AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON *
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
First Enterprise Service Group, Inc.
(Exact name of registrant as specified in its charter)
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Florida 6770 Applied For
State or other jurisdiction of PRIMARY STANDARD INDUSTRIAL I.R.S. Employer
incorporation or organization CLASSIFICATION CODE NUMBER Identification No.
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2503 W. Gardner Ct.,
Tampa, FL 33611
813. 831-9348
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Michael T. Williams
PRESIDENT
First Enterprise Service Group, Inc.
2503 W. Gardner Ct.
Tampa, FL 33611
TELEPHONE: 813.831.9348
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this registration statement becomes effective and
after the closing of the merger of the proposed merger described in this
registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b, under the securities act,check the following box and
list the securities act registration statement number of the earlier effective
registration statement for the same offering. *[ ] *registration number,
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the securities act, check the following box and list the securities act
registration statement number of the earlier effective registration statement
for the same offering. *[ ] *registration number,
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. *[ ]
------------------------
CALCULATION OF REGISTRATION FEE
Title of each
class of Amount
securities to be Proposed Proposed Amount of
to be registered maximum maximum registration
registered per unit offering price aggregate fee
Common
Stock, par
Value - no 25,418,423 $.001 $2,541.84 $847.28
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(1) Represents an estimate of the maximum number of shares of common stock of
Registrant which may be issued to former holders of shares of common stock of
Space Systems International pursuant to the merger described herein. (2)
Theregistration fee has been calculated pursuant to Rule 457(f)(2). As of the
filing of this registration statement, Space Systems International had an
accumulated capital deficit. In addition, Space Systems International's common
stock has no par value. Accordingly, the proposed maximum offering price has
been calculated by multiplying one-third,1/3, of an assumed par value for Space
Systems International's Common Stock of .0001par per share, pursuant to Delaware
law by the maximum number of shares to be issued to the holders of Space Systems
International common stock in the merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
Space Systems International, Corporation
INFORMATION STATEMENT FOR STOCKHOLDERS OF SPACE SYSTEMS INTERNATIONAL, CORP..
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First Enterprise Service Group, Inc.
PROSPECTUS
Space Systems International, Inc., a Delaware corporation, and First Enterprise
Service Group, Inc., a Florida corporation have entered into a merger agreement.
As a result of the merger, each outstanding share of Space Systems International
common stock, other than dissenting shares, as discussed later in this document,
will be exchanged for one share of First Enterprise Service Group common stock.
When the merger closes, First Enterprise Service Group will change its name to
Space Systems International and will be the surviving corporation. It will
become a reporting company under the Exchange Act and file to have its stock
quoted on the OTC Bulletin Board.
The following table contains comparative share information for stockholders of
Space Systems International and First Enterprise Service Group immediately after
the closing of the merger.
<TABLE>
<CAPTION> The former stockholders of The current stockholders Total
Space Systems International* of First Enterprise Service Group
----------------- --------------------------- ------------------------------------ ------------
----------------- --------------------------- ------------------------------------ ------------
<S> <C> <C> <C>
Number 24,655,870 762,553 25,418,423
Percentage 97% 3% 100%
----------------- --------------------------- ------------------------------------ ------------
</TABLE>
*Assumes conversion of 7,120,720 shares of Class A preferred stock and exercise
of options to acquire an additional 3,500,000 shares of SSI common stock.
Written consents are being solicited from stockholders of Space Systems
International. Assuming consents are secured from stockholders owning more than
50% of the stock of Space Systems International, stockholders who did not
consent to the merger will, by otherwise complying with Delaware corporate law,
be entitled to dissenters' rights with respect to the proposed merger. No
consents will be solicited or accepted until after the effective date of this
information statement for stockholders of Space Systems
International/prospectus. Based upon the ownership of more than 50% of Space
Systems International common stock by officers, directors and affiliates, it
appears that a favorable vote is assured.
The merger presents some risks. We suggest SSI stockholders review "Risk
Factors" beginning on page 14. Stockholders of Space Systems International who
do not wish to give their written consent have dissenters' rights of appraisal
under Delaware law. These are discussed in detail beginning on page 25.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved the First Enterprise Service Group
common stock to be issued in the merger or if this information statement for
stockholders of Space Systems International /prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this information statement for stockholders of Space Systems
International prospectus is ----, and it is first being mailed to Space Systems
International stockholders on or about ----.
SOLICITATION OF WRITTEN CONSENTS
NOTICE IS HEREBY GIVEN to stockholders of Space Systems International, Inc. that
in accordance with the provisions of Delaware law, SSI stockholders are asked to
consider and give SSI stockholders written consent to a proposal to approve:
o The merger agreement and plan of reorganization dated as of between Space
Systems International, a Delaware corporation, and First Enterprise Service
Group, Inc., a Florida corporation
o The articles of merger which will be filed with the offices of the secretary
of state of the state of Delaware.
In the materials accompanying this notice, SSI stockholders will find an
information statement for stockholders of Space Systems International/prospectus
relating to the merger proposal and a form of written consent. The information
statement for stockholders of Space Systems International/prospectus more fully
describes the proposal and includes information about First Enterprise Service
Group and Space Systems International. We strongly urge SSI stockholders to read
and consider carefully this document in its entirety.
Space Systems International's board of directors has determined that the merger
is fair to SSI stockholders and in SSI stockholders best interests. Accordingly,
the board of directors of Space Systems International has unanimously approved
the merger agreement and the board unanimously recommends that SSI stockholders
consent to the transaction.
Space Systems International, Inc.
John M. Papazian,
Chairman and President
WRITTEN CONSENT
If SSI stockholders want to give SSI stockholders consent and vote FOR the
merger, please sign below and return to:
John M. Papazian,
Chairman and President
Space Systems International Corporation
11440 West Bernardo Court, Suite 300
San Diego, CA 92127
Telephone: 619/674-6600
Stockholder
#1 Signature________________________________________________________
Print
or
Type Name___________________________________________________________
Stockholder
#2 Signature________________________________________________________
Print
or
Type Name___________________________________________________________
Number
of Shares__________________________________________________________
If SSI stockholders do not wish to give SSI stockholders consent to vote for the
merger, SSI stockholders may do nothing. Remember, however, that SSI
stockholders must comply with the appropriate provisions of Delaware law to
exercise dissenters rights.
SUMMARY
In the merger, Space Systems International's stockholders will exchange shares
with First Enterprise Service Group, and First Enterprise Service Group will be
the surviving company of Space Systems International. The merger agreement is
attached as an exhibit to the registration statement.
The Companies
First Enterprise Service Group, Inc.
2503 W. Gardner Ct.
Tampa, FL 33611
Telephone: 813/831-9348
We were organized under the laws of the state of Florida in April, 1999. Since
inception, our primary activity has been directed to organizational efforts. We
were formed as a vehicle to acquire through a registered securities offering a
private company desiring to become an SEC reporting company in order thereafter
to secure a listing on the over the counter bulletin board.
We have never offered or sold any securities in either a registered or
unregistered transaction except for issuing shares to our 17 stockholders upon
our formation.
Space Systems International Corporation
11440 West Bernardo Court, Suite 300
San Diego, CA 92127
Telephone: 619/674-6600
SSI was incorporated in Delaware in 1998. SSI markets remote sensing and
telecommunications systems, products and services.
Comparison of the percentage of outstanding shares entitled to vote held by
directors, executive officers and their affiliates and the vote required for
approval of the merger
Eighty-six percent of First Enterprise Service Group's shares are held by its
directors, executive officers and their affiliates. A majority vote of the
issued and outstanding shares is required to approve the merger. Stockholders
owning more than 50% of our common stock have executed a written consent voting
to approve the merger. No further consent of SSI stockholders or any of the
stockholders of First Enterprise Service Group is necessary to approve the
merger under the laws of the state of Florida.
Approximately 54.05% of Space Systems International's shares are held by its
directors, executive officers and their affiliates. A majority vote of the
issued and outstanding shares is required to approve the merger. Assuming
consents are secured from stockholders owning more than 50% of the stock of
Space Systems International, stockholders who did not consent to the merger
will, by otherwise complying with Delaware corporate law, be entitled to
dissenters' rights with respect to the proposed merger. No consents will be
solicited or accepted until after the effective date of this information
statement for stockholders of Space Systems International/prospectus. Based upon
the ownership of more than 50% of Space Systems International common stock by
officers, directors and affiliates, it appears that a favorable vote is assured.
No regulatory approval required
Neither First Enterprise Service Group nor Space Systems International is aware
of any governmental regulatory approvals required to be obtained with respect to
the closing of the merger, except for the filing of the articles of merger with
the offices of the secretary of state of the state of Delaware, the filing with
the Commission of the registration statement on Form S-4 registering the shares
and this information statement for stockholders of Space Systems
International/prospectus, and compliance with all applicable state securities
laws regarding the offering and issuance of the shares.
Dissenters' rights
Dissenters' rights of appraisal exist. In general, under Delaware law, any
stockholder who does not give consent for the merger and files a written demand
for appraisal with Space Systems International within 20 days after receiving
notice will be paid the fair value of the shares on the date of the closing of
the merger, as determined by the a Delaware court. These rights the way SSI
stockholders exercise them are discussed in greater detail beginning on page 25.
Federal income tax consequences
Tax matters are very complicated and the tax consequences of the merger to SSI
stockholders will depend on the facts of SSI stockholders own situation. SSI
stockholders should consult SSI stockholders tax advisors for a full
understanding of the tax consequences of the merger to SSI stockholders. In the
merger, neither Space Systems International nor its stockholders will recognize
gain or loss for federal income tax purposes as a result of the merger, as
further discussed on page 25.
Other Information for Space Systems International Stockholders:
o Do not send in SSI stockholders Space Systems International stock
certificates now. If the merger is completed, we will send SSI
stockholders written instructions for exchanging SSI stockholders
shares.
o The merger has been structured as a tax-free reorganization. The
tax basis in SSI stockholders Space Systems International common
stock will carryover and become the tax basis in SSI stockholders
new shares of First Enterprise Service Group common stock.
o Like Space Systems International, First Enterprise Service Group
has never paid any dividends.
o If SSI stockholders have any questions about the merger, please
call Ed Daly, at Space Systems International at (619)-283-7648.
Selected Historical Financial Information
The following selected historical financial information of Space Systems
International and First Enterprise Service Group has been derived from their
respective historical financial statements, and should be read in conjunction
with the financial statements and the notes, which are included in this
information statement for stockholders of Space Systems International
prospectus.
SPACE SYSTEMS INTERNATIONAL SELECTED HISTORICAL FINANCIAL INFORMATION
SSI SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information should be read in conjunction with
the SSI audited financial statements for the years ended February 28, 1999 and
February 29, 2000 included elsewhere in the registration statement and
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The historical selected financial information for the three months
ended May 31, 1999 and 2000 are derived from and should be read in conjunction
with the SSI unaudited financial statements included elsewhere in the
registration statement. The unaudited financial statements, in our opinion,
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for the periods presented. The results of
operations for the three months ended May 31, 2000 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION> Years ended
February 28, February 29, Three months ended May 31,
1999 2000 1999 2000
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $58,526 $897,321 $104,662 $160,850
Cost of revenue 10,341 560,161 39,086 111,553
Gross margin 48,185 337,160 65,576 49,297
Operating expenses 501,153 1,750,001 110,720 41,333
Interest expense 2,097 26,493 952 1,773
Net income (loss) $(455,065) $(1,439,334) $(46,096) $6,191
Basic and diluted
net income (loss)
per share $(0.05) $ (0.13) $(0.005) $0.0005
</TABLE>
Shares used to compute basic and diluted net income (loss) 9,464,417
11,028,067 10,150,150 13,035,150 per share The following table sets forth, for
the periods indicated, certain operating information expressed as a percentage
of revenue. The results of operations data for the three months ended May 31,
2000 are not necessarily indicative of the results to be expected for the full
year or future periods.
