbols from Products sold or licensed by 3Com under this Agreement. Reseller
shall provide all reasonable assistance, including execution of documents as
requested by 3Com to protect its trademark rights in the Territory.
8.4 3Com shall have the sole and exclusive right to bring legal action in
the Territory for infringement with respect to 3Com Trademarks. Reseller shall
assist 3Com in such legal proceedings. Reseller shall notify 3Com promptly of
any known infringements of 3Com Trademarks.
9. ASSIGNMENT
This Agreement shall not be assigned by either party without prior written
consent of the other, except that 3Com may assign its rights and obligations
hereunder to any subsidiary or affiliate or in connection with a merger or
other business combination in which it is not the surviving entity. Any
attempted assignment in violation of this provision shall be null and void.
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10. DURATION AND TERMINATION OF AGREEMENT
10.1 TERM. The Term of this Agreement shall be one (1) year, commencing on
the Effective Date and expiring on the Expiration Date unless otherwise
terminated as stated herein. If no Effective Date is stated, this Agreement
shall become effective on the date it is executed by the second party. This
Agreement may be extended for additional one (1) year terms if agreed to in
writing by both parties thirty (30) days prior to the end of its current term.
If, prior to the commencement of a subsequent one-year term, 3Com wishes to
change any provisions of this Agreement to conform to its then-current
practices, 3Com shall give written notice to Reseller at least sixty (60) days
prior to an annual anniversary. If Customer objects in writing to the changed
provisions, this Agreement will terminate on the upcoming anniversary, unless
the parties are still engaging in good faith negotiations regarding any changed
provisions, in which case the Agreement will be automatically extended for up
to ninety (90) days or until the parties reach agreement or determine that
agreement is unattainable. The new provisions will be incorporated into an
addendum which will be executed by both parties and will become effective on the
anniversary and remain in effect until changed at a subsequent anniversary
using the same procedure.
10.2 TERMINATION FOR CAUSE. Either party may terminate this Agreement at
any time upon written notice if the other party (1) is in material breach of
its obligations hereunder and fails to cure such breach within thirty (30) days
following written notice of such breach, or (ii) becomes insolvent or files or
has filed against it a petition under bankruptcy or insolvency law which
remains undismissed after ninety (90) days, makes an assignment for the benefit
of creditors or takes any similar action under applicable bankruptcy or
insolvency law.
10.3 TERMINATION FOR CONVENIENCE. Either party may terminate this
Agreement, without cause, on thirty (30) days' written notice.
10.4 Upon expiration or termination, each party shall return to the other
any materials of the other, including, without limitation, all Confidential
Information.
10.5 OBLIGATIONS UPON TERMINATION. Termination or expiration shall not
relieve either party of the obligation to pay any sums due hereunder. Other
obligations which shall survive for a period of five (5) years from the
termination of expiration of this Agreement include: security interest,
retention of title, indemnities and limitation of liability. Obligations
regarding export control regulations and U.S. governmental end users shall
survive indefinitely. The warranty and confidentiality provisions shall remain
in effect for their stated durations. Regarding warranty provisions, 3Com
shall, at its sole discretion, either provide Assistance to Reseller under
Section 3.2 for the duration of any end-user warranties from End-User Agreements
in effect at the time of termination or upon notice from 3Com to do so,
Reseller shall refer, in the manner specified, all requests for warranty support
under said End-User Agreements directly to 3Com. Reseller shall cooperate with
3Com in providing records evidencing end-user's entitlement to warranty coverage
under the End-User Agreement. Neither party shall be liable to the other for
any damages, expenditures, loss of profits or prospective profits or goodwill
on account of the termination or expiration of this Agreement pursuant to its
terms. Reseller expressly waives any and all rights provided by law or statute
for any indemnity or compensation from 3Com by reason of termination or
non-renewal of this Agreement.
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10.6 CANCELLATION OF PENDING ORDERS. All orders or portions thereof
remaining unshipped as of the effective date of termination shall
automatically be cancelled.
10.7 USE OF TRADEMARKS, ETC. Reseller shall cease using any 3Com
trademark, logo or trade name.
10.8 ACCELERATION OF INVOICES. All outstanding invoices for the
Products shall automatically be accelerated and all such invoices shall
become due and payable.
11. RELATIONSHIP OF THE PARTIES
The parties' relationship is that of independent contractors. Reseller
will not have, and will not represent that it has any power, right or
authority to bind 3Com, or to assume or create any obligation or
responsibility, express or implied, on behalf of 3Com or in 3Com's name,
except as expressly provided. Nothing stated in this Agreement shall be
construed as constituting Reseller and 3Com as creating the relationships of
employer/employee, franchiser/franchisee, or principal/agent between the
parties. Neither Reseller nor its employees or agents are, or shall act as,
employees of 3Com.
12. MARKETING DEVELOPMENT FUNDS (MDF) PROGRAM.
Reseller may be eligible to participate in 3Com's Marketing Development
Funds (MDF) program, as may be in effect from time to time. This is a
separate program and document from this Letter, and is not incorporated
herein. This program may be modified or terminated by 3Com upon fifteen (15)
days notice to Reseller.
13. LIMITED PRODUCT WARRANTY
3Com warrants to Reseller that each product ordered by Reseller under
the terms of this Agreement will be packaged with a copy of the End-User
Agreement (APPENDIX C). The End-User Agreement accompanying each Product is
3Com's sole warranty for such Product.
Reseller shall pay to 3Com the discounted price of each replacement
Product shipped by 3Com pursuant to the End-User Agreement if 3Com does not
receive the defective Product being replaced within fourteen (14) days of the
date of shipment by 3Com. 3Com shall only be responsible for freight-out
charges relating to the shipment of replaced Products.
14. DISCLAIMER AND LIMITATIONS OF LIABILITY; INDEMNIFICATION BY THE RESELLER
14.1 DISCLAIMER OF WARRANTIES. AS SET FORTH IN THE END-USER AGREEMENT,
THE WARRANTY SET FORTH IN SECTION 13, DOES NOT EXTEND TO ANY PRODUCT, WHICH
HAS BEEN DAMAGED AS A RESULT OF (1) ACCIDENT, MISUSE OR ABUSE; (2) FAILURE TO
FOLLOW 3COM'S INSTALLATION, OPERATION OR MAINTENANCE INSTRUCTIONS; OR (3)
UNAUTHORIZED SERVICE OR PARTS.
EXCEPT AS STATED IN SECTION 13 HEREOF, 3COM AND ITS AFFILIATES,
DISTRIBUTORS AND SUPPLIERS, MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AND TO
THE EXTENT PERMITTED BY APPLICABLE LAW, 3COM DISCLAIMS ALL
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OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES
OF MERCHANTABILITY, TITLE, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. IF IMPLIED WARRANTIES MAY NOT BE DISCLAIMED UNDER
APPLICABLE LAW, THEN ANY IMPLIED WARRANTIES ARE LIMITED IN DURATION TO 90
DAYS AFTER DELIVERY OF THE PRODUCT TO RESELLER. SOME STATES DO NOT ALLOW
LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS SO THE ABOVE LIMITATION MAY
NOT APPLY. THIS WARRANTY GIVES THE RESELLER SPECIFIC LEGAL RIGHTS, AND THE
RESELLER MAY HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE.
14.2 EXCLUSIVE REMEDIES AND LIMITATIONS OF LIABILITY. The entire
liability of 3Com and its subsidiaries, affiliates and distributors (and the
directors, officers, employees, agents and representatives, distributors and
suppliers of all of them) and the exclusive remedy of Reseller and, insofar
as the End-User Agreement so provides, any End-User, for any damages shall be
(1) for failure of products during the Warranty Period, the remedies as set
forth in Section 2 of the End-User Agreement, (2) for infringement, the
remedies stated in section 14 hereof or, in the case of End-Users, as set
forth in Section 5 of the End-User Agreement, and (3) for claims other than
set forth above, 3Com's liability shall be limited to proven direct damages
in an amount not to exceed the total amount of payments previously made by
Reseller to 3Com under this Agreement. In the event that, notwithstanding
this Section 14.2, 3Com is found liable for damages based on failure of the
Products during the Warranty Period, 3Com's total liability for each
defective Product shall not exceed the discounted price of such defective
Product.