<TABLE>
<CAPTION>
Years Ended
February 28, February 29, Three months ended May 31,
1999 2000 1999 2000
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statement of operations data
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenue 17.7% 62.4% 37.3% 69.4%
Gross margin 82.3% 37.6% 62.7% 30.6%
Operating expenses 856.3% 195.0% 105.8% 25.7%
Interest expense 3.6% 3.0% 0.9% 1.1%
Net income (loss) (777.5%) (160.4%) (44.0%) 3.8%
</TABLE>
FIRST ENTERPRISE SERVICE GROUP SELECTED HISTORICAL FINANCIAL DATA
The following information concerning our financial position and operations is as
of and for the year ended December 31, 1999.
Total assets $0
Total liabilities 0
Equity 79
Sales 0
Net loss (79)
Net loss per share 0.00
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF SPACE SYSTEMS
INTERNATIONAL AND FIRST ENTERPRISE SERVICE GROUP
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION AND FIRST
ENTERPRISE SERVICE GROUP INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
February 29, 2000
First
Space Systems Enterprise
International Corp. Service Group Inc. Pro Forma
February 29, December 31, Pro Forma February 29,
2000 1999 Adjustments 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $37,193 $- $- $37,193
Accounts receivable 87,548 - - 87,548
Common stock
subscriptions receivable 56,000 - - 56,000
Prepaid expenses - - - -
Deferred consulting
expenses 500,712 - - 500,712
Total current assets 681,453 - - 681,453
Fixed assets:
Furniture and equipment,
net of accumulated
depreciation
of $3,692 2,397 - - 2,397
Other noncurrent assets 397 - - 397
Total assets $684,247 $- $- $684,247
Current liabilities:
Accounts payable and
accrued liabilities $264,490 $- $- $264,490
Notes payable 44,079 - - 44,079
Deferred revenue 34,700 - - 34,700
Total current liabilities 343,269 - - 343,269
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock 712 - - 712
Common stock 1,404 79 - 1,483
Contributed and
paid in capital 2,418,499 - - 2,418,499
Common stock
subscriptions
receivables (50,000) - - (50,000)
Accumulated deficit (2,029,637) (79) - (2,029,716)
Total shareholders'
equity (deficit) 340,978 - - 340,978
Total liabilities and
shareholders' equity $684,247 $- $- $684,247
</TABLE>
SPACE SYSTEMS INTERNATIONAL CORPORATION AND FIRST ENTERPRISE SERVICE GROUP INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended February 29, 2000
<TABLE>
<CAPTION> First
Space Systems Enterprise
International Corp. Service Group Inc.
For the year For the period Pro Forma
ended April 6, 1999 to Pro Forma Combined
February 29, 2000 December 31, 1999 Adjustments February 29, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $897,321 $- $- $897,321
Cost of revenues 560,161 - 560,161
Gross margin 337,160 - - 337,160
Operating expenses 1,750,001 79 - 1,750,080
Interest expense 26,493 - - 26,493
Net gain (loss) $(1,439,334) $(79) $- $(1,439,413)
Basic net income
per share $(0.13) $(0.00)
$(0.13)
Shares used to compute
basic net income per
share 11,028,067 3,000,000 11,028,067
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION AND FIRST ENTERPRISE SERVICE GROUP INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
May 31, 2000
First
Space Systems Enterprise
International Corp. Service Group Inc. Pro Forma
May 31, March 31, Pro Forma May 31,
2000 2000 Adjustments 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $14,999 $- $- $14,999
Accounts receivable 87,190 - - 87,190
Common stock subscriptions receivable - - - -
Prepaid expenses - - - -
Deferred consulting expenses 500,712 - - 500,712
Total current assets 602,901 - - 602,901
Fixed assets:
Furniture and equipment, net of
accumulated depreciation
of $3,892 2,197 - - 2,197
Other noncurrent assets 397 - - 397
Total assets $605,495 $- $- $605,495
Current liabilities:
Accounts payable and
accrued liabilities $204,861 $- $- $204,861
Notes payable 53,665 - - 53,665
Deferred revenue - - - -
Total current liabilities 258,526 - - 258,526
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock 712 - - 712
Common stock 1,404 79 - 1,483
Contributed and paid in capital 2,418,499 1,000 - 2,419,499
Common stock subscriptions receivables (50,000) - - (50,000)
Accumulated deficit (2,023,646) (1,079) - (2,024,725)
Total shareholders' equity (deficit) 346,969 - - 346,969
Total liabilities and
shareholders' equity $605,495 $- $- $605,495
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION AND FIRST ENTERPRISE SERVICE GROUP INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For three months ended May 31, 2000
First
Space Systems Enterprise
International Corp. Service Group Inc.
For the year For the 3 months Pro Forma
ended ended Pro Forma Combined
May 31, 2000 March 31, 2000 Adjustments May 31, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $160,850 $- $- $160,850
Cost of revenues 111,553 - - 111,553
Gross margin 49,297 - - 49,297
Operating expenses 41,533 1,000 - 42,333
Interest expense 1,773 - - 1,773
Net gain (loss) $5,991 $(1,000) $- $4,991
Basic net income per share $ .0005 $ (0.00) $.0003
Shares used to compute basic net
income per share 13,035,150 3,000,000 16,035,150
</TABLE>
RISK FACTORS
Because SSI has experienced losses, including a loss of $1,439,334 for the year
ended February 29, 2000 and SSI expects its expenses to increase, SSI may not be
able to achieve profitability.
Almost since its inception, SSI has incurred losses. As of the end of its last
fiscal year, SSI had an accumulated deficit of $2,029,637. SSI expects to
continue to incur losses until it is able to significantly increase revenues
from sales of its remote sensing and telecommunications systems, products and
services. SSI's operating expenses are expected to continue to increase
significantly in connection with its proposed expanded activities, particularly
with regard to more aggressive marketing. To a large extent these expenses are
fixed. At the same time, SSI cannot be certain that it will be able to
accurately predict its revenues, particularly in light of the general
uncertainty and intense competition for the sale of remote sensing and
telecommunications systems, and SSI's limited operating history. Accordingly,
SSI's future profitability will depend on its ability to increase its revenues
while controlling costs. SSI may never become or remain profitable.
SSI needs to obtain at least $500,000 in additional sales or financing, or both,
in the next 12 months or it will not be able to remain a going concern, in which
case SSI stockholders stock will probably have no value.
SSI's independent certified public accountants have pointed out that SSI has an
accumulated deficit and negative working capital such that SSI's ability to
continue as a going concern is dependent upon obtaining additional capital and
financing for our planned operations.
If SSI does not secure this additional $500,000 revenue or financing in the next
12 months, then SSI stockholders will probably lose SSI stockholders entire
investment. SSI has no commitment from any source to provide any financing. If
SSI does not generate the required amount in sales revenues, SSI might not be
able to secure these necessary funds from a financing transaction.
SSI will depend on individual product orders short-term contracts that may not
be renewed if customers stop ordering its remote sensing and telecommunications
systems, products and services or cancel or do not renew contracts. If that were
to happen, it would reduce SSI's revenues and increase its losses.
SSI anticipates that it will derive a significant portion of its revenues from
the sale of its remote sensing equipment and telecommunications systems,
products and services. A significant number of these remote sensing and
telecommunications products and services sales will be made under short-term
contracts that average less than 12 months in length. Many of SSI's short term
contract customers for its products and services could cease purchasing either
or products and services quickly and without penalty. As a result, SSI's
quarterly operating results will depend heavily on revenues from individual
sales contracts for its remote sensing and telecommunications systems, products
and services entered into within the quarter and on its ability to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
If customers stop placing individual orders or cancel or defer existing remote
sensing and telecommunications systems and products and services contracts or if
we fail to obtain new contracts in any quarter, SSI's revenues for that quarter
and future periods will be reduced.
SSI may not be able to compete successfully as there is increased competition
from larger, better financed competitors with larger sales staffs. Its inability
to compete successfully could reduce its revenues or even cause it to go out of
business.
The market for remote sensing and telecommunications systems, products and
services is intensely competitive and rapidly changing. SSI is subject to
competition that is expected to intensify in the future because the number of
competitors is increasing. For example, 5 years ago, there were no real
competitors in this business. Today. SSI is significantly smaller than the
majority of our national and multinational competitors, and SSI may lack the
financial resources needed to capture increased market share.
For example, its larger competitors
o Are better known
o Have longer operating histories
o Have well-established reputations forproviding remote sensing and
telecommunications systems.
o Have broader distribution abilities
o Have strongersales and marketing abilities
o Have more technical expertise
o Have greater human and financial resources
SSI currently does not have the human or financial resources needed to compete
on this level.
SSI's revenues would be significantly reduced if Globalstar and Ericsson, its
major customers, ceased to purchase from it, which could easily happen.
SSI is dependent on the purchase of telecommunications engineering support in
Russia from us to Globalstar and Ericsson. These customers account for in excess
of 96% of its sales. The agreements with these customers are short-term in
nature and can be canceled with a 30 day notice and 3 months termination pay
required under Russian law.
If SSI cannot obtain access to the required remote sensing images or to
telecommunications products that make up part of SSI's systems, sales of SSI's
remote sensing and telecommunications systems, products and services may decline
and this would reduce SSI's operating revenues.
SSI relies upon third-party providers of required remote sensing images or
telecommunications products that make up part of its systems. If the SSI fails
to obtain what it needs from these providers, SSI's sales revenue might
decrease. SSI's ability to obtain required remote sensing images or
telecommunications products that make up part of its systems may be harmed by a
number of factors, including the following:
o Third parties may increase the price of the required remote sensing
images or telecommunications products that make up part of SSI's
systems.
o Many third-party providers of remote sensing images or
telecommunications products that make up part of SSI's systems may
compete with SSI for customers and may decide not to provide us with
remote sensing images or telecommunications products that make up part
of SSI's systems
o SSI anticipates that its contracts, if any, with third party providers
will be usually short-term and may be canceled with little or no
notice.
o SSI/s competitors and many third-party providers of remote sensing
images or telecommunications products that make up part of its systems
may provide products and services that are similar or the same as SSI's
our remote sensing and telecommunications systems, products and
services and may do so at a lower cost.
Because SSI has international operations, due to potential economic and
political risks - particularly in Russia - that don't exist in the US, the
supply of SSI's product components and the international distribution of SSI's
remote sensing and telecommunications products and other aspects of its
international operations could be disrupted, which would reduce its revenues.
SSI's international operations are subject to the inherent risks of doing
business abroad. The loss of certain foreign suppliers, customers or
distributors could harm its ability to deliver SSI's products on time and cause
its sales to decline. SSI's financial performance could be harmed by many events
and circumstances relating to SSI's international operations, including:
- Shipping delays and cancellations; - Increases in import duties and
tariffs; - Foreign exchange rate fluctuations; - Changes in foreign laws and
regulations; and - Political and economic instability.
All of SSI's current significant operations are located in Russia and as a
result its operations could be disrupted by :
o economic and political instability in Russia
o transportation delays
o restrictive actions by the Russian government
o the laws and policies of the United States a ffecting importation of
goods, including duties, quotas and taxes
o Russia trade and tax laws
In particular, SSI's revenues could be reduced if the ruble appreciates
significantly relative to the United States dollar because the cost of SSI's
operations fluctuates with the value of the ruble.
Merger approvals
On December 1, 1999, Michael T. Williams as the sole member of the board
of directors of First Enterprise Service Group approved the merger proposal.
The majority of First Enterprise's stockholders proved the merger proposal on
the same date.
On June 1 , 1999, the board of directors of Space Systems International
Corporation unanimously approved the merger proposal. No consents will be
solicited or accepted until after the effective date of this information
statement for stockholders of Space Systems International/prospectus. Based upon
the ownership of more than 50% of Space Systems International common stock by
officers, directors and affiliates, it appears that a favorable vote is assured.
Merger transaction
The merger agreement provides that SSI stockholders will receive one share of
First Enterprise Service Group common stock for each share of SSI common stock
one share of First Enterprise Service Group Class A Preferred Stock for each
share of SSI Class A Preferred Stock and that SSI stockholders own.
The following table contains comparative share information for stockholders of
Space Systems International and First Enterprise Service Group immediately after
the closing of the merger.
<TABLE>
<CAPTION>
The former stockholders of The current stockholders of Total
Space Systems International * First Enterprise Service Group
<S> <C> <C> <C>
Number 24,655,870 762,553 25,418,423
Percentage 97% 3% 100%
</TABLE>
*Assumes conversion of 7,120,720 shares of Class A preferred stock and exercise
of options to acquire an additional 3,500,000 shares of SSI common stock.
The total number of shares of Class A preferred stock that First Enterprise
Service Group will issue to all of the SSI stockholders in the merger is
7,120,720. There are additional 2,879,280 shares of Class A Preferred Stock
authorized but unissued. We will have the same number of such shares authorized
but unissued after the merger, assuming no further issuance of Class A preferred
stock by SSI prior to the closing of the merger. The shares issuable upon
conversion of the Class A preferred stock are not being registered under this
registration statement.
There are options to acquire an additional 3,500,000 shares of SSI common stock
outstanding prior to this merger. These will be converted to options to acquire
our stock following the merger. Additionally, 1,000,000 shares of restricted
common stock will be issued to Heritage House Investments subsequent to the
completion of this registration statement.
None of the shares of First Enterprise Service Group common stock outstanding
prior to the closing of the merger will be converted or otherwise modified in
the merger and all of such shares not otherwise returned to us as provided in
the merger agreement will be outstanding capital stock of First Enterprise
Service Group after the closing of the merger.
The agreement provides that at the closing of the merger, First Enterprise
Service Group will
o Reincorporate in Delaware
o Change its name to SSI
o Adopt SSI's articles and bylaws
o Elect, effective upon the effectiveness of the merger, new officers and
a new board of directors to consist of the current officers and current
directors of SSI.
The merger will be consummated promptly after this information
statement/prospectus is declared effective by the SEC and upon the satisfaction
or waiver of all of the conditions to the closing of the merger. The merger will
become effective on the date and time a properly executed articles of merger are
filed with the offices of the secretary of state of Delaware. Thereafter, SSI
will be merged and First Enterprise Service Group, with the result that SSI will
cease to exist and First Enterprise Service Group will be the surviving
corporation in the merger.
Effect on outstanding SSI's options
At the closing of the merger, First Enterprise Service Group will assume all
SSI's options outstanding immediately prior to the closing of the merger. In
accordance with their terms, each of SSI's options will become the right to
acquire, on the same terms and conditions as were applicable to the SSI's
options outstanding as of the closing of the merger, that number of shares of
First Enterprise Service Group's common stock to which the holder of the SSI's
options would have been entitled to receive in the merger had the SSI's options
been exercised in full prior to the closing of the merger. Following the merger,
an aggregate of 3,500,000 shares of First Enterprise Service Group's common
stock will be issuable upon the exercise of SSI's options. Additionally,
1,000,000 shares of restricted common stock will be issued Heritage House
Investments subsequent to the completion of this registration statement.
Effect on outstanding SSI's Class A preferred stock
At the closing of the merger, First Enterprise Service Group will issue on a one
share for one share basis Class A preferred stock for all SSI's Class A
preferred stock outstanding immediately prior to the closing of the merger.
First Enterprise's and SSI's Class A preferred stock will become the right to
acquire, on the same terms and conditions as were applicable to the SSI's Class
A preferred stock have the same rights and preferences. Following the merger, an
aggregate of 7,120,720 shares of First Enterprise Service Group's common stock
will be issuable upon the conversion of what was previously SSI's Class A
preferred stock.
Fractional shares
As of the date of this information statement/prospectus, there were no
fractional shares of SSI's common stock outstanding. Because each outstanding
share of SSI's common stock will be entitled to receive one share of First
Enterprise Service Group's common stock under the terms of the merger agreement,
there will be no fractional shares issued in the merger.
Bulletin board listing
First Enterprise Service Group will be subject to the reporting requirements of
the securities exchange act of 1934 after the merger as a result of its filing
of a form 8-A electing to be a reporting company subject to the requirements of
the 1934 act.
Upon closing of the merger, First Enterprise Service Group will seek to become
listed on the over the counter bulletin board under the symbol "*symbol". If and
when listed, the SSI's stockholders will hold shares of a publicly traded
Delaware corporation subject to compliance with the reporting requirements of
the exchange act. Because the state of incorporation, articles and bylaws of
First Enterprise Service Group will be the same as those of SSI prior to the
merger, the rights of stockholders of SSI will not change as a result of the
merger.
Background of and reasons for the merger
As discussed under First Enterprise Service Group Business, First Enterprise
Service Group was formed as a vehicle to acquire through a registered securities
offering a private company desiring to become an SEC reporting company in order
thereafter to secure a listing on the over the counter bulletin board. First
Enterprise agreed to acquire SSI because this was SSI's objective.
Although other methods of achieving its objectives were available, including
alternate forms of SEC registration statements, SSI chose the method involving a
reverse merger with First Enterprise because it believes the optimal way for it
to achieve its objectives of becoming an SEC reporting company in order
thereafter to secure a listing on the over the counter bulletin board is:
o To be acquired by an acquisition company
o To have securities to be issued to its shareholders upon the merger
registered on Form S-4
o To have that registration statement declared effective before holding
a formal vote on the proposed merger
SSI also believes this method is the optimal way for it to:
o Increase the visibility of SSI's business, which could be helpful in
further developing and commercializing SSI's products.
SSI believes that public, trading companies have greater
visibility than private companies.
o Facilitate SSI's ability to raise capital in the public markets.
SSI believes that public, trading companies have an easier
time raising capital than private companies.
o Potentially improve SSI's stockholders' ability to sell their shares
in the over-the-counter market.
SSI believes that public, trading companies provide greater
investor liquidity than private companies.
Contacts between the Parties
In April, 1999, Mr. Kevin Lovely retained Williams Law Group, P.A. to form an
acquisition corporation to secure an operating company to acquire. At Mr.
Lovely's request, Mr. Williams agreed to serve as co-founder, president and
director of the corporation. As co-founders, upon formation, Mr. Williams and
Mr. Lovely were issued 1,000,000 shares each. In addition, upon formation,First
Enterprise retained the services of Lenord Aernoff, Esq. as special counsel,
and he too was issued 1,000,000 shares. Of the $75,000 merger fee to be paid to
us by SSI under the terms of the merger agreement, Mr. Lovely will receive
$7,500 for his role as co-founder. First Enterprise agreed to pay Mr. Aernoff
$10,000 for his legal services in assisting with the clearing of any possible
comments on this registration statement received from the SEC staff. The
remaining $57,500 will be paid to Williams Law Group for legal services in
preparing this registration statement.
In April 1999, Jr. John M. Papazian, chairman, president, chief executive
officer of SSI contacted MGM Group to request assistance in going public through
a reverse merger with an acquisition company in order that SSI could become an
SEC reporting company that would be listed on the bulletin board. MGM's primary
business is providing accounting and accounting related services to clients as
well as coordination with third-party providers of accounting and legal
professional services. Although not rendering a formal fairness opinion, MGM has
agreed to advise SSI's board as to whether MGM believes the merger will
accomplish SSI's objectives. In addition, MGM will also be available to respond
to any concerns or answer any questions the SSI board might have during the
acquisition process. SSI will pay MGM a fee of $50,000 plus 400,000 shares of
SSI common stock for rendering these services. MGM is not advising any other
businesses seeking to be acquired, and advising companies is not a primary
aspect of its business. MGM and its affiliates are not affiliated in any way
with First Enterprise and its affiliates and are not receiving any compensation
from First Enterprise or its affiliates in connection with this transaction.
Principals of MGM knew that Mr. Aernoff was special counsel to various
acquisition companies and asked if any of these companies would be interested in
acquiring SSI. Thereafter, in October 1999, First Enterprise Service Group
indicated that it would be willing to enter into a business combination with
SSI. Drafting of this registration statement began immediately thereafter,
during which time there were various discussions in which representatives of
First Enterprise Service Group and SSI agreed upon the basic structure, terms
and conditions of the merger. In connection therewith, First Enterprise Service
Group agreed to effect a reverse split such that Mr. Williams will own 662,553
shares prior to the closing of the merger. In addition, Mr. Lovely and Mr.
Aernoff agreed that prior to the reverse split, they would return sufficient
shares to First Enterprise Service Group for no consideration such that after
the reverse split they will each own 50,000 shares of First Enterprise Service
Group prior to the closing of the merger. A merger agreement is currently being
drafted.
Neither of the respective boards of Directors of First Enterprise Service Group
or SSI requested or received, or will receive, an opinion of an independent
investment banker as to whether the merger is fair, from a financial point of
view, to First Enterprise Service Group and its stockholders or SSI and its
stockholders.
In considering the merger, the First Enterprise Service Group board took note of
the fact that SSI could produce audited financial statements and other
information necessary for the filing of this information statement/prospectus
and agreed to pay a merger fee to us.
Interests of certain persons in the merger
Upon the closing of the merger, the current directors and executive officers of
SSI will become the directors and executive officers of the surviving
corporation.
Material Federal Income Tax Consequences
The following discussion summarizes all the material federal income tax
consequences of the merger. This discussion is based on currently existing
provisions of the Internal Revenue code of 1986, existing and proposed Treasury
Regulations and current administrative rulings and court decisions, all of which
are subject to change. Any change, which may or may not be retroactive, could
alter the tax consequences to the SSI shareholders, as described below.
We have addressed this opinion to most of the typical shareholders of companies
such as SSI. However, some special categories of shareholders listed below will
have special tax considerations that need to be addressed by their individual
tax advisors:
o Dealers in securities
o Banks
o Insurance companies
o Foreign persons
o Tax-exempt entities
o Taxpayers holding stock as part of a conversion, straddle, hedge or
other risk reduction transaction o Taxpayers who acquired their shares
in connection with stock option or stock purchase plans or in other
compensatory transactions
We also do not address the tax consequences of the merger under foreign, state
or local tax laws.
We strongly urge to consult their own tax advisors as to the specific
consequences of the merger to them, including the applicable federal, state,
local and foreign tax consequences of the merger in their particular
circumstances.
Neither First Enterprise nor SSI has requested, or will request, a ruling from
the Internal Revenue Service, IRS, with regard to any of the federal income tax
consequences of the merger. The tax opinions will not be binding on the IRS or
preclude the IRS from adopting a contrary position.
It is the opinion of Williams Law Group, P.A., counsel to First Enterprise, that
the merger will constitute a reorganization under Section 368(a) of the code.
The tax description set forth below has been prepared and reviewed by Williams
Law Group, and in their opinion, to the extent the description relates to
statements of law, it is correct in all material respects. In a prior filing of
a similar transaction with the Securities and Exchange Commission, the staff
requested us to add a statement that the following tax consequences are implicit
in the firm's opinion that the merger is a 368(a) reorganization.
As a result of the merger's qualifying as a reorganization, the following
federal income tax consequences will, under currently applicable law, result:
No gain or loss will be recognized for federal income tax purposes by
the holders of SSI common stock upon the receipt of First Enterprise
common stock solely in exchange for SSI common stock in the merger,
except to the extent that cash is received by the exercise of
dissenters' rights.
The aggregate tax basis of the First Enterprise common stock received
by SSI shareholders in the merger will be the same as the aggregate tax
basis of the SSI common stock surrendered in merger.
The holding period of the First Enterprise common stock received by
each SSI shareholder in the merger will include the period for which
the SSI common stock surrendered in merger was considered to be held,
provided that the SSI common stock so surrendered is held as a capital
asset at the closing of the merger.
A holder of SSI common stock who exercises dissenters' rights for the
SSI common stock and receives a cash payment for the shares generally
will recognize capital gain or loss, if the share was held as a capital
asset at the closing of the merger, measured by the difference between
the shareholder's basis in the share and the amount of cash received,
provided that the payment is not essentially equivalent to a dividend
within the meaning of Section 302 of the code or does not have the
effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the code after giving effect to the constructive ownership
rules of the code.
Neither First Enterprise nor SSI will recognize gain solely as a result
of the merger.