IN NO EVENT, REGARDLESS OF THEORY, SHALL 3COM BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND, OR FOR LOSS
OF REVENUE, LOSS OF BUSINESS, LOSS OF DATA OR OTHER FINANCIAL LOSS ARISING
OUT OF OR IN CONNECTION WITH THE SALE, INSTALLATION, USE, PERFORMANCE,
FAILURE OR INTERRUPTION OF ITS PRODUCTS OR SERVICES. NOTWITHSTANDING ANY
OTHER PROVISION OF THIS AGREEMENT, 3COM'S MAXIMUM LIABILITY HEREUNDER SHALL
NOT EXCEED THE PURCHASE PRICE OF THE PRODUCTS OR SERVICES PURCHASED OR
LICENSED DURING THE TERM OF THIS AGREEMENT. RESELLER HAS ACCEPTED THE
DISCLAIMER OF LIABILITY AS PART OF A BARGAIN TO LOWER THE PRICE OF THE
PRODUCTS OR SERVICES AND UNDERSTANDS THAT THE PRICE OF THE PRODUCTS OR
SERVICES WOULD BE HIGHER IF 3COM WERE REQUIRED TO BEAR ADDITIONAL LIABILITY.
THIS DISCLAIMER WILL NOT BE AFFECTED IF ANY REMEDY PROVIDED HEREIN FAILS OF
ITS ESSENTIAL PURPOSE.
14.3 INDEMNIFICATION BY THE RESELLER. Reseller shall indemnify and
defend 3Com against all claims, suits, losses, expenses, and liabilities
(including 3Com's reasonable attorney's fees) for personal injury, death, and
tangible property damage made against 3Com as a result of the negligence,
intentional wrongful acts, omissions where there is a duty to act, or
misrepresentations of Reseller or any person for whose actions Reseller is
legally liable. Reseller shall be solely responsible for any claims,
warranties or representations made by Reseller or its employees or agents
which differ from the warranty provided by 3Com in the limited warranty
included in the packaging of each Product sold or licensed hereunder, or
which differ from written documentation provided by 3Com.
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15. PATENT AND COPYRIGHT INDEMNITY
15.1 Reseller acknowledges 3Com's representation that all Intellectual
Property Rights throughout the world are vested in 3Com absolutely, and
acknowledges that Reseller has no right, title or interest in any
Intellectual Property Rights.
15.2 3Com shall, at its own expense, defend or settle any suit or
proceeding that is instituted against Reseller to the extent such suit or
proceeding alleges that any Product sold by 3Com hereunder infringes any duly
issued patent or copyright of the United States or the Territory and shall
pay all damages awarded therein against Reseller or agreed upon in settlement
by 3Com; provided that Reseller (i) gives 3Com immediate notice in writing of
any such suit, proceeding or threat thereof, (ii) permits 3Com sole control,
through counsel of 3Com's choice, to defend and/or settle such suit and (iii)
gives 3Com all the needed information, assistance and authority, at 3Com's
expense, to enable 3Com to defend or settle such suit.
15.3 The above provision shall not apply to and 3Com shall have no
liability or obligation for any infringement arising from: (i) any
modification, servicing or addition made to the Product by anyone other than
3Com, (ii) the use of such Product as a part of or in combination with any
devices, parts or software not provided by 3Com, (iii) compliance with
Reseller's design requirements or specifications, (iv) the use of other than
the then current unaltered release of the software Product available from
3Com or (v) the use of such Product to practice any method or process which
does not occur wholly within the Product. The above exclusions apply to the
extent that the infringement would have been avoided but for such
modifications, combinations, compliance with specifications, use of other
than the current release or practice of such method or process.
15.4 In the event the use or sale of any Product purchased from 3Com is
enjoined, or in the event 3Com wishes to minimize its potential liability
hereunder, 3Com may, at its sole option and expense: (i) procure for Reseller
the right to use or sell such Product; (ii) substitute a functionally
equivalent, non-infringing unit of the Product; (iii) modify such Product so
that it no longer infringes but is substantially equivalent in functionality;
or (iv) if none of the foregoing are commercially feasible, take back such
Product and refund the purchase price paid by Reseller for such Product
depreciated over a five (5) year period using the straight line method. 3Com
shall in no event be obligated to accept new orders for Products which are
subject to a claim of infringement covered under this Section.
15.5 THIS SECTION STATES 3COM'S TOTAL RESPONSIBILITY AND LIABILITY, AND
THE RESELLER'S SOLE REMEDY, FOR ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT FOR ANY PRODUCTS DELIVERED HEREUNDER OR ANY PART
THEREOF AND IS IN LIEU OF AND REPLACES ANY AND ALL OTHER EXPRESS, IMPLIED OR
STATUTORY WARRANTIES OR CONDITIONS REGARDING INFRINGEMENT.
16. LICENSE TO SOFTWARE; PROTECTION OF 3COM'S PROPRIETARY RIGHTS
16.1 Reseller acknowledges and agrees that the Product includes certain
software developed by or licensed to 3Com and that, from time to time, 3Com
will furnish certain additional software to Reseller in connection with the
performance by Reseller of its obligations
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under this Agreement (such software being referred to herein as the
"Software"). Subject to the terms and conditions contained herein and in
Sections 1(b) through 1(f) of the End-User Agreement, 3Com grants Reseller a
personal, non-transferable and non-exclusive license (i) to distribute the
Software, in object code form only, to end-users solely as an integral
component of the Products and (ii) to use the Software, in object code form
only, to configure the Products for end-users solely in accordance with the
system documentation accompanying the Software. Reseller agrees that all
right, title and interest to such Software shall at all times remain vested
in 3Com. Reseller shall have no right whatsoever to receive, review, or
otherwise use or have access to the source code of the Software, which
Software is permitted to be distributed by Reseller only in object code form
as part of the Product. The Software is the exclusive property of 3Com and
3Com's licensors and contains valuable proprietary information and trade
secrets of 3Com and 3Com's licensors developed at a great cost and expense.
Except as expressly authorized by this Agreement or under applicable law,
Reseller is not permitted to copy or use the Software in any manner. Without
limiting the generality of the foregoing, Reseller agrees that it will not do
any of the following: (i) decompile, reverse engineer, disassemble, or
otherwise reduce the Software to a human-perceivable form; (ii) transfer the
Software from one computer to another, including other servers and/or other
storage devices; (iii) transfer the Software to any other party, except when
transferring it with the Product in accordance with the terms of this
Agreement; or (iv) modify, adapt, translate, rent, sublicense, lease, loan,
resell for profit, distribute, network or create derivative works based upon
the Software or any part thereof. Reseller shall include on all copies of the
documentation for the Software the copyright, trademark and the proprietary
rights notices of 3Com and take reasonable steps to ensure that Reseller's
employees, consultants or agents who are permitted access to the Software
comply with provisions of this Section 15. Reseller shall be liable and
Reseller shall indemnify 3Com for all damages, costs, expenses (including
attorney's fees and court costs), claims and other expenses in connection
with any unauthorized transfer, copying, duplication, reverse engineering,
recompilation, reproduction, or other form of unauthorized use or
misappropriation (whether directly or indirectly) by the Reseller or any of
its employees, agents or representatives of any Software or microprocessor
component of the Product.
16.2 No rights to manufacture, duplicate or otherwise copy or
reproduce any Products are granted by this Agreement.
16.3 3Com has the right to license any company, within or outside
the Territory, to manufacture Products.
16.3.1 3Com hereby grants Reseller a non-exclusive license during
the term and in the Territory of this Agreement to sub-license to eventual
End Users the object code of software Products listed in Appendix A in
accordance with the terms of 3Com's software license agreement that
accompanies such software.
17. CONFIDENTIAL INFORMATION
During the course of this Agreement, each party may disclose to the
other certain proprietary information (both patentable and unpatentable,
including but not limited to, trade secrets, know how, software, source codes,
techniques, future product plans, marketing plans, customers, inventions,
discoveries, improvements, and research and development data) ("Confidential
Information") of a character regarded by the disclosing party as confidential.