There is a continuity of interest for IRS purposes with respect to the
business of SSI. This is because shareholders of SSI have represented
to us that they will not, under a plan or intent existing at or prior
to the closing of the merger of the merger, dispose of so much of their
SSI common stock in anticipation of the merger, plus the First
Enterprise common stock received in the merger that the SSI
shareholders, as a group, would no longer have a significant equity
interest in the SSI business being conducted by First Enterprise after
the merger. Our opinion is based upon IRS ruling guidelines that
require eighty percent continuity, although the guidelines do not
purport to represent the applicable substantive law.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o SSI would recognize a corporate level gain or loss on the deemed sale of all
of its assets equal to the difference between
o the sum of the fair market value, as of the closing of the merger, of
the First Enterprise common stock issued in the merger plus the amount
of the liabilities of SSI assumed by First Enterprise
and
o SSI's basis in the assets
o SSI shareholders would recognize gain or loss with respect to each
share of SSI common stock surrendered equal to the difference between
the shareholder's basis in the share and the fair market value, as of
the closing of the merger, of the First Enterprise common stock
received in merger therefore.
In this event, a shareholder's aggregate basis in the First Enterprise common
stock so received would equal its fair market value and the shareholder's
holding period for this stock would begin the day after the merger is
consummated.
Even if the merger qualifies as a reorganization, a recipient of First
Enterprise common stock would recognize income to the extent if, among other
reasons any shares were determined to have been received in merger for services,
to satisfy obligations or in consideration for anything other than the SSI
common stock surrendered. Generally, income is taxable as ordinary income upon
receipt. In addition, to the extent that SSI shareholders were treated as
receiving, directly or indirectly, consideration other than First Enterprise
common stock in merger for SSI's shareholder's common stock, gain or loss would
have to be recognized.
This discussion does not address the tax consequences of the merger to holders
of SSI options, who, as a result of the merger, will receive First Enterprise
Service Group options. Holders of such securities should consult their tax
advisors with respect to such tax consequences.
Termination.
At any time prior to the Effective Date, the merger agreement may be terminated,
and the merger abandoned under certain circumstances, including:
o By mutual consent of First Enterprise Service Group and SSI
o By either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall
have become inaccurate, or if any of the other party's covenants
contained in the merger agreement shall have been breached
o By either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the merger
o By SSI if the consents have been solicited and the merger
agreement shall not have been adopted and approved by the required
vote
o By SSI if SSI reasonably determines that the timely satisfaction
of any condition to its obligations to consummate the merger has
become impossible or unlikely.
Dissenters' Rights
The following summary of dissenters' rights under Delaware law is qualified in
its entirety by reference to section 262, Delaware General Corporation Law.
However, the summary does contain all material information in section 262.
The procedures set forth in section 262 must be strictly complied with. Failure
to follow any the procedures will result in a termination or waiver of appraisal
rights under section 262.
Under Section 262 of the Delaware General Corporation Law, any stockholder of
SSI who does not vote his or her shares in favor of adoption and approval of the
merger may assert appraisal rights and elect to have the fair value of the
shares of SSI common stock determined and paid to the stockholder, provided that
the stockholder complies with the requirements of section 262, summarized below.
Any stockholder entitled to vote on the merger who desires that SSI purchase
shares of SSI common stock held by the stockholder must not vote in favor of
adoption and approval of the merger. Shares of SSI common stock voted in favor
of adoption and approval of the merger will be disqualified as dissenting
shares.
Stockholders whose shares are not voted in favor of adoption and approval of the
merger and who, in all other respects, follow the procedures specified in
section 262 will be entitled to have their SSI common stock appraised by the
Delaware Court of Chancery and to receive payment of the fair value of the
shares, excluding any element of value arising from the accomplishment or
expectation of the merger, as determined by the Court.
Under section 262, an SSI stockholder may exercise appraisal rights as follows:
o Within ten days after the merger, SSI will notify each stockholder
entitled to appraisal rights of the approval of the merger and that
appraisal rights are available.
o Any stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of the notice, demand in writing from the surviving
corporation the appraisal of the holder's shares.
o The written demand for appraisal must be made by or for the holder of
record of shares of SSI common stock.
Within 120 days after the closing of the merger, SSI or any stockholder
who has satisfied these conditions may file a petition in the court
demanding a determination of the value of the shares held by all
stockholders entitled to appraisal rights. If no the petition is filed,
appraisal rights will be lost for all stockholders who had previously
demanded appraisal of their shares.
o At a hearing, a court will determine whether the stockholder is
entitled to appraisal rights. Then, the court will determine the fair
value of the shares.
It is a condition to SSI's obligations to consummate the merger that the holders
of no more than 10% of the outstanding shares of SSI's common stock are entitled
to dissenters' rights. If demands for payment are made with respect to more than
10%, of the outstanding shares of SSI's common Stock, and, as a consequence more
than 10% of the stockholders of SSI become entitled to exercise dissenters'
rights, then SSI will not be obligated to consummate the merger.
First Enterprise has filed copies of these statutes as exhibits to the
registration statement.
Accounting Treatment
For accounting purposes, the merger will be treated as a reverse acquisition
with SSI being treated as the acquiror for financial reporting purposes.
Merger Procedures
Unless otherwise designated by a SSI stockholder on the transmittal letter,
certificates representing shares of First Enterprise Service Group common stock
issued to SSI stockholders will be issued and delivered to the tendering SSI
stockholder at the address on record with SSI . In the event of a transfer of
ownership of shares of SSI common Stock represented by certificates that are not
registered in the transfer records of SSI , the shares may be issued to a
transferee if the certificates are delivered to the Transfer Agent, accompanied
by all documents required to evidence the transfer and by evidence satisfactory
to the Transfer Agent that any applicable stock transfer taxes have been paid.
If any certificates shall have been lost, stolen, mislaid or destroyed, upon
receipt of
o An affidavit of that fact from the holder claiming the
certificates to be lost, mislaid or destroyed, The bond, security
or indemnity as the surviving corporation and the merger agent may
reasonably require
o Any other documents necessary to evidence and effect the bona fide
merger, the merger agent shall issue to holder the shares into
which the shares represented by the lost, stolen, mislaid or
destroyed
o Certificates have been converted.
Neither First Enterprise Service Group, SSI, nor the Transfer Agent is liable to
a holder of SSI's common stock for any amounts paid or property delivered in
good faith to a public official under any applicable abandoned property law.
Adoption of the merger agreement by the SSI's stockholders constitutes
ratification of the appointment of the Transfer Agent.
After the closing of the merger, holders of certificates will have no rights
with respect to the shares of SSI common stock represented thereby other than
the right to surrender the certificates and receive in merger the shares of
First Enterprise Service Group common stock to which the holders are entitled.
SSI Management's discussion and analysis of financial condition and results of
operation
Management Discussion and analysis
YEAR ENDED FEBRUARY 29, 2000 COMPARED TO THE YEAR ENDED FEBRUARY 28, 1999
Revenues
Revenues increased to $897,321 for the year ending February 29, 2000
from $58,526 for the year ending February 28, 1999. The increase of $838,795 or
1,433% was the result of an agreement signed with three companies to provide
wireless engineering support services in several cities in Russia. Revenue is
recognized for services rendered in the same period with no future obligation
related to these agreements. These agreements which were originally set to
expire in December were renewed in January on a month by month basis at a
reduced level.
Cost of Revenues
The cost of revenues consists primarily of contract labor costs. Cost of
revenues increased to $560,161 or 62% of revenues for the year ended February
29, 2000 compared to the cost of revenues of $10,341 or 18% of revenues for the
year ended February 28, 1999. The increase in cost of revenue of $549,820 or
5,317% was due primarily to an increase in activity in the number of contract
workers to support engineering service contracts in Russia. These increases in
cost of revenues are a direct result of labor performed and offset by revenue
earned in the same period with no future obligation related to these agreements.
Revenues are forecast to decline in the next 12 months as activity in Russia is
being reduced by the companies SSI is currently doing business with in Russia.
Operating expenses
Operating expenses consist of primarily salaries and salary related costs of
general corporate functions including finance, accounting, facilities, legal and
other professional services. Operating increased to $1,776,494 for the year
ended February 29, 2000 as compared to $503,250 for the year ended February 28,
1999. The increase in operating expense was due in part to an increase in
corporate activity to support the increased contract activity in Russia. This
increase was a direct result of maintaining an office in Russia and increased
travel to Russia to support operations. In addition to this increase in support
activity, the corporation incurred an operating expense of $1,093,710 related to
stock issued as compensation for consulting expenses.
Depreciation expense
Depreciation expense was $799 for the years ended February 28, 1999 and February
29, 2000.
Interest expense
Interest expense increased from $2,097 for the year ended February 28,
1999 to $26,493 for the year ended February 29, 2000. This increase of $24,396
or 1,163% was a result of our use of a factoring company for funding which was
used to provide cash flow for the company.
Net loss
Our net loss for the year ending February 29, 2000 increased to $1,439,334 from
$455,065 for the year ending February 28, 1999. This increase in our net loss is
due to an increase in our cost of operating expense as discussed above.
Quarter ended May 31, 2000 compared to the quarter ended May 31, 1999
Revenues
Revenues increased to $160,850 for the quarter ending May 31, 2000 from $104,662
for the quarter ending May 31, 1999. The increase of $56,188 or 54% was the
result of an agreement signed with three companies to provide wireless
engineering support services in several cities in Russia. These agreements which
were originally set to expire in December were renewed in January on a month by
month basis at a substantially reduced level. Revenue is recognized for services
rendered in the same period with no future obligation related to these
agreements. Revenues from these agreements are forecast to decline to less than
$200,000 for the current fiscal year.
Cost of Revenues
The cost of revenues consists primarily of contract labor costs. Cost of
revenues increased to $111,553 or 69% of revenues for the quarter ended May 31,
2000 compared to the cost of revenues of $39,086 or 37% of revenues for the
quarter ended May 31, 1999. The increase in cost of revenue of $72,467 or 185%
was due primarily to an increase in activity in the number of contract workers
to support engineering service contracts in Russia. These increases in cost of
revenues are a direct result of labor performed in the current period.
Operating expenses
Operating expenses consist of primarily salaries and salary related costs of
general corporate functions including finance, accounting, facilities, legal and
other professional services. Operating decreased slightly to $43,306 for the
quarter ended May 31, 2000 as compared to $111,672 for the quarter ending May
31, 1999. The slight decrease in operating expense was due in part to a decrease
in corporate activity used to support the contract activity in Russia.
Depreciation expense
Depreciation expense was $200 for the quarters ended May 31, 1999 and May 31,
2000.
Interest expense
Interest expense increased from $952 for the quarter ended May 31, 1999
to $1,773 for the quarter ended May 31, 2000. This increase of $821 was a result
of our use of a factoring company for funding which was used to provide cash
flow for the company and an increase in our line of credit with Bank of America.
Net income
Our net income for the quarter ending May 31, 2000 was $5,991 as compared to a
net loss of $46,096 for the quarter ending May 31, 1999. This increase in net
income was due to a reduction in labor costs in Russia and a slight increase in
revenue associated with various ongoing projects in Russia.
SSI's BUSINESS
SSI was incorporated in Delaware on February 19, 1998. Since our formation we
have generated limited revenues. We are a successor to Space Liaison and Imaging
Corporation, a California Corporation. In March, 1998, we acquired certain
assets and assumed certain liabilities of Space Liaison, which has subsequently
been dissolved.
SSI is essentially a marketing company for products and services in the areas of
remote sensing and telecommunications systems. Often the solutions to customers'
needs in these areas require products and services provided by various third
party vendors. Once we have identified a particular customer's need, we go to
various vendors with whom we have relationships. We solicit bids from these
various vendors. However, we have no contracts with these vendors.
Our customers do not want to deal with various vendors. They want to deal with
one source. We are that source. We assemble a complete proposal putting together
the products and services provided by the various necessary vendors and present
an integrated proposal to the customer. In effect, we are the bid coordinator
and project manager. The vendors themselves are responsible for building and
installation of each part of the system we sell. We are responsible for managing
and coordinating the installation and operation of the products and services we
sell.