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Each party and each of its employees or consultants to whom disclosure is made
shall hold all Confidential Information and the terms of this Agreement in
confidence and shall not disclose such information to any third party or apply
it to uses other than the recipient's performance of this Agreement.
Such Confidential Information, if disclosed in writing shall be
marked or identified as confidential or a similar designation, or if orally
or visually disclosed, shall be identified as the confidential information of
the disclosing party at the time of disclosure and then summarized in writing
and provided to the recipient in such written form within thirty (30) days
after such oral or visual disclosure.
17.1 OBLIGATION OF CONFIDENTIALITY. Each party agrees that for a
period of three (3) years from receipt of Confidential Information from the
other party hereunder, it shall use the same degree of care that it utilizes
to protect its own information of a similar nature, but in any event not less
than reasonable care, to prevent the unauthorized use or the disclosure of
such Confidential Information to third parties. The Confidential Information
shall be disclosed only to employees and consultants of a recipient with a
"need to know" who are instructed to and agree in writing to not disclose
third party Confidential Information, and who shall use the Confidential
Information only for the purpose set forth above. A recipient may not alter,
decompile, disassemble, reverse engineer, or otherwise modify any
Confidential Information received hereunder and the mingling of the
Confidential Information with information of the recipient shall not affect
the confidential nature or ownership of the same as stated hereunder.
17.2 OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential
Information is, and shall remain, the property of the disclosing party.
Nothing herein shall be construed as granting or conferring any rights by
license or otherwise in the Confidential Information except as expressly
provided herein. A recipient hereunder acquires only a limited right to use
the Confidential Information solely for the purpose of performing its
obligations under this Agreement.
17.3 RETURN OF CONFIDENTIAL INFORMATION. Upon the written request
of the disclosing party, or upon the expiration or termination of this
Agreement, the recipient shall promptly return all copies of the Confidential
Information, in whatever form or media, to the disclosing party or, at the
direction of such party, destroy the same. The recipient shall certify in
writing to the other such return or destruction within ten (10) days
thereafter.
17.4 EXCEPTIONS TO OBLIGATION OF CONFIDENTIALITY. This Agreement
shall impose no obligation of confidentiality upon a recipient with respect
to any portion of the Confidential Information received hereunder which is:
(a) now or hereafter, through no unauthorized act or failure to
act on recipient's part, generally known or available;
(b) lawfully known to the recipient without an obligation of
confidentiality at the time recipient receives the same from
the disclosing party, as evidenced by written records;
(c) hereafter lawfully furnished to the recipient by a third party
without restriction on disclosure;
(d) furnished to others by the disclosing party without
restriction on disclosure; or
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(e) independently developed by the recipient without use of the
disclosing party's Confidential Information.
Nothing in this Agreement shall prevent the receiving party from
disclosing Confidential Information to the extent the receiving party is
legally compelled to do so by any governmental investigation or judicial
agency pursuant to proceedings over which such agency has jurisdiction;
provided, however, that prior to any such disclosure, the receiving party
shall (i) assert the confidential nature of the Confidential Information to
the agency, (ii) immediately notify the disclosing party in writing of the
agency's order or request to disclose and (iii) cooperate fully with the
disclosing party in protecting against any such disclosure and/or obtaining a
protective order narrowing the scope of the compelled disclosure and
protecting its confidentiality.
17.5 Reseller shall not disclose, advertise or publish the terms or
conditions of this Agreement without the prior written consent of 3Com.
18. GENERAL
18.1 WAIVER. Any waiver of a default in performance hereunder shall
be deemed a waiver of the particular instance only and shall not be deemed a
consent to any continuing default. The exercise of any right or remedy
provided in the Agreement shall be without prejudice to the right to exercise
any other right or remedy provided by law or equity. If any provision of this
Agreement is found to be invalid, illegal or unenforceable, a modified
provision shall be substituted which carries out as nearly as possible the
original intent of the parties and the remaining provisions shall in no way
be affected thereby.
18.2 NOTICES. Notices shall be given in writing to the addresses on
the first page of this Agreement, or to such other address as shall be given
by either party to the other in writing. Notices regarding price changes,
product discontinuance, product changes, and logistics center changes may be
made via email to the person(s) specified by Reseller from time to time. Any
notice involving non-performance, termination, or renewal shall be sent by
recognized overnight courier or within the United States, via certified mail,
return receipt requested. All other notices may be sent by (i) recognized
overnight courier or (ii) by fax or email and confirmed by first class mail.
All notices shall be deemed to have been given and received on the earlier of
actual delivery or three (3) days from the date of postmark.
18.3 ATTORNEY'S FEES. In any action to enforce this Agreement the
prevailing party shall be awarded all court costs and reasonable legal fees
incurred.
18.4 DISPUTE RESOLUTION. The parties will attempt in good faith to
promptly resolve any dispute, controversy, or claim ("Dispute") arising out
of or relating to this Agreement through negotiations between the parties
before resorting to other remedies available to them. Any such Dispute shall
be referred to appropriate senior executives (e.g. director or V.P. level) of
each party who shall have the authority to resolve the matter. Discussions
and correspondence relating to trying to resolve such Dispute shall be
treated as confidential information developed for the purpose of settlement
and shall be exempt from discovery or production and shall not be admissible
in subsequent mediation, other alternate dispute resolution ("ADR"), or
litigation. If the senior executives are unable to resolve the Dispute within
thirty (30) days from the date of the written communication requesting
referral to the executives, and either party wishes to
15
<PAGE>
pursue its rights relating to such Dispute, then the Dispute will be mediated
by a mutually acceptable mediator appointed pursuant to the mediation rules
of JAMS/Endispute within thirty (30) days after written notice by one party
to the other demanding non-binding mediation. Neither party may unreasonably
withhold consent to the selection of a mediator or the location of the
mediation. Both parties will share the costs of the mediation equally, except
that each party shall bear its own costs and expenses, including attorney's
fees, witness fees, travel expenses, and preparation costs. The parties may
also agree to replace mediation with some other form of non-binding or
binding ADR. If the parties agree upon binding arbitration, the power of the
arbitrator(s) shall be limited to that possessed by a Superior Court Judge in
California and the arbitrator(s) shall be prohibited from awarding damages
ore remedies in excess of those allowed by the provisions of this Agreement.
Any Dispute which the parties cannot resolve through mediation within two (2)
months of the date of the initial demand for it by one of the parties may
then be submitted to a court for resolution. The use of any ADR procedures
will not be construed under the doctrine of laches, waiver or estoppel to
adversely affect the rights of either party.
Any Dispute regarding the following is not required to be negotiated or
mediated: non-payment or late payment; breach of any obligation of
confidentiality; infringement, misappropriation, or misuse of any
intellectual property right; any other claim where interim relief from the
court is sought to prevent serious and irreparable injury to one of the
parties or to others.
18.5 GOVERNING LAW. This Agreement shall be construed in accordance
with and all disputes hereunder shall be governed by the laws of the State of
California, EXCLUDING its conflict of law rules AND THE UNITED NATIONS
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS. With the
exception of the Dispute Resolution provision, above, the Superior Court of
Santa Clara County and/or the United States District Court for the Northern
District of California shall have non-exclusive jurisdiction and venue over
all controversies in connection herewith.
18.6 SECTION HEADINGS. The section headings contained herein are for
reference only and shall not be considered substantive parts of this
Agreement.
18.7 FORCE MAJEURE. Neither party shall be liable to the other for any
alleged loss or damage resulting from any delay of performance caused by acts
of the other, acts of civil or military authority, governmental priorities,
earthquake, fire, flood, epidemic, quarantine, energy crisis, strike, labor
trouble, war, riot, accident, shortage, delay in transportation, or any other
causes beyond the reasonable control of the delayed party.
18.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof, may
be modified only in a writing signed by both parties, and shall supersede any
and all other agreements between them regarding such subject matter.
AMENDMENTS TO THIS AGREEMENT AT THE TIME THAT IT IS EXECUTED MAY BE MADE ONLY
BY A DOCUMENT SIGNED BY BOTH PARTIES.
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18.9 DUE EXECUTION. Each person executing this Agreement on behalf of
a party represents and warrants that he or she has been duly authorized to
execute this Agreement on behalf of the party.
18.10 PAYMENTS TO THIRD PARTIES. By signing this Agreement, Reseller
guarantees to 3Com that no portion of any compensation received from the sale
of 3Com Products will be paid directly or indirectly to any third parties who
are employees of or have any business or official interest in the affairs of
a customer placing an order which is the basis on which compensation is paid.
Violation of the terms of this guarantee shall be considered cause for
immediate termination (without any cure period) of this Agreement. This
provision does not preclude Reseller from participating in organized
promotional activities approved by 3Com.
18.11 U.S. GOVERNMENTAL END USERS. All 3Com technical data and
computer software is commercial in nature and developed solely at private
expense. Software is delivered as "Commercial Computer Software" as defined
in DFARS 252.227-7014 (June 1995) or as a commercial item as defined in
FAR 2.101(a) and as such is provided with only such rights as are provided in
3Com's standard commercial license for such software. Technical data is
provided with limited rights only as provided in DFAR 252.227-7015 (Nov.
1995) or FAR 52.227-14 (June 1987), whichever is applicable. Reseller agrees
not to remove, deface or modify any portion of any legend provided on any
licensed software or documentation delivered to it under this Agreement.
18.12 CHOICE OF LANGUAGE. The original of this Agreement is in English
and Reseller waives any right to have it written in any other language.
Section headings are for convenience only.
19. EXPORT RESTRICTIONS
19.1 GENERAL. Reseller acknowledges that all Products, Spares,
technical data, computer software, documentation or other materials supplied
hereunder (collectively "Technical Data") and the product thereof are subject
to all pertinent import and export laws, rules and regulations of the United
States and the Territory, specifically including the provisions of the U.S.
Export Administration Regulations ("EAR"). This Agreement is also
specifically subject to U.S. Department of Commerce regulations relating to
restrictive trade practices or boycotts. In no event shall 3Com be bound by
any terms and conditions that contravene such pertinent laws. Reseller agrees
to comply with all such laws and regulations applicable to the Technical Data
and, without limiting the generality of the foregoing, Reseller agrees that,
unless prior written authorization is received from the U.S. Department of
Commerce, it shall not knowingly export or re-export, directly or indirectly,
any Technical Data (or part thereof), or any process or service which is the
direct product of the Technical Data to (i) any person or firm on the "Denied
Parties List" published by the U.S. Department of Commerce, or to any person
or firm on the "Specially Designated Nationals" list published by the U.S.
Department of the Treasury, or (ii) the following nations or nationals
thereof: Cuba, Iran, Iraq, Libya, North Korea, Republic of Serbia, Sudan and
Syria. All lists of countries contained in this entire Section 12 are
accurate as of May 1999. They are subject to change by the U.S. Government
and these lists shall be considered updated to be consistent with
then-current U.S. law.
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<PAGE>
19.2 NON CIVILIAN/PROLIFERATION RESTRICTIONS.
19.2.1 Reseller hereby certifies that, unless prior written
authorization is received by Reseller from the U.S. Department of Commerce,
it shall not transfer, export or re-export, directly or indirectly, any
Technical Data (or part thereof), or any process or service which is the
direct product of the Technical Data received under License Exception TSR to
any of the following nations or nationals thereof: Albania, Armenia,
Azerbaijan, Belarus, Bulgaria, Cambodia, Cuba, Estonia, Georgia, Iran, Iraq,
Kazakhstan, Kyrgystan, Laos, Latvia, Libya, Lithuania, Moldova, Mongolia,
North Korea, People's Republic of China, Republic of Serbia, Romania, Russia,
Sudan, Syria, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Vietnam.
19.2.2 Reseller acknowledges that certain Technical Data supplied
hereunder from 3Com are exported under U.S. Export Administration Regulations
license exceptions that prohibit the transfer, export or re-export of such
Technical Data to military end users for known military uses or to agents or
any intermediate entities in the chain of supply. In addition to conventional
military activities, Reseller understands that military uses include any
proliferation activities and that both uses would require export license
approval from the U.S. Government prior to such sale or export in the
following destination countries: Albania, Armenia, Azerbaijan, Belarus,
Bulgaria, Cambodia, Estonia, Georgia, Kazakhstan, Kyrgystan, Laos, Latvia,
Lithuania, Moldova, Mongolia, People's Republic of China, Romania, Russia,
Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam.
19.2.3 Reseller acknowledges that it will not transfer, export or
re-export, without U.S. Government permission, any Technical Data that (i) is
destined for any missile technology project, or (ii) will be used in the
design development, production or use of missiles, or (iii) will be used in
the design development, production, stockpiling or use of chemical or
biological weapons, if any such activities are located in any of the
following proliferation risk countries: Afghanistan, Algeria, Andorra,
Angola, Armenia, Azerbaijan, Bahrain, Belarus, Bulgaria, Burma, Cambodia,
People's Republic of China, Comoros, Djibouti, Egypt, Georgia, India, Israel,
Jordan, Kazakhstan, Kuwait, Kyrgystan, Lebanon, Micronesia, Moldova,
Mongolia, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Taiwan, Tajikistan,
Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, Vanuatu, Vietnam,
and Yemen.
19.2.4 Reseller acknowledges that specific U.S. Government approval is
required prior to transfer, export or re-export of Technical Data if Reseller
knows that such Technical Data will be used for nuclear end-uses in any
country other than the following nations: Australia, Belgium, Canada,
Denmark, France, Germany, Greece, Iceland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Spain, Turkey, United Kingdom and
the United States.
3Com may require Reseller to execute an Export/Re-Export Letter and/or
other export paperwork on an annual basis or more frequently when required
and may require details on an End User or application when necessary to
facilitate the qualification of a transaction for the above-referenced
license restrictions. Reseller is responsible for obtaining and providing to
3Com International Import Certificates and/or other support documentation
required by 3Com in order to apply for U.S. export licenses.
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<PAGE>
19.3 RESPONSIBILITY FOR EXPORT LICENSING. 3Com agrees to use
commercially reasonable steps to obtain, at 3Com's expense, all documentation
required by the United States Export Administration Regulations and/or other
authorities to permit the exportation of Technical Data to Reseller. 3Com
shall have no liability or obligation to Reseller if the responsible
government authorities decline to issue any such export licenses. ALL ORDERS
ISSUED PURSUANT TO THIS AGREEMENT ARE SUBJECT TO THE OBTAINING OF SAID
LICENSES.
19.4 EXPORTER OF RECORD. If Reseller chooses to use a freight
forwarder or agent, other than a 3Com preferred freight forwarder to export
Technical Data from the United States, Reseller or its properly authorized
agent or forwarder must hold a properly executed power of attorney to prepare
and sign Shipper's Export Declarations as exporter of record from the United
States.
19.5 ENCRYPTED PRODUCTS. Certain Technical Data provided by 3Com under
this Agreement may require that Reseller report all sales, transfers, exports
and re-exports to the Bureau of Export Administration, U.S. Department of
Commerce, Washington, D.C., USA, identifying the specific End User name,
address, country of ultimate destination and quantities shipped, before
encrypted Technical Data may be purchased or licensed under 3Com's export
licensing approval arrangements with the U.S. Government. With respect to
certain technical data that 3Com will communicate to Reseller and require
Reseller's written acceptance of additional government imposed requirements
or responsibilities prior to release and shipment of orders. These purchases
or licenses will be allowed only if they are in full compliance with U.S.
law, and if Reseller evidences compliance with all export reporting
requirements.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
3COM CORPORATION Air Nexus Inc
Signature: /s/ Emad Zureik Signature: /s/ Patrick C. Morgan
----------------------------- --------------------------
Printed Name: Emad Zureik Printed Name: Patrick C. Morgan
-------------------------- ----------------------
Title: Sales Controller Title: President
--------------------------------- -----------------------------
Date: 11-23-99 Date: 11/11/99
---------------------------------- ------------------------------
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<PAGE>
AGREEMENT FOR THE
PURCHASE AND SALE
OF ASSETS
BY AND BETWEEN
2-INFINITY.COM, INC.
(AS "BUYER")
AND
AFENEH, INC.