We primarily use the following vendors:
o Sovinformsputnik - A Russian manufacturer and provider of remote sensing
satellite systems and imagery.
o TELECOM - A Russian company with telecommunications technology. o GDE/Tracor -
A US manufacturer of software and hardware for exploitation of
satellite imagery and map making.
o T-Com - A US manufacturer of airborne balloons and lighter than air vehicles
used as platforms for surveillance systems.
o SADA-PRO - A US manufacturer of sensor systems, primarily cameras, used in
earth surveillance.
o ViaSat-A US manufacturer and vendor of antennas and terminals for satellite
communications for remote sensing and telephony business.
o GlobalVu Applied Technology - A US telecommunications consulting firm. o
Companion Technology - A Canadian design company of last mile solutions for
wireless communications to remote regions.
However, these relationships are not formal contracts. Rather, they are sources
we can approach to provide parts of the integrated solutions we sell.
Since inception, SSI's operating activities have consisted of
o Developing and refining the line of remote sensing and telecommunications
systems, products and services
o Forming partnering/supplier relationships
o Developing marketing materials
o Securing new business
Integration of Eastern and Western Technology
We believe the key to our success is our relationship with vendors located both
in Russia and its related territories and vendors with compatible products
located in the United States. We believe we can integrate specific products and
services from vendors in the West with those currently in existence in Russia
and the East to offer enhanced products in the remote sensing and
telecommunications product and services area.
SSI plans to capitalize on the products paid for and developed by the Soviet
government during the years of the Cold War. For example, their remote sensing
systems have been in use for 40 years successfully in the acquiring of images
from space.
SSI's relationship with Russia goes back to 1993 when it first negotiated a
marketing position for their government-sanctioned product of high resolution
and multi spectral imagery. The company, Sovinformsputnik, was the first
commercially formed company in Russia authorized to sell the archives of the
formally classified Russian Military Space Command. Their name was derived from
SOV [meaning Soviet] INFORM [meaning information] SPUTNIK [meaning satellite in
Russian]. The relationship between the management of SSI and Sovinformsputnik
goes back over 30 years when we were adversaries during the cold war period and
management of each company was working for their respective governments to
develop advanced space-based imaging systems to gather information on each
other's capabilities.
SSI believes that the Russian theoretical basis for math and science and ability
to produce at a high volume is significant, and has been applied effectively to
telecommunications algorithm and radio frequency component design. However, SSI
believes Russia is behind in the development of analog and digital integrated
circuit technology. This represents an opportunity for SSI through
straightforward coupling of Russian theoretical and production know-how with
Western capabilities to yield partnering opportunities and cost-effective
solutions to SSI's customers.
Current Products
We are currently engaged in marketing and sale of :
o Remote sensing products that involve the acquisition of pictures from space -
not unlike taking a picture with a camera. We are selling Russian supplied
images produced from Russian imaging satellites in several formats, such as
o Digital electronic transmission of data from space - a product like a
tape from a camcorder or video camera
o Hardcopy such as a print or photograph
o Archival sources such as data stored in vaults or on computers which are
copied and are usually more than 1 year old.
o Advance pre-ordered images of specified surface locations of the earth
These images have such uses as urban planning and earth resource management. The
images/pictures, which provide the most accurate information for these purposes,
are 2-meter resolution or less, or a six-foot object similar to a car.
o Telecommunications systems, products and services, initially supplying
deployment of cellular telephone infrastructure in Russia and in the future
possibly to other regions of the world.
Remote Sensing
The remote sensing industry began with the launch of the first satellite by the
Russians in 1956. The industry has refocused on the commercialization of data
acquired from space through a variety of sensors on board satellites that orbit
the earth. The manipulation of this data through computers provides
o Pictures
o Maps
o Electronic signals and communication channels for use by governments
and the industrial/commercial /agricultural communities
around the world
We anticipate our customers will require the following remote sensing products
and services:
o Complete Systems
o Remote sensing systems
o Telecommunications wireless networks
o System Components
o Sensor platforms
o Imaging sensors
o Imaging ground stations
o Imaging analytical tools
o Telecom network and Internet products
o Specific Products
o Preordered images
o Archived images
o Maps
o Telecom antennas, transmitting/receiving equipment
o Image Analysis
Remote Sensing Systems
Integrated remote sensing systems for the most part include the following:
o Platforms - which may include spacecraft, aircraft,lighter than
aircraft, or submersibles
o Sensors - including camera-infrared, digital, photographic film
o Ground Stations - these are comprised or processors, antennas,
computers and workstations
o Imaging and Analysis Tools - which includes specifically developed
software for analyzing imagery and generating maps
Systems components
Platforms
Platforms are the hardware upon which a sensor is placed. Some of our customers
may want a satellite based sensor system. Others may require a more low-tech
approach, such as imaging and surveillance systems that use balloons and
aircraft as a platform on which to place a sensor for surveillance and traffic
monitoring.
Imaging Sensors
This is what captures the image data. It is in essence is camera.
Imaging Ground Stations
This is what captures the signal and data stream from the sensor on the
platform.
Imaging Analytical Tools
We anticipate offering as part of an integrated package a General Dynamics
Electronics software product for image analysis, called IXP. This is usable with
a variety of computer systems that exist in the governments and organizations to
which SSI will be providing imagery.
Telecom Network And Internet Products/Antenna, Transmitters & Receivers
This is the infrastructure for setting up telephony and data networks.
Specific Products
Pre-ordered images
We intend to sell images that have a resolution of 2 meters to 5 meters taken
from Russian satellites to provide information for making maps or conducting
surveillance of an area as well as for urban planning and agricultural
requirements.
They have the following uses:
o Cultivated Vegetation
o Crop productivity
o Stress identification
o Commodities predictions
o Hazard Monitoring
o Flood mapping
o Hurricane damage
o Tornado damage
o Illegal Drug Crop Detection
o Political Crisis Monitoring
o Ocean Monitoring
o Pollution
o Hazards, such as the Great Barrier Reef
o Water Resource Monitoring/Mapping
Archived Images
These are images and data taken over the past ten-year period using
high-quality, Russian military satellite systems. They are being made available
for sale through SSI's vendor Sovinformsputnik. There are alternative vendor
sources available for these products and SSI's business in this area would not
be hurt in any significant manner if SSI had to use alternative vendors.
They have the following uses:
o Cartography
o Map changes
o 3-dimensional topology
o Surveys for Construction
o Pipelines
o Roadways
o Seaports
o Urban Planning
o Mineral Exploration/Monitoring
o Natural Vegetation Monitoring
o Range improvement/inventory
o Forest assessment
Maps
Maps provide a high quality database used for navigating, engineering and
locating environmental events. The generation of maps from imagery is an
exacting science that has been upgraded by the use of software programs and
computers. Once the data is acquired, the data is manipulated to provide
information on the contour of the land and the height and location of objects in
the image. From this database, a map at a variety of scales is produced using
mapping software provided by GDE.
Image Analysis
We intend to offer an automated approach to image analysis through computer
software such as IXP, offered by GDE. For example, the analysis of imports such
as the number of cars dock-side/off loaded or the interpretation of crop yields
and fertilization requirements can now be automated.
Telecom Antennas, Transmitting/Receiving Equipment
This is the infrastructure for setting up telephony and data networks.
Markets
Recent market analysis conducted by the Society of Photographic Scientists and
Engineers and the American Society of Photogrammetry indicate that the needs of
second and third world nations as well as commercial endeavors around the world
in agriculture, environmental, insurance, urban planning require rapid,
quasi-real time data acquisition of the earth and its environs. This market is
conservatively placed by these Societies at between $9 billion - $12 billion a
year.
Regions such as Latin America, Southeast Asia, the Pacific Rim, and the Middle
East are experiencing exponential need. Traditional earth resource
infrastructure, such as passive aerial photography, while reliable, is cost and
time prohibitive; also, it is difficult to implement in remote and rural areas
of the world.
Customers
The customers for the systems SSI offers are both international and varied in
interests. Their primary interest is in having a dedicated capability to acquire
pictures, images, maps and agricultural data for purposes of urban planning,
national security and food production. In addition, SSI has a continuing list of
clients who have ordered imagery from Russia's archives.
SSI has begun to market its capability to provide images on a timely basis to
over 200 industrial companies with interests in
o Flood control
o Insurance claims
o Farming consortiums
o Civil engineering
o Highway departments
o Newspapers
o Civil engineers
o Surveyors
o Industrial corporations
o Even prosecutors in the O.J. Simpson murder trial who were trying to
establish the whereabouts of the bronco
<TABLE>
<CAPTION>
Current Contract Proposals
<S> <C> <C>
Product/Service Customer Status of Proposal/Venture
Map Making/Imagery Autometric Corp Pre-Proposal submitted/ waiting award
Imagery Royal Thai Armed Forces Submitted/Awaiting negotiations
Satellite Imaging System Gov. of Maylasia Preproposal submitted/ waiting negotiations
Map Making/Imagery Royal Thai Armed Forces Submitted/Technical Discussions
Satellite Imaging System Turkish Armed Forces Pre-Proposal submitted/ Technical Discussions
Satellite Imaging System Gov. of Taiwan Pre-Proposal submitted/ Technical Discussions
Contracts
Customer Product/Service Status
Taiwan Armed Forces Imagery Active/On-going/Purchase by individual purchase
orders
San Diego State University Imagery Active/On-going/ Purchase by individual purchase
orders
General Dynamics Corporation Imagery Active/On-going/ Purchase by individual purchase
orders
General Dynamics Corporation Software/Image Analysis Complete
Quantum Technology Support/Marketing Complete
INTACQ Support Services-
Engineering Complete
</TABLE>
Telecommunications
SSI intends to offer the following types of telecommunications systems and
services:
o Satellite-based wireless communication network components and services.
o Licensing agreements for the worldwide distribution of communications
infrastructure and component technologies
Products and Services
SSI's initial thrust in telecommunications is the marketing and sales of Russian
technology. The system components to be marketed initially will be those that
provide the following solutions:
o Satellite-based trunking of regional traffic to domestic and international
public switch telephone network, such as AT&T gateways
o This is used for the routing of long distance/international telephone
traffic.
o Satellite or terrestrial wireless connection of subscribers for local
access
o This is used to connect customers to a public telephone network. This
is a last mile connection, in other words the last link between a
customer and a public telephone network.
o Wireless-based satellite and terrestrial Internet and data networks for
enterprises in the private sector.
o These connect computer and data networks within a specific company.
Some potential licensing agreements could cover such applications as:
o Communication gateway antennas
o Antennas used at a data or telecommunications hub
o TV/telephone distribution technologies to include radio frequency
component technology that provide improved performance and capability
at a lower cost
o Receivers and transmitters to connect remote terminals
o Complete ground-based satellite communication terminals and systems.
o Systems used for satellite data and telecommunications transmission.
Markets
In a global context, use of wireless infrastructure is expanding rapidly. The
Strategy Analytics group, in their Worldwide Cellular Markets 2000-2005
forecast, dated February 2000, predicts the cellular subscriber base will grow
from 470 million at the end of 1999 to 1.4 billion by 2005, and the annual
revenue from cellular services worldwide will grow from US$283 billion in 1997
to US$673 billion by 2005.
SSI's most recent business activities have been related to the deployment of
last mile cellular wireless infrastructure internationally and development of
turnkey business to business and business to consumer Internet solutions.
Marketing
In marketing existing and new products and services, we will utilize our
existing relationships with vendors and service providers such as Ericsson,
Qualcomm, Metrosvyaz, TELECOM, and others.
We intend to expand the marketing of our products and services in the following
manner:
o Through our Internet website and development of an eCommerce portal
o Through specific marketing and ad campaigns
o By new distribution channels established through the formation of
alliances and joint ventures with key suppliers and telephony/
applications/network service providers in each region of interest
o By using the existing network of representatives established through
our Remote Sensing business and expanding our sale forces in each
region as appropriate
Customers
In telecommunications, the customer base is large and covers areas of the globe
where public need and commercial enterprises are expanding. The Internet has
fueled a rapid expansion and worldwide need for stable communications networks
Current Proposals
<TABLE>
<CAPTION>
Product/Service Customer Status of Proposal/Venture
<S> <C> <C>
Deployment of Cellular
Infrastructure Ericsson- Russian Communications Frame(Agreement submitted, Awaiting
Negotiations.