(AS "SELLER)
<PAGE>
AGREEMENT FOR THE PURCHASE
AND SALE OF ASSETS
THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS "Agreement),
effective as of March 22, 2000 by and between AFENEH, Inc., a Texas
corporation, (the "Seller") and 2-Infinity.com, Inc., a Texas corporation a
subsidiary of Lakota Technologies, Inc., a Texas corporation (collectively
the "Buyer"), with respect to the following:
RECITALS
A Seller is the owner of business known as AFANEH, Inc.,
operated and located at 7710 Bellaire, Suite K, Houston, Texas
77036 (referred to hereafter as the "business").
1. Buyer desires to purchase from Seller ONLY THAT certain asset
described as Contract entitled Resale Agreement Between
Southwestern Bell Telephone Company and Afaneh, Inc.
(hereinafter referred to as the "Contract" or "Assets") a true
and correct copy of which is attached hereto as Exhibit "A"
hereof; and Seller desires to sell the Contract to Buyer on
the terms and subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants, agreements and
representations contained in this Agreement, the parties hereto agree as
follows:
1. ASSETS TO BE TRANSFERRED TO BUYER FROM SELLER
Effective as of the Closing Date, Seller shall sell, assign
and transfer to Buyer all of Seller's right, title and
interest in and to the Contract set forth on Exhibit "A".
Page 1 of 16
<PAGE>
1. Accounts Receivable. Both Buyer and Seller hereby acknowledge
that the accounts receivable of the Business as of the Closing
Date will not be transferred to Buyer and shall remain the
exclusive property of the Seller. Buyer hereby agrees that in
the event any payments are received by Buyer which are to be
credited against any accounts receivable, the Buyer will,
within five (5) business days of receipt of any such funds,
forward the entire amount paid and received to Seller.
2. PRICE AND TERMS
2.1 ASSET PURCHASE PRICE. Buyer shall deliver to Seller, on
or before the Closing Date, as and for the purchase price
of the Assets the following items of Compensation:
2.1a CASH: A total one-time payment of Two Hundred
Seventeen Thousand Dollars (US $217,000); and
2.1b STOCK: A total one-time distribution of One
Hundred Thousand Shares (100,000) of Lakota
Technologies, Inc. Seller shall deliver the
Share Certificate to Buyer within sixty (60)
days from Closing Date.
2.2 SECURITY RESTRICTIONS. On or before the Closing Date,
Buyer shall deliver to Seller, or cause to be delivered
to Seller a stock certificate or certificates representing
the shares specified under 2.1.b. above, in a form and
substance satisfactory to Seller, and which shall
effectively vest in Seller, as of the Closing Date, all
right, title and interest in and to the shares except
as set forth in the legend on the certificate(s), which
legend shall provide as follows:
("THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF FOR A PERIOD OF ONE
YEAR FROM THE ISSUANCE THEREOF, EXCEPT (I) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE LAW, OR (II) UPON THE EXPRESS WRITTEN
AGREEMENT OF THE COMPANY AND COMPLIANCE, TO THE EXTENT
APPLICABLE, WITH RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES)."
2.3 ASSUMPTION OF SPECIFIC LIABILITIES. Effective as of the
Closing Date, Buyer shall assume any and all of those
liabilities and obligations of Seller contained in
and/or associated with the Contract (the "Assumed
Liabilities"). It
Page 2 of 16
<PAGE>
is specifically understood and agreed, however, that any
payments due by Seller relating to the Assumed
Liabilities prior to the Closing Date which have not
been paid, shall be paid by Seller, unless otherwise
agreed on writing by Buyer subsequent to the Closing
Date. Buyer hereby agrees to assume the obligations of
Seller for the Assumed Liabilities as of, and after the
Closing Date. Nothing contained in this Agreement or any
of the documents of certificates delivered pursuant
hereto or contemplated hereby shall ever be deemed to
constitute an assumption by the Buyer or an agreement by
the buyer to assume any liability of Seller other than
the Assumed Liabilities specified on Exhibit "B", and as
provided for under this Section 2.4.
2.4 PRORATION OF TAXES. All property taxes and special
assessments payable but not yet due with respect to any
of the Assets listed on Exhibit "A", shall be prorated
between Buyer and Seller on the basis of actual days
elapsed between the commencement of the current fiscal
year and the Closing Date, based upon a 365-day year,
with Buyer assuming the obligations effective as of and
on the Closing Date, and Seller assuming the obligations
from the commencement of the fiscal year to the day
before the Closing Date. In connection with such
proration of taxes, in the event that the actual tax
figures for the year of the Closing are not available at
the Closing Date, an estimated, provisional proration of
taxes shall be made using tax figures from the preceding
year. When actual tax figures for the year of Closing
become available, a corrected and definitive proration
of taxes shall be promptly made. In the event that taxes
for the year of Closing exceed the amount estimated in
each provisional proration, Seller shall pay Buyer its
pro rata share of the amount by which the actual taxes
exceeded the estimated taxes. Similarly, in the event
that taxes for the year of Closing are less than the
amount estimated in such provisional prorations, Buyer
shall pay Seller its pro rata share of the amount by
which the estimated taxes exceed the actual taxes.
2.5 TRANSACTION TAXES AND OTHER CLOSING COSTS. Any sales,
use or similar transfer taxes, and any transfer,
recording or similar fees and charges arising out of or
in connection with this Agreement and the transfer of
Assets from Seller to
Page 3 of 16
<PAGE>
Buyer, shall be paid in full by the Buyer.
2.6 COMMISSIONS AND BROKERAGE FEES. Each of the parties hereto is
responsible for, and shall indemnify the other against, any
claim by third party to a fee, commission, bonus, or other
remuneration arising by reason of any services alleged to have
been rendered to or at the instance of said party to this
Agreement, with respect to the negotiation, execution or
implementation of this Agreement, or any of the transactions
contemplated hereby.
2.7 LIENS OR RESTRICTIONS ON THE ASSETS. Seller shall deliver a
fully executed Assignment of Contract and Contract Rights to
Buyer at time of Closing.
3. REPRESENTATION AND WARRANTIES BY SELLER. Seller represents and warrants
to Buyer as of the date hereof and as of the Closing Date the following:
3.1 FINANCIAL STATEMENTS. Seller has delivered to Buyer and Buyer
acknowledges receipt and/or opportunity to review copies of its
books and records, which correctly and fairly reflect gross
revenues, operating expenses and net profit of the business
attributable to the Contract through the periods shown on or
reported by such records. All such books and records fairly
represent the financial condition of the Seller's Assets and,
although unaudited, have been prepared and maintained in a manner
consistent with prior periods and correctly and fairly reflect the
financial status of the assets, including any applicable changes in
liabilities and capital.
3.2 TITLE TO ASSETS AND INDEMNITY. Seller has not made any prior
assignment of any interest in and to the Contract to any other
entity or party and has full authority to make the assignment of
the Contract as set forth herein. Additionally, Seller has not
pledged or hypothecated any interest in the Contract and Seller is
not, to its knowledge delinquent on any obligation under the
Contract as of or prior to Closing Date.