Network Planning and
Deployment of Cellular Infra Lucentu- Russian Division Frame Agreement submitted, Awaiting Negotiations.
Strategic Alliance - Sales
and Private Labeling WebViews, Toronto Sales Agreement and Contract is being negotiated
Globalization Software worldwide
Strategic Alliance-Development
of Internet-rela Raga Music Corp, USA Memorandum of Understanding signed, Raising
Intellectual Property (patents) venture capital
Distribution of Digital
Content over the Internet DeutschedTelecom (Germany) Proposal being generated. On-going discussions
Removal and Re-Deployment of
Cellular Infrastruct Moscow Personal Communications(PCOM) Proposal submitted. Contract under negotiations
telco in Russia
Network Planning and Deployment
of Cellular Infra Rostovu Electrosvyaz, a regional telco Frame Agreement Signed, Awaiting Purchase Orderss
Hotline Support and Deployment
of Cellular Infras Krasnodar Electrosvyaz, a regional Frame Agreement Signed, Awaiting Purchase Orderss
Network Planning and Deployment
of Cellular Infra Saratov Electrosvyaz, a regional telco Frame Agreement Signed, Awaiting Purchase Orderss
Development of Satellite based
ground networks in Eastern SatcomTeli- Moscow Proposal being generated. On-going discussions
Europe and Russia
Establishing B2B Internet
Portals throughout Russ Image Alpha (Hong Kong) and an American Proposalebeing generated. On-going discussions
business school in Russia
Developing a Dual Purpose
Integrated telecommunic Kornett, JVoand TELECOM, JSC in
Mosco
Memorandum
of
Understanding
signed,
Proposal
for
Russia
being
generated.
Develop Moscow Gateway for
Voice and Data Service Global Info Systems and Technology, M Proposal being generated. On-going discussions
Network Planning and
Deployment of Cellular Infra LGr(Korea) in Ufa Russia Technical Discussions
<PAGE>
Contracts
Customer Product/Service Status
Qualcomm Inc - San Diego Deployment services for Cellular Active/On-going
Moscow (PCOM)
Qualcomm Inc - San Diego Logistics support for GlobalStar net Active/On-going
in Russia
Qualcomm Inc - San Diego Business consulting services in San Active/On-going
Metrosyvaz - Telco in Russia,
JV between Till NetworklPlanning and Deployment of Active/On-going
Infrastructure in Russia Active/On-going, Many Purchase Orders in process
and Qualcomm (USA)
Rostov Electrosvyaz, Telco
in Russia Network Planning and Deployment of Complete June 2000
Infrastructure in Russia
Computer and Video
Processing Equipment TELECOM, JSC (Russia) Contract signed, waiting for initial payment to
process order
Ericsson - San Diego Hotline Support, Network Planning an CompletemMarchf2000
Cellular Infrastructure in Russia
Via Sat Deployment of Satellite Ground Commu On-goingsSales Representative Relationship
Networks
</TABLE>
We are providing telecommunications engineering support for Globalstar and
Ericssons telecommunications projects in Russia. The contract is for less than
one year and may be terminated with 30-day notice with 3-month termination pay
required under Russian law.
The structure of the contract calls for SSI to provide support employees to
their Russian projects. The salaries are billed with an overhead rate of 107%
and taxes are covered at costs. Reasonable operating expenses are also covered
at cost.
The contract accounts for 96% of total telecom revenues.
Sales And Marketing
SSI's sales and marketing programs for both remote sensing and
telecommunications are the responsibility of the executive management team of
the Company and the 22 independent sales agents covering 22 countries who are
paid on commissions ranging from 5-10%.
The marketing and sales activity for Russia will be performed through SSI's
Moscow office. It will initially be staffed with 2 marketing representatives in
addition to Dr. Moguchev. SSI believes that Russian companies such as TELECOM,
which leads the telecommunications manufacturing trade association 150 members
in Russia, and Crosna Spacecom, a Russian manufacturer and system integrator are
candidates to work with SSI because they have a presence in and access to the
markets in Russia.
Independent sales agents have been established in the following countries:
Saudi Arabia Turkey Greece Israel
Germany Hungary Spain Indonesia
Malaysia Taiwan Thailand Russia
Ukraine Singapore Egypt Argentina
Venezuela United States Canada Kuwait
China Brazil
Competition
The competition in our marketplaces is significant. Other products can be
designed that would do what ours do. Other companies are investing billions of
dollars to launch their own satellites and will sell the data/images at as yet
an unknown price.
Management believes that cost and service are the keys to be competitive in this
market sector.
SSI plans to become a leading provider of remote sensing and wireless
telecommunications technologies, products and services to the international
marketplace by:
o Offering effective solutions from its worldwide government and commercial
contacts and relationships
o Forming international alliances and joint ventures, which leverages
currently available technologies, products and services
o Utilizing the sales and marketing of Russian remote sensing and
telecommunications technologies which meet the market's quality and
reliability requirements
With respect to imaging, SSI eliminates the research and development costs by
purchasing images from an existing Russian system and thus our costs are lower
than having to amortize a complete satellite and launch system, which we
estimate to cost $500 million.
Regulation
The United States government's policy on the sale of imagery is controlled by
the U.S. Department of Commerce and is dictated by the White House. The policy
under which several U.S.-based consortiums, such as Lockheed/Martin, Boeing and
Orbital Sciences, requires the approval of the Department of Commerce to launch
dedicated space-based imaging systems and the sale of imagery to certain
countries currently on the embargo list; i.e., Libya, Iraq, South Africa and
Iran. In addition, these consortiums are restricted to selling imagery to
countries or their representatives of the specific country in which they reside;
for example, images of Saudi Arabia to only Saudi Arabia.
The Russian policy is far less defined but is restricted in that the imagery
must only be used for humanitarian purposes. SSI currently is not limited in its
sale of images except that it must guarantee that the imagery is being used for
humanitarian and peaceful purposes.
Currently only France, with their SPOT imaging system, has a capability to
supply images, but the resolution regime is not less than five meters, and they
have stipulated that better resolution will not be available for sale.. Israel
is developing an imaging capability with commensurate resolution capability, but
is currently not making these images available.
The international capability for lower resolution imagery, or 5 meter, 10-meter,
15-meter, resides in India, Japan, France, Canada, as well as the U.S. and
Russia. SSI's thrust in remote sensing with the image based at 2 meter down to 1
meter can only be satisfied by the U.S. and Russia for the foreseeable future.
In addition, none of the aforementioned countries are currently providing a
dedicated, quasi-real time, turnkey-imaging system at 2 meter resolution.
Agreements with Rainbow and Gulf Coast
Rainbow is in the business of planning, developing and
implementing advertising, marketing and promotional campaigns for corporations
and other business entities. Rainbow will
* Feature SSI in four web sites including
E-mail alert to subscriber base.
* Provide a minimum of four-page, two-color
follow-up mail pieces designed for additional informational
purposes, that is mailed to respondents, in addition to those
brokers requesting said information. A total of 10,000 will be
printed.
* Contact retail
brokers, market makers and/or money managers and will arrange
a meeting between representative of the SSI and interested
retail brokers, market makers, and money managers, which will
include a show and tell from the top management of the
SSI in disseminating information to these interested
parties. This may be accomplished by a road
show.
* Provide public relations exposure to newsletter writers,
trade and financial publications.
* Include as a featured lead generator of the month
in Confidential Fax Alert, a newsletter transmitted
by fax to over 5,000 Brokers.
* Prepare a broker bullet sheet to be sent to every broker who indicates an
interest in SSI.
* Maintain a lead tracking summary for all response
leads generated
* Distribute at its cost the due
diligence packages to all inquiring brokers only.
SSI agrees to issue to Rainbow 225,000 free trading shares of Common
Stock and 500,000 restricted shares in SSI.
Rainbow agrees that, with limited exceptions, it will
not, directly or indirectly, offer, sell, contract to sell or otherwise dispose
of its securities subject to the registration agreement for a period of one
year from the date of the agreement.
From the date of the agreement, until the date which is four
years from the date hereof Rainbow will have in all or part of its
registrable securities. If SSI proposes to undertake an offering of shares of
common stock for its account or for the account of other
stockholders and the registration form to be used for such offering may be used
for the registration of registrable securities,
each such time SSI will give prompt written notice to all holders of
registrable securities of its intention to effect such a registration and SSI
will use its best efforts to cause to be included in such registration
all registrable securities for which registration is requested.
SSI is responsible for payment of all expenses
incident to any registration, except that the selling securityholders
will be responsible for payment of their own legal fees, underwriting fees
and brokerage discounts, commissions and other sales expenses incident to
any registration.
There is a second agreement with Gulf Atlantic Publishing, which is in the
business of planning, developing and implementing advertising, marketing
and promotional campaigns for corporations and other business entities. It will
provide these services to SSI for the period commencing the date that its
receives payment of its fees and expiring on the 730th day thereafter.
The services to be provided are as follows:
* Four-Color Financial Sentinel - Featured advertorial mailing
of 800,000 for a total of eight issues will be created
of which a two page advertorial will be dedicated to
SSI.
* Two featured
advertorial mailings of 100,000 each, will be created of which
a four page advertorial will be dedicated to SSI.
The agreement call for the payment to Gulf Atlantic of the same amount of
compensation and has same registration rights as in the Rainbow agreement
Employees
The company has four employees, 2 in management, 1 in sales and 1
administrative. There is no collective bargaining agreement.
Facilities
We lease from HQ Global Workplaces 250 square feet on a month-to-month basis at
a rate of $300 per month.
MANAGEMENT
The names and ages of our executive officers and directors as of June 30, 2000
are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
John M. Papazian 65 Chairman, President, CEO, Director, Member of Audit Committee
and Compensation Committee and Director
Dennis G. Appel 48 Sr. V.P. of Technology, Secretary, Director
Brook Watts 60 Vice President, Marketing and Director
Edward F. Daley 40 Vice President, CFO, Treasurer, Member of Audit Committee and
Compensation Committee and Director
Victor Moguchev 60 Vice President, Russian Operations and Director
Martin J. Flaherty 57 Director
Benjamin D. Russo 67 Director
</TABLE>
Mr.John M. Papazian, Chairman, President, Chief Executive Officer, and
Director, joined us in February, 1998. From 1991 to 1998, Mr. Papazian was
President and Owner of Space Liaison and Imaging Corporation, our predecessor.
From 1989 to 1991, Mr. Papazian was Corporate Vice President of S.A.I.C. From
1970 to 1989, Mr. Papazian held various executive positions with Grumman
Aerospace Corporation including Director-Corporate, Regional and Field Office
Integration, and Director of International Marketing. From 1960 to 1970, Mr.
Papazian held several executive engineering positions with ITEK Corporation.
From 1953 to 1960, Mr. Papazian was an engineer with Bellock Instrument
Corporation. Mr. Papazian received a B.S. in Mechanical Engineering from Queens
College.
Mr. Dennis G. Appel, Senior Vice President, Technology, Treasurer, and
Director joined us in February, 1998. From 1997 to 1998, Mr. Appel was the
President and principal shareholder of Global Vu Applied Technology, Inc. From
1989 to 1997, Mr. Appel was a Program Manager for Lockheed Martin Corporation.
From 1988 to 1989, Mr. Appel was a Systems Engineering Manager for Alcoa Defense
Systems/ McDonnell Douglas Tech.,Inc. From 1983 to 1988, Mr. Appel was a Staff
Consultant with Purvis Systems, Inc. From 1972 to 1983, Mr. Appel was a Design
and Test Engineer for Rockwell International. Mr. Appel received a B.S.E.E. from
Loyola Marymount University.
Mr. Brook Watts, Vice President, Marketing joined us in February, 1998.
From 1993 to 1997, Mr. Watts was Executive Vice President, Space Liaison and
Imaging Corporation. From 1985 to 1993, Mr. Watts was a Program Manager for TRW
Avionics Surveillance Group. From 19__ to 19__, Mr. Watts managed the Department
of Defense's Tactical Cryptologic Program. Mr. Watts received an M.B.A. from
Syracuse University and a B.A. from the University of Portland.