EXCEPT AS SET FORTH IN THIS SECTION 3, THERE ARE NO UNDERSTANDINGS,
REPRESENTATIONS, CONDITIONS OR WARRANTIES, EXPRESS OR IMPLIED,
BETWEEN THE PARTIES WITH RESPECT TO ANY NON-CONFORMANCE THE ASSETS
WITH REGARD TO ANY SPECIFICATION OR
Page 4 of 16
<PAGE>
EXPECTATION OF BUYER, OR REGARDING ANY DEFECT IN THE ASSETS OR ANY
OTHER THING DELIVERED UNDER THIS AGREEMENT. BUYER HEREBY WAIVES,
RELEASES AND RENOUNCES ALL OTHER REMEDIES, WARRANTIES, GUARANTEES,
OBLIGATIONS, REPRESENTATIONS OR LIABILITIES, EXPRESS OR IMPLIED, OF
SELLER, ITS OFFICERS, DIRECTORS, PRINCIPALS AND ITS AFFILIATES WITH
RESPECT TO ANY KNOWN OR SUBSEQUENTLY DISCOVERED DEFECTS IN EACH OF
THE ASSETS BEING TRANSFERRED HEREUNDER, OR ANY PART THEREOF,
INCLUDING ANY PRODUCT, DOCUMENT OR SERVICE DELIVERED OR PROVIDED
UNDER THIS AGREEMENT, ARISING IN FACT, IN LAW, IN CONTRACT, IN
TORT, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION: (a) ANY IMPLIED
WARRANTY OR CONDITION OF MERCHANTABILITY OF FITNESS; (b) ANY
IMPLIED WARRANTY OR CONDITION ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE; (c) ANY OBLIGATION, LIABILITY,
RIGHT, CLAIM OR REMEDY IN TORT (INCLUDING NEGLIGENCE OR STRICT
PRODUCT LIABILITY) OR OTHERWISE OF SELLER, ITS OFFICERS, DIRECTORS,
PRINCIPALS OR ITS AFFILIATES, BY REASON OF THE DESIGN, MANUFACTURE,
SALE, REPAIR, LEASE OR USE OF THE ASSETS OR ANY PRODUCT AND
SERVICES DELIVERED HEREUNDER; AND (d) ANY OBLIGATION, LIABILITY,
RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY ASSET OR PART
THEREOF.
BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD
HARMLESS SELLER, ITS SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND
LESSORS, AND THEIR RESPECTIVE EMPLOYEES, DIRECTORS, OFFICERS AND
AGENTS, AND EACH OF THEM, FROM AND AGAINST ALL LIABILITIES, CLAIMS,
DAMAGES, LOSSES, COSTS, AND EXPENSES FOR LOSS OF OR DAMAGE TO
PROPERTY INCLUDING ANY ASSET DESCRIBED HEREIN, AND LOSS OF USE
THEREOF, OR INJURIES TO OR DEATH OF ANY AND ALL PERSONS (INCLUDING
BUYERS, DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES BUT EXCLUDING
SELLER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES), ARISING
DIRECTLY OR INDIRECTLY OUT OF OR IN CONNECTION WITH ANY SERVICE
PROVIDED UNDER
Page 5 of 16
<PAGE>
THIS AGREEMENT, SUCH INJURY OR LOSS AROSE IN CONTRACT (INCLUDING
WITHOUT LIMITATION, WARRANTY) IN TORT (INCLUDING NEGLIGENCE OR
STRICT PRODUCT LIABILITY) OR OTHERWISE, EXCEPT TO THE EXTENT CAUSED
BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF SELLER, ITS
SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND LESSOR, OR THE
EMPLOYEES, DIRECTORS, OFFICERS AND AGENTS OF ANY OF THEM.
SELLER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD
HARMLESS BUYER, ITS SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND
LESSORS, AND THEIR RESPECTIVE EMPLOYEES, DIRECTORS, OFFICERS AND
AGENTS, AND EACH OF THEM, FROM AND AGAINST ALL LIABILITIES,
CLAIMS, DAMAGES, LOSSES, COSTS AND EXPENSES FOR LOSS OF OR DAMAGE
TO PROPERTY INCLUDING ANY ASSET DESCRIBED HEREIN, AND LOSS OF USE
THEREOF, OR INJURIES TO OR DEATH OF ANY AND ALL PERSONS (INCLUDING
SELLER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYES BUT EXCLUDING
BUYER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES), ARISING
DIRECTLY OR INDIRECTLY OUT OF OR IN CONNECTION WITH ANY SERVICE
PROVIDED UNDER THIS AGREEMENT, SUCH INJURY OR LOSS AROSE IN
CONTRACT (INCLUDING WITHOUT LIMITATION, WARRANTY) IN TORT (INCLUDING
NEGLIGENCE OR STRICT PRODUCT LIABILITY) OR OTHERWISE, EXCEPT TO THE
EXTENT CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF
BUYER, ITS SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND LESSORS, OR
THE EMPLOYEES, DIRECTORS, OFFICERS AND AGENTS OF ANY OF THEM.
NOTHING CONTAINED IN THIS SECTION SHALL BE CONSTRUCTED AS, AND
BUYER SPECIFICALLY DOES NOT AGREE TO DEFEND, INDEMNIFY, HOLD
HARMLESS SELLER OR ANY AFFILIATE OR THEIR AGENTS OR EMPLOYEES FROM
ANY CLAIM OF ANY KIND WHATSOEVER CAUSED BY THE WILLFUL MISCONDUCT
OR SOLE NEGLIGENCE OF SELLER OR ITS AFFILIATES OR ANY OF THEIR
AGENTS OR EMPLOYEES.
Page 6 of 16
<PAGE>
(a) ACCOUNTS RECEIVABLE. Seller and Buyer acknowledge that the
primary purpose of this agreement is to effectuate the
transfer assignment of the Contract, but that Buyer does not
desire to acquire and/or service the individual accounts
derived therefrom. To the extent that it is legally
permissible, Buyer desires that Seller service the individual
accounts and retain all funds received pursuant to same for
Seller's account.
3.3 CONTRACTS. Attached thereto as Exhibit "C" is a "Schedule of
Contracts" listing the following contracts, understandings,
commitments and agreements to which Seller is a party or bound
solely with respect to and/or arising from the Contract:
1. All oral or written contracts, understandings or commitments,
whether in the ordinary course of business or not,
involving a present or future obligation to deliver goods
or services of an amount or value in excess of Five Hundred
Dollars ($500.00) whatsoever, pertaining to the Assets
and/or business associated with the Name.
2. All bonus, incentive or deferred compensation, profit
sharing, pension, vacation, group insurance or employee
welfare plans of any nature whatsoever, pertaining to the
Assets and/or the business associated with the Name.
3. All collective bargaining agreements or other contracts or
commitments to or with any labor union, employee
representative or group of employees of any nature
whatsoever, pertaining to the Assets and/or the business
associated with the name.
4. All employment contracts, and all other contracts,
agreements or Commitments (whether written or oral) to or
with individual employees, agents of representatives, for a
period of thirty (30) days, or for a remuneration which
exceeds or will exceed in accordance with present
commitments, one Thousand Dollars ($1,000) per annum,
identifying the
Page 7 of 16
<PAGE>
individual and his position provided the document and
individual pertain to the Assets and/or the business
associated with the Name.
5. Any oral or written contract, understanding or commitment
which requires the consent of any party thereto to the
consummation of the transactions contemplated by the
Agreement.
6. All contracts, agreements or commitments which restrict the
ability of Seller to carry on its business anywhere in the
world; and
7. Any other contract or commitment not listed on other
Exhibits or Schedules hereto which is or may be material to
the business or Operation of Seller.
There has not been any default in any obligation to be performed by
Seller under any contract, commitment or agreement listed in
Exhibit "C" which default could adversely affect the property,
operations, business or prospects of Seller, and Seller has not
knowingly waived any right under any such contract, commitment or
agreement so as to adversely affect the property, operations,
business or prospects of Seller. True and complete copies of all
such written contracts and written summaries of all such oral
contracts will be furnished of made available to Buyer at least
seven (7) days before the Closing Date.
3.4 LITIGATION. Except ans set forth on Exhibit "E" attached hereto,
there is, to the best of Seller's knowledge, no actual or
threatened litigation, action, proceeding, claim, complaint,
accusation, or governmental investigation pending or threatened,
nor is there basis for any against of affecting Seller of Seller's
assets. There is no outstanding order, judgement or award by any
court, arbitrator or governmental body against of affecting
Seller's Assets.
3.5 TEXAS STATE LAWS. SELLER REPRESENTS TO THE BUYER THAT THE PURCHASE
AND SALE OF THE CONTRACT IS SUBJECT TO REVIEW AND APPROVAL BY THE
PUBLIC UTILITY COMMISSION AND SOUTHWESTERN BELL TELEPHONE COMPANY.
SELLER HAS, HOWEVER, COMPLIED WITH ALL LEGAL REQUIREMENTS OF THE
SELLER RELATED TO THE TRANSFER AND SALE OF THE CONTRACT TO THE
BUYER.
Page 8 of 16
<PAGE>
3.6 BOOKS AND RECORDS. Seller maintains its books, records and accounts
related to the Contract (including, but not limited to, those kept
for financial reporting purposes and for tax purposes) in
accordance with good business practice and in sufficient detail to
reflect accurately and fairly the transaction and dispositions of
its assets, liability and equities.
3.7 NO VIOLATION. Except for those consents and agreements set forth on
Exhibit "F" attached hereto which will have to be obtained prior to
Closing, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not:
1. Violate, conflict with or cause any default under or
acceleration of (or give any party any right to declare any
default or acceleration upon notice or passage of time or
both), in whole or in part, any character, certificate of
incorporation, by-law, mortgage, lien, deed of trust,
indenture, lease, agreement, instrument, order, injunction,
decrees, judgement or any other restrictions of any kind of
character to which Seller is a party or by which it or any
of its properties is bound;
2. Result in the certain of any security interest, lien,
encumbrance, adverse claim, proscription or restriction on
any property or asset (whether real, personal, mixed,
tangible, or intangible) right contract, agreement or
business of Seller; violate any statute or any rule or
regulation of any governmental body; or Permit and
governmental body to impose any restrictions or limitations
of any nature on Seller or its activities.
3.8 CONSENTS. Except as set forth in Exhibit "G" attached hereto, no
consent, approval, authorization or order of or filing with any court,
any governmental body, or any insurer of or other party to agreements,
licenses, leases, sales orders, permits, franchises, rights and other
obligations of Seller is required for the execution and delivery of
this Agreement and the consummation of the transactions contemplated
in this Agreement.
Page 9 of 16
<PAGE>
3.9 DUE AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has all
requisite power and authority to enter into this Agreement, to
sell and convey the Assets and to carry out the other
provisions and conditions hereof. This Agreement has been duly
authorized, executed and delivered by Seller and constitutes a
valid and legally binding agreement of Seller enforceable in
accordance with its terms.
3.10 FULL DISCLOSURE. No representation or warranty of Seller made
in this Agreement, or any written statement furnished to Buyer
pursuant hereto, or in connection with the transactions
contemplated hereby, heretofore furnished Buyer by Seller,
contains or will contain any untrue statement of a material
fact which affects the Assets of Seller, or Seller's title to
the Assets or omits or will omit to state a material fact
unnecessary to make the statements or facts contained herein
or therein not misleading. Seller has not withheld and will
not withhold from Buyer knowledge of any events, conditions or
facts which may affect the Assets or Seller's title to the
Assets.
4. REPRESENTATIONS AND WARRANTIES BY BUYER. Buyer represents and
warrants to Seller as of the date hereof and as of the Closing Date
as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is duly organized and
existing and in good standing under the laws of the State of
Texas.
4.2 AUTHORITY. The execution of this Agreement by Buyer, its
delivery to Seller and the performance of its terms have been
fully authorized by the Board of Directors of Buyer, and not
further corporate action will be necessary on its part to make
this Agreement valid and binding upon Buyer in accordance with
its terms. Neither the execution or delivery of this Agreement
nor its performance will result in a violation breach of any
term or provision or, nor constitute a default under, its
Articles of Incorporation or By-laws.
4.3 FULL DISCLOSURE. No representation or warranty of Buyer made
in this Agreement, nor any written statement furnished to
Seller pursuant hereto, or in connection with the transactions
contemplated hereby, heretofore furnished to Seller by Buyer,
contains or will contain any untrue statement of a material
fact
Page 10 of 16
<PAGE>
which affects the business or financial condition of Buyer, or
omits or will omit to state a material fact necessary to make
the statements or facts contained herein or therein not
misleading.
5. AGREEMENT BY SELLER.
5.1 NOTICES AND APPROVALS. Seller agrees to provide Buyer with
reasonable assistance to give all notices to third parties and
obtain all consents, approvals, permits and authorizations
which may be necessary or deemed desirable by Buyer in
connection with this Agreement and the consummation of the
transactions contemplated herein, including the releases of
all liens and encumbrances attached to the Assets on the date
hereof and the Closing Date.
5.2 EMPLOYEES. Seller will do nothing to dissuade any of its
employees from becoming employed by Buyer after the Closing;
and Seller will not terminate, lay off or transfer any such
employees without the written consent of Buyer, prior to the
Closing.
5.3 FURTHER INSTRUMENTS. Seller will, at the request of Buyer,
execute and deliver to Buyer all such further instruments,
assignments, assurances and documents as Buyer may reasonably
request in connection with the carrying out of this Agreement.
5.4 CUSTOMERS. Buyer and Seller acknowledge and agree that to the
extent that Seller retains and/or continues to service any
specific customer account derived from and/or associated with
the Contract and in the event that a customer complains after
the sale of the Business regarding the services or work
performed prior to the sale, Buyer shall have the initial
contact with such customer. Buyer agrees that prior to taking
actions (other than are reasonably necessary) to remedy the
customer complaint, Buyer shall consult with Seller regarding
the final plans to obtain the customer's satisfaction.
6. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE.
In addition to all obligations of Buyer contained in this Agreement,
the obligation of Buyer to close shall be subject to the following
conditions precedent:
Page 11 of 16
<PAGE>
6.1 COMPLIANCE WITH OBLIGATIONS. Fulfillment by Seller of its
covenants, obligations and agreements as set forth in this
Agreement.
6.2 CORRECTNESS OF REPRESENTATIONS. The representations of Seller
contained in this Agreement shall be accurate in all material
respects on the date when made and shall also be accurate on
the Closing Date to the same extent as if made on such date.
6.3 CONSENTS. Buyer acknowledges that it must contain consent
from Southwestern Bell Telephone Company to approve Seller's
assignment of the Contract to Buyer.
6.4 NO INJUNCTION. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent
jurisdiction, directing that the transactions provided for
herein or any of them not be consummated as herein provided.
6.5 CONSENTS OF GOVERNMENTAL AGENCIES. Buyer acknowledges that it
must obtain consent from one or more governmental,
administrative and/or regulatory agencies to effectuate the
assignment of the Contract to Buyer. Seller agrees to provide
Buyer with reasonable assistance and cooperation in the
seeking and obtaining of any and all such approvals, provided
however, that the failure of Buyer to receive any such
approvals shall not invalidate this agreement nor be a default
hereunder.
6.6 APPROVAL OF BOARD OF DIRECTORS. Buyer shall have obtained the
approval of its Board of Directors authorizing it to proceed
with the transactions contemplated herein.
7. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE.
In addition to all obligations of Seller contained in the Purchase
Agreement, the obligation of Seller to close shall be subject to the
following conditions precedent:
7.1 AUTHORIZATION. Seller shall have received a certified copy of
the resolutions of the Board of Directors of Buyer, certified
by its Secretary or an Assistant Secretary, authorizating the
execution of this Agreement and the consummation of the
transactions contemplated hereby.
Page 12 of 16
<PAGE>
7.2 CORRECTNESS OF REPRESENTATIONS. The representations and
warranties of Buyer contained in this Agreement shall be
accurate in all material respects on the Closing Date to the
same extent as if made on that date.
8. OTHER AGREEMENTS.
8.1 FURTHER ASSURANCES. From time to time, at Buyer's request,
whether at or after the Closing and without further
consideration, Seller, at Buyer's sole expense, including the
reimbursement to Seller of any legal fees which Seller
reasonably incurs with respect to same will execute and
deliver such further instruments of assignment, conveyance and
transfer and take such other action as the Buyer may
reasonably require to assign, convey and transfer to Buyer any
of the Assets intended to be sold hereunder.
8.2 MAINTENANCE AND RETENTION OF BOOKS AND RECORDS. For a period
of seven years after the Closing Date, the parties shall
retain all books and records relating to the Assets, and any
party wishing to dispose or destroy books or records shall
provide not less than 60 days prior written notice to the
other parties of such proposed action. If the recipient of
such notice desires to obtain any of such documents, it may do
so by notifying the other party in writing at any time prior
to the scheduled date for such destruction or disposal. Such
notice must specify the documents which the requesting party
wishes to obtain. The parties shall then promptly arrange for
the delivery of such documents. All out-of-pocket costs
associated with the delivery of the requested documents shall
be paid by the requesting party.