Mr. Edward F. Daley, Vice President, Chief Financial Officer and Director,
joined us in April, 1998. Since 1994 , Mr. Daley has been President and Chief
Executive Officer of San Diego Firefighters Credit Union. From 1991 to 1994,
Mr. Daley was Chief Financial Officer for Central Credit Union of San Diego.
From 1988 to 1991, Mr. Daley was a Controller at First National Bank of North
County. Mr. Daley received an M.B.A. from San Diego State University and a B.A.
in Economics from Brandeis University. Mr. Daley is also an adjunct faculty
member in the Finance Department at National University in San Diego.
Dr. Victor Moguchev, Vice President, Russian Operations joined us in February,
1998. From 1966 to 1998, Mr. Moguchev was an RF Engineer/Specialist for the
Moscow Scientific Research Institute of Radio Communication. Mr. Moguchev
graduated from the Moscow Radio Equipment and Systems College in 1958,and All
Union Energetic Institute in 1964. He received a P.H.D. in Communications
Sciences in 1973.
Mr. Martin Flaherty, Director, joined us in February, 1998. From 1983 to 1998,
Mr. Flaherty held various positions with General Dynamics, GDE Systems, Marconi
Integrated Systems, including Program Director and Marketing Director. Mr.
Flaherty received a B.S. and an M.S.from the Industrial College of Armed Forces
(ICAF) and the Air War College.
Mr. Benjamin D. Russo, Director joined us in February, 1998. From 1982 to 1998,
Mr. Russo was a sole practitioner and has been of counsel to Pelletreau &
Pelletreau, LLP. From 1977 to 1982, Mr. Russo was a member of Davidow, Davidow
& Russo. From 1970 to 1977, Mr.Russo was a member of Ashare & Russo and Permut.
From 1963 to 1970, Mr. Russo was a sole practitioner. From 1960 to 1963, Mr.
Russo was a member of Braslow, Russo & D'Amaro. Mr. Russo received a B.B.A. in
Accounting from St. John's University and a LL.B. from St. John's Law School.
Directors serve for one year terms. Our Bylaws currently provide for a Board of
Directors comprised of seven directors, although we currently have only five
directors.
Employment Agreements
There are no employment agreements with or key person life insurance on any
officer or director of SSI.
Executive Compensation
The following table sets forth summary information concerning the compensation
received for services rendered to us during the year ended February 29, 2000 by
the Senior Vice President. No other executive officers received aggregate
compensation during our last fiscal year which exceeded, or would exceed on an
annualized basis, $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and Year Salary (1) All Other Annual Compensation
Principal Position Bonus
<S> <C> <C> <C> <C>
Dennis Appel 2000 $120,000 $ - $ -
Executive Vice President
John Papazzian
Chief Executive Officer $75,000
Ed Daley
Chief Financial Officer $60,000
</TABLE>
Included above Mr. Papazian and Mr. Daley accrued salaries of $12,500 and
$40,000, respectively. These amounts will be paid when sufficient funds
become available.
For the fiscal year ended February 28, 2001, we have agreed to pay Mr. Appel
$120,000, Mr. Papazian $75,000 and Mr. Daley $60,000. Mr. Papazain and Mr.
Daley have agreed to continue to accrue their compensation until sufficient
funds become available.
Board Compensation and Committee
Our directors do not receive cash compensation for their services as directors,
although some directors are reimbursed for reasonable expenses incurred in
attending board or committee meetings.
We have a compensation committee of the board consisting of Messrs. Russo,
Papazian and Daley.
Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware empowers a
corporation to indemnify it directors and officers and to purchase insurance
with respect to liability arising out of their capacity as directors and
officers. The Act further provides that indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the Corporation's bylaws, any agreement, vote of
the shareholders, or otherwise.
Our bylaws provide that we shall indemnify all persons to the full extent
allowed by law, by reason of the fact that they are or were a director, become a
party or are threatened to be made a party to any indemnifiable action, suit or
proceeding. We shall pay, in advance of the final disposition of any
indemnifiable action, suit or proceeding under this bylaw, all reasonable
expenses incurred by the director, upon receipt of an undertaking by or on
behalf of the director to repay such amount if it is ultimately determined that
he is not entitled to be indemnified by us under law. We may indemnify persons
other than directors, such as officers and employees, as permitted by law. We my
purchase and maintain insurance on behalf of directors, officers and other
persons against any liability asserted against him, whether or not we would have
the power to indemnify such person against such liability, as permitted by law.
Insofar as indemnification for liabilities arising under the securities act may
be permitted to directors, officers or persons controlling the registrant under
the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against the
public policy and is therefore, unenforceable.
Related party transactions
During the fiscal year ended February 28, 1998, we issued 7,200,150 shares of
common stock to Space Liaison and Imaging Corporation, a related company, in
exchange for all of the assets and liabilities of Space Liaison and Imaging
Corporation. Space Liaison and Imaging Corporation subsequently exchanged our
shares for its outstanding shares.
During June 1998 our CEO purchased 30,000 shares of common stock via the
issuance of a promissory note in the amount of $6,000. The note is secured by
the common stock and bears interest at 8.5% per annum and is due June 26, 1999.
Prior to that due date the note was extended and is due on demand.
During June 1998 our Vice President purchased 20,000 shares of common stock via
the issuance of a promissory note in the amount of $4,000. The note is secured
by the common stock and bears interest at 8.5% per annum and is due June 26,
1999. Prior to that due date the note was extended and is due on demand.
During January 2000, the Company granted 2,982,761 shares of convertible
preferred stock to our CEO. The shares are convertible into shares of common
stock based on the attainment of certain revenue goals of SSI during SSI's
fiscal year. The shares have been valued at par value due to the uncertainty of
the attainment of the revenue goals for conversion into common stock. The
conversion feature expires two years after the grant.
During January 2000, the Company granted 1,350,000 shares of convertible
preferred stock to our Vice President. The shares are convertible into shares of
common stock based on the attainment of certain revenue goals of SSI during
SSI's fiscal year. The shares have been valued at par value due to the
uncertainty of the attainment of the revenue goals for conversion into common
stock. The conversion feature expires two years after the grant.
During January 2000, the Company granted 900,000 shares of convertible preferred
stock to our CFO. The shares are convertible into shares of common stock based
on the attainment of certain revenue goals of SSI during SSI's fiscal year. The
shares have been valued at par value due to the uncertainty of the attainment of
the revenue goals for conversion into common stock. The conversion feature
expires two years after the grant.
Principal stockholders
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of May 31, 2000.
o Each shareholder known by us to own beneficially more than 5% of the common
stock
o Each executive officer
o Each director and all directors and executive officers as a group:
<TABLE>
<CAPTION>
Name Number of shares Percentage before merge(a) Percentage after merger(b)
<S> <C> <C> <C>
John Papazian1* 6,932,911 32.77 31.63
Dennis Appel2* 1,520,000 7.18 6.93
Ed Daley3* 1,000,000 4.73 4.56
Martin Flaherty* 50,000 .24 .23
Benjamin Russo* 50,000 .24 .23
Victor Moguchev* 100,000 .47 .46
Brook Watts* 100,000 .47 .46
Ila Berman 1,260,000 5.96 5.75
Sondra Black 1,260,000 5.96 5.75
Lindi Rivers4 1,897,959 8.97 8.66
Howard Kerbel5 1,640,090 7.75 8.39
Total of officers &
directors as a
group (7 persons) 9,752,911 46.10 44.50
</TABLE>
* Denotes officer and/or director
This table is based upon information derived from our stock records. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, we believe that each of the shareholders named
in this table has sole or shared voting and investment power with respect to the
shares indicated as beneficially owned.
(a)Applicable percentages are based upon 14,035,150 shares of common stock
outstanding and issued as of May 31, 2000.
(b)Although shareholders of First enterprise are retaining only 3% of the total
shares outstanding after the merger, this amount is calculated on a fully
diluted basis and thus is greater than 3% of the shares of common stock
outstanding and issued as of May 31, 2000. This accounts for the apparent
discrepancy in the percentages and the provisions of the merger agreement.
Description of SSI capital stock
The following information is as of May 31, 2000.
Authorized Capital Stock Under SSI Shares Of Capital Stock Outstanding
Articles Of Incorporation
Common Stock 14,035,150
50,000,000
Preferred Stock 7,120,720 Class A
25,000,000
Our present management and their affiliates collective owns approximately 60% of
our issued and outstanding common shares.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
There are 10,000,00 shares of Class A preferred stock authorized and 7,120,720
shares issued. The Class A preferred stock has the following rights and
preferences.
o Dividend rights - None
o Liquidation preference - An amount equal to the par value per share.
o No mandatory redemption. - There is no mandatory right of redemption
o Voting rights. - Each share of Preferred Stock shall be entitled to one
vote for each share of Common Stock issuable upon conversion of the
Preferred Stock on each matter on which holders of shares of Common
Stock are entitled to vote. The Preferred Stock shall not vote as a
separate class, but shall vote jointly with holders of Common Stock.
o Right to convert - Until December 31, 2005, conversion shall be on the
basis of one share of Common Stock for each share of Preferred Stock.
The right to convert shall not commence unless and until SSI achieves
gross annual sales of $1,000,000 over a twelve month period. The
Preferred Stock shall be for no consideration if the goal is not
achieved within two years from the date of issuance of the Preferred
Stock.
In addition, issuance of additional preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock,
including voting rights of the holders of common stock. In certain
circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
merger, we currently have no plans to issue any additional shares of preferred
stock.
Options
SSI has the following options outstanding:
o Phoenix Business Consultants
o 500,000 options at $1.00 per share
o Granted during fiscal 1999 - expire five years after they become
exercisable
o ITR Marketing Inc.
o 500,000 options at $.50
o Granted 11/20/99 - expires one year after Company becomes
publicly traded
o Evan Capital
o 500,000 options at $.50
o Granted 10/15/99 - expires one year after Company becomes
publicly traded
o Novak Graphics Ltd.
o 500,000 options at $.50
o Granted 11/20/99 - expires one year after Company becomes
publicly traded
o Larix International Ltd.
o 750,000 options at $.50
o Granted 12/10/99 - expires one year after Company becomes
publicly traded
Dividends
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
Transfer Agent
The transfer agent and registrar for SSI stockholders stock is
Atlas Stock Transfer
5899 South State
Murray, UT 84107
First enterprise service group's business
History and Organization
We were organized under the laws of the state of Florida in April, 1999. Since
inception, our primary activity has been directed to organizational efforts. We
were formed as a vehicle to acquire a private company desiring to become an SEC
reporting company in order thereafter to secure a listing on the over the
counter bulletin board.
Operations
We were organized for the purposes of creating a corporate vehicle to seek,
investigate and, if such investigation warrants, engage in business combinations
presented to us by persons or firms who or which desire to become an SEC
reporting company and thereafter secure a listing on the OTC Bulletin Board. We
have identified SSI as the company we wish to acquire.
Employees
We presently have no employees. Our officer and director is engaged in business
activities outside of us. It is anticipated that management will devote the time
necessary each month to our affairs of until a successful business opportunity
has been acquired.
Selected Financial Data
The following information concerning our financial position and operations is as
of and for the period ended December 31, 1999.
Total assets $ 0
Total liabilities 0
Equity 0
Sales 0
Net loss 79
Net loss per share 0
Management Discussion And Analysis Or Plan Of Operation
We are a development stage entity, and have neither engaged in any operations
nor generated any revenues to date. We have no assets. Our expenses to date, all
funded by a loan from management, are $79. We have agreed to pay our
management's law firm a fee of $57,500, to be paid from the merger fee.
Management has funded our cash requirements and has agreed to do so until the
SSI acquisition is closed. So long as management does so, we will have
sufficient funds to satisfy our cash requirements. This is primarily because we
anticipate incurring no significant expenditures. Our expenses have been limited
to accounting fees, legal fees, telephone, mailing, filing fees, and
occupational license fees.