8.3 CONFIDENTIALITY. Each party hereto will hold and will cause
its consultants and advisors to hold in strict confidence,
unless compelled to disclose by judicial or adminstrative
process or, in the opion of its counsel, by other requirements
of law, all documents and information concerning the other
party furnished it by such other party or its representative
in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be
shown to have been (i) previously known by the party to which
it was furnished, (ii) in the public domain through no fault
of such party, or (iii) later lawfully acquired from other
sources by the party to which it was furnished), and each
party will not release or disclose such information to any
other person, except its auditors, attorneys, financial
advisors,
Page 13 of 16
<PAGE>
bankers and other consultants and advisors in connection with
this Agreement. Each party shall be deemed to have satisfied
its obligation to hold confidential information concerning or
supplied by the other party if it exercises the same care as
it takes to preserve confidentiality for its own similar
information. In the event of termination of this Agreement,
each party shall use its best efforts to return to the other
party all documents and copies thereof received from the other
party that contain information subject to the confidentiality
requirements of this Section.
9. CLOSING DATE AND TERMINATION.
9.1 CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the
location of the Seller on or before March 22, 2000, or at such
later date as Buyer and Seller may mutually agree upon, such
time and date being herein called the "Closing Date".
9.2 TERMINATION. This Agreement may be terminated at any time (i)
by mutual consent of all parties or (ii) as either Buyer or
Seller at any time in the event of a breach of the other which
remains uncured for thirty (30) days after notice in writing
of such breach.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. The representations and
agreements made herein are true and binding as of the date hereof
and shall continue in full force and effect on and after the Closing
Date notwithstanding any investigations which may have been made by
any of the parties prior thereto.
11. INDEMNIFICATION. Buyer and Seller shall indemnify and hold harmless
each other from any liability, damage, deficiency, loss, cost or
expense, including attorney fees and any costs of investigation
(being hereafter referred to as "Costs"), arising from or
attributable to any breach of any representation, warranty or
agreement made by either party herein or in any certificate
delivered at the Closing with respect thereto.
12. EXPENSES. Each party hereto shall bear its or his own expenses
incurred pursuant to this Agreement except as otherwise specifically
set forth herein.
13. ENTIRE AGREEMENT. This Agreement, together with the Exhibits and
Schedules referred to herein which are incorporated herein by this
reference, and the agreements referred to herein, shall constitute
the
Page 14 of 14
<PAGE>
entire agreement between the parties hereto with respect to the
transactions contemplated hereby.
14. CONSTRUCTION AND JURISDICTION. The parties agree that this
Agreement shall be construed and enforced in accordance with the
governed by the laws of the State of Texas, and any proceeding
instituted as a result of this Agreement shall be brought in the
court of proper jurisdiction in Harris County, Texas.
15. ATTORNEYS FEES. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its
terms, or in any appeal therefrom, it is agreed that the prevailing
party shall be entitled to reasonable attorneys fees to be fixed by
the arbitrator, trial court and/or appellate court.
16. INVALID PROVISIONS. If any provision hereof is held to be illegal,
invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable.
This Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a party
hereof, and the remaining provision 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.
Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically by the Company as part
of a provision as similar in terms of such illegal, invalid or
unenforceable provision as may be possible and legal, valid and
enforceable.
17. NUMBER AND GENDER OF WORDS. When the context so requires in this
Agreement, words of gender shall include either or both of the other
genders and the singular number shall include the plural.
18. ASSIGNMENTS. This Agreement shall be binding upon the parties
hereto, their successors and assigns, and shall not be assignable
without the express written consent of all parties hereto.
19. AMENDMENTS. This Agreement may be amended only by a written
agreement executed by all of the parties thereto.
20. NOTICES. All notices, request, consents and other communications
hereunder shall be in writing and shall be delivered in person, by
facsimile, or by registered or certified mail, return receipt
requested, postage and fees prepaid, first class mail;
Page 15 of 16
<PAGE>
If to Seller: AFANEH, INC.
7710 Bellaire, Suite K
Houston, Texas 77036
Attn: Mr. Mohammad K. Afaneh
Facsimile: 713.988.1045
If to Buyer: 2-Infinity.com, Inc.
4828 Loop Central Drive, Suite 150
Houston, Texas 77081
Attn: Majed Jalali, President
Facsimile: 713.592.0378
Any party hereto may change the address or facsimile number by written
notice to the other party. All such notices shall be deemed to be given
when delivered in person, or if placed in the mail as aforesaid, then
four (4) days thereafter.
21. AUTHORITY. Each party executing this Agreement warrants his authority
to execute this Agreement.
22. COUNTERPARTS. This Agreement may be executed in several counterparts
and it shall not be necessary for each party to execute each of such
counterparts, but when all of the parties have executed and delivered
one of such counterparts, when taken together, shall be deemed to
constitute one and the same instrument, enforceable against each party
in Accordance with its terms.
23. FACSIMILE SIGNATURES. The parties hereto agree that this Agreement may
be executed by facsimile signatures and such signatures shall be deemed
originals. The parties further agree that within three (3) days
following the execution of the Agreement, they shall exchange original
signature pages.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date and year first above written.
"SELLER" "BUYER"
AFANEH, INC. 2-INFINITY.COM, INC., a subsidiary of
Lakota Technologies, Inc.
/s/ Mohammad K. Afaneh /s/ Majed Jalali
- ----------------------- -------------------------
By: Mohammad K. Afaneh By: Majed Jalali
Its: President Its: President
Page 16 of 16
<PAGE>
EXHIBIT A
RESALE AGREEMENT BETWEEN SOUTHWESTERN BELL TELEPHONE COMPANY
AND AFANEH, INC. TO BE ATTACHED AFTER BUYER'S CHECK HAS BEEN PAID
IN GOOD FUNDS TO SELLER'S BANK.
<PAGE>
EXHIBIT B
ASSUMED LIABILITIES:
NONE EXCEPT AS SET FORTH IN THE CONTRACT.
<PAGE>
EXHIBIT C
SCHEDULE OF CONTRACTS:
NONE EXCEPT AS SET FORTH IN THE CONTRACT.
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
LITIGATION:
NONE TO THE BEST OF SELLER'S KNOWLEDGE.
<PAGE>
EXHIBIT F
VIOLATIONS:
NONE TO THE BEST OF SELLER'S KNOWLEDGE.
<PAGE>
EXHIBIT G
CONSENTS:
TO THE BEST OF SELLER'S KNOWLEDGE, THERE ARE NO CONSENTS, APPROVALS,
AUTHORIZATIONS OR ORDERS REQUIRED FOR THE EXECUTION AND DELIVERY OF THIS
AGREEMENT. HOWEVER, AS A CONDITION TO THE ASSIGNMENT OF THE SUBJECT
CONTRACT, BUYER MUST OBTAIN THE APPROVAL OF ONE OR MORE ENTITIES INCLUDING
BUT NOT LIMITED TO SOUTHWESTERN BELL TELEPHONE COMPANY AND THE PUBLIC UTILITY
COMMISSION.
<PAGE>
CONSENT OF JONES, JENSEN & COMPANY
We hereby consent to the use of our audit report dated April 14, 2000 in this
Form 10-KSB of Lakota Technologies, Inc. and Subsidiaries for the year ended
December 31, 1999, which is part of this Form 10-KSB and all references to
our firm included in this Form 10-KSB.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED LAKOTA
TECHNOLOGIES, INC AND FROM SUBSIDIARIES CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 65,413
<SECURITIES> 0
<RECEIVABLES> 18,312
<ALLOWANCES> (1,268)
<INVENTORY> 0
<CURRENT-ASSETS> 99,938
<PP&E> 84,091
<DEPRECIATION> (12,263)
<TOTAL-ASSETS> 228,991
<CURRENT-LIABILITIES> 8,711,493
<BONDS> 0
0
0
<COMMON> 5,662,968
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 228,991
<SALES> 257,316
<TOTAL-REVENUES> 257,316
<CGS> 159,209
<TOTAL-COSTS> 159,209
<OTHER-EXPENSES> 12,262,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,042
<INCOME-PRETAX> (12,588,149)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,588,149)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,588,149)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
</TABLE>