We do not intend to seek additional financing. At this time we believe that the
funds to be provided by management will be sufficient for funding our operations
until we close the acquisition and therefore do not expect to issue any
additional securities before the closing of the acquisition.
Properties
We are presently using the office of Michael T. Williams, 2503 W. Gardner Ct.,
Tampa FL, at no cost. Such arrangement is expected to continue only until a
business combination is closed, although there is currently no such agreement
between us and Mr. Williams. We at present own no equipment, and do not intend
to own any.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information about our current shareholders. The
person named below has sole voting and investment power with respect to the
shares. The numbers in the table reflect shares of common stock held as of the
date of this Information Statement/Prospectus:
SHARES OWNED PERCENTAGE
Michael T. Williams(1) 1,000,000 33.3%
2503 W. Gardner Ct.
Tampa FL 33611
Kevin Lovely 1,000,000 33.3
Leonard Aernoff, Esq. 1,000,000 33.3
All directors and officers 1,000,000 33.3
as a group - 1 persons
(1) Owned as Tenants by the Entireties by Michael Williams and Donna Williams,
his wife plus 14 of his nieces, nephews and employees for 140,000 shares
post-merger. Mr. Williams disclaims beneficial ownership of these 140,000
shares, including 10,000 shares held by his son's Irrevocable Trust.
In connection with the merger, we agreed to effect a reverse split such that Mr.
Williams will own 751,603 shares, including the 140,000 shares described above,
prior to the closing of the merger. In addition, Mr. Lovely and Mr. Aernoff
agreed that prior to the reverse split, they would return sufficient shares to
us for no consideration such that after the reverse split they will each own
50,000 shares of First Enterprise prior to the closing of the merger.
Directors and Executive Officers
The following table and subsequent discussion sets forth information about our
director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in March, 1999.
Name Age Title
Michael T. Williams 52 President, Treasurer and Director
Since 1975 Mr. Williams has been in the practice of law, initially with the US
Securities and Exchange Commission until 1980, and since then in private
practice. He was also chief executive officer of Florida Community Cancer
Centers, Dunedin, FL from 1991-1995. He received a BA from the University of
Kansas and a JD from the University of Pennsylvania.
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or paid
for services rendered to us in all capacities during the period ended December
31, 1999, by our other executive officers whose salary and bonus for period
ended December 31, 1999 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C>
Name and Principal Position Annual Compensation - 1999
Salary, $, Bonus, $, Number of Shares Underlying Options, #,
Michael T. Williams, President None None None
Certain Relationships and Related Transactions
</TABLE>
Of the $75,000 merger fee to be paid to us by SSI under the terms of the merger
agreement, Mr. Lovely will receive $7500 for his role as co-founder. First
Enterprise agreed to pay Mr. Aernoff $10,000 for his legal services in assisting
with the clearing of any possible comments on this registration statement
received from the SEC staff. The remaining $57,500 will be paid to Williams Law
Group for legal services in preparing this registration statement.
Upon formation, Mr. Williams was issued 1,000,000 shares. In connection with the
merger, we agreed to effect a reverse split such that Mr. Williams' Trust will
own 751,603 shares, including 140,000 shares post merger held by 14 of his
nieces, nephews, family Vermont land trust and employees for 140,000 shares
post-merger.
Legal Proceedings
We not a party to or aware of any pending or threatened lawsuits or other legal
actions.
Indemnification of Directors and Officers
Our director is bound by the general standards for directors provisions in
Florida law. These provisions allow him in making decisions to consider any
factors as he deems relevant, including our long-term prospects and interests
and the social, economic, legal or other effects of any proposed action on the
employees, suppliers or our customers, the community in which the we operate and
the economy. Florida law limits our director's liability.
We have agreed to indemnify our director, meaning that we will pay for damages
they incur for properly acting as director. The SEC believes that this
indemnification may not be given for violations of the securities act of 1933.
Insofar as indemnification for liabilities arising under the securities act may
be permitted to directors, officers or persons controlling the registrant under
the foregoing provisions, the registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against the
public policy and is therefore, unenforceable.
Provisions With Possible Anti-Takeover Effects
Section 607.0902 of Florida law restricts the voting rights of certain shares of
a corporation's stock when those shares are acquired by a party who, by such
acquisition, would control at least one-fifth of all voting rights of the
corporation's issued and outstanding stock. The statute provides that the
acquired shares, the control shares, will, upon such acquisition, cease to have
any voting rights. The acquiring party may, however, petition the corporation to
have voting rights re-assigned to the control shares by way of an acquiring
person's statement submitted to the corporation in compliance with the
requirements of the statute. Upon receipt of such request, the corporation must
submit, for shareholder approval, the acquiring person's request to have voting
rights re-assigned to the control shares. Voting rights may be reassigned to the
control shares by a resolution of a majority of the corporation's shareholders
for each class and series of stock. If such a resolution is approved, and the
voting rights re-assigned to the control shares represent a majority of all
voting rights of the corporation's outstanding voting stock, then, unless the
corporation's articles of incorporation or Bylaws provide otherwise, all
shareholders of the corporation will be able to exercise dissenter's rights in
accordance with Florida law.
A corporation may, by amendment to its articles of incorporation or bylaws,
provide that, if the party acquiring the control shares does not submit an
acquiring person's statement in accordance with the statute, the corporation may
redeem the control shares at any time during the period ending 60 days after the
acquisition of control shares. If the acquiring party files an acquiring
person's statement, the control shares are not subject to redemption by the
corporation unless the shareholders, acting on the acquiring party's request,
deny full voting rights to the control shares.
The statute does not alter the voting rights of any stock of the corporation
acquired in any of the following manners:
o Under the laws of intestate succession or under a gift or testamentary
transfer
o Under the satisfaction of a pledge or other security interest created in
good faith and not for the purpose of circumventing the statute
o Under either a merger or merger if the corporation is a party to the
agreement or plan of exchange or merger
o Under any savings, employee stock ownership or other benefit plan of the
corporation
o Under an acquisition of shares
specifically approved by the board of directors of the corporation
DESCRIPTION OF First Enterprise Service Group'S CAPITAL STOCK
Authorized Capital Stock Shares Of Capital Stock Outstanding
50,000,000 3,000,000
20,000,000 none
Common Stock
We are authorized to issue 50,000,000 shares of no par common stock. As of
December 31, 1999, there were 3,000,000 shares of common stock outstanding held
of record by 17 stockholders.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
We are authorized to issue 20,000,000 shares of Class A preferred stock. There
are 10,000,000 shares of Class A preferred stock outstanding, with the same
rights and preferences as SSI Class A preferred stock. Issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including voting rights of the holders of common
stock. In certain circumstances, an issuance of preferred stock could have the
effect of decreasing the market price of the common stock. We currently have no
plans to issue any additional shares of preferred stock.
Options
We will issue options with the same terms and conditions as the SSI options
described above in connection with the merger.
Dividends
We have never paid any dividends and do not expect to do so after the closing of
the merger and thereafter for the foreseeable future.
Transfer Agent and Registrar
We are the transfer agent and registrar for our common stock.
Comparison of rights of first enterprise service group
Stockholders and ssi stockholders
Because First Enterprise Service Group will change its state of incorporation,
articles and bylaws to be the same as those of SSI, the rights of stockholders
of SSI will not change as a result of the merger.
AVAILABLE INFORMATION
SSI is not and, until the effectiveness of the registration statement (as
defined below), First Enterprise Service Group was not, subject to the reporting
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, and, therefore, do not file reports, proxy statements or other
information with the Commission. Under the rules and regulations of the
Commission, the solicitation of proxies from the shareholders of SSI to approve
the merger constitutes an offering of First Enterprise Service Group common
stock to be issued in connection with the merger. Accordingly, First Enterprise
Service Group has filed with the Commission a registration statement on Form S-4
under the Securities Act, with respect to the offering from time to time, the
registration statement. This proxy statement/prospectus constitutes the
prospectus of First Enterprise Service Group that is filed as part of the
Registration Statement in accordance with the rules and regulations of the
Commission. Copies of the registration statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected, without charge, at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and
may be available at the following Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of the
materials may be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-800-SEC-0330. In addition, the Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
EXPERTS
***update
The financial statements of First Enterprise Service Group, Inc. as of and for
the period April 6, 1999 (Date of Incorporation) through December 31, 1999 also
included in this prospectus and elsewhere in the Registration Statement have
been included herein in reliance on the report of Kingery Crouse & Hohl P.A.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The financial statements of Space Systems International
Corporation as of February 28, 1999, and February 29, 2000 and for the years
then ended also included in this prospectus and elsewhere in the Registration
Statement have been included herein in reliance on the report of Pannell Kerr
Forster, Certified Public Accountants, A Professional Corporation, San Diego,
California, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of First Enterprise Service Group common stock being
offered by this information statement/prospectus and certain federal income tax
matters related to the exchange are being passed upon for First Enterprise
Service Group by Williams Law Group, P.A., Tampa, FL. Mr. Williams is the sole
officer and director of and owns 1,000,000 shares pre merger and 751,603 shares
post merger of the stock of First Enterprise Service Group.
SPACE SYSTEMS INTERNATIONAL CORPORATION
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
For the Years Ended February 29, 2000 and February 28, 1999
SPACE SYSTEMS INTERNATIONAL CORPORATION
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT.................................................F-1
FINANCIAL STATEMENTS
Balance Sheets
as of February 29, 2000 and February 28, 1999. ....................F-2
Statements of Operations for the years ended
February 29, 2000 and February 28, 1999 ...........................F-3
Statements of Changes in Stockholders' Equity
for the years ended February 29, 2000 and February 28, 1999 .......F-4
Statements of Cash Flows for the years ended
February 29, 2000 and February 28, 1999 .....................F-5 - F-6
NOTES TO FINANCIAL STATEMENTS.........................................F-7 - F-16
INTERIM UNAUDITED FINANCIAL STATEMENTS
Balance Sheet
as of May 31, 2000 (Unaudited).....................................F-17
Statements of Operations for the three months ended
May 31, 2000 and 1999 (Unaudited)..................................F-18
Statement of Changes in Stockholders' Equity
for the three months ended May 31, 2000 (Unaudited)................F-19
Statements of Cash Flows for the three months ended
May 31, 2000 and 1999 (Unaudited)..................................F-20
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS.........................F-21
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Space Systems International Corporation
We have audited the accompanying balance sheets of Space Systems International
Corporation (the "Company"), as of February 29, 2000 and February 28, 1999 and
the related statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Space Systems International
Corporation as of February 29, 2000 and February 28, 1999, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations, has
limited operating revenue and limited capital resources. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
San Diego, California PANNELL KERR FORSTER
June 15, 2000 Certified Public Accountants
A Professional Corporation
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
BALANCE SHEETS
February 29, 2000 and February 28, 1999
ASSETS
<S> <C> <C>
2000 1999
Current assets
Cash $ 37,193 $ 88,093
Accounts receivable 87,548 19,650
Common stock subscriptions receivable 56,000 -
Prepaid expenses - 21,706
Deferred consulting fees 500,712 -
Total current assets 681,453 129,449
Noncurrent assets
Furniture and equipment, net of accumulated depreciation
of $3,692 and $2,893 at February 29, 2000 and February
28, 1999, respectively 2,397 3,196
Other noncurrent assets 397 397
Total noncurrent assets 2,794 3,593
Total assets $ 684,247 $ 133,042
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 264,490 $ 90,041
Notes payable 44,079 28,300
Deferred revenue 34,700 -
Total current liabilities 343,269 118,341
Commitments and contingencies (Notes 1, 7 and 9)
Stockholders' equity
Preferred stock, $.0001 par value, 25,000,000
shares authorized; 7,120,720 and 0 shares issued and
outstanding in 2000 and 1999, respectively 712 -
Common stock, $.0001 par value, 50,000,000
shares authorized; issued and outstanding:
13,035,150 and 10,300,150 shares in 2000 and
1999, respectively; 1,000,000 and 0 shares
issuable in 2000 and 1999, respectively 1,404 1,030
Contributed and paid in capital 2,418,499 628,974
Common stock subscriptions receivable (50,000) (25,000)
Accumulated deficit (2,029,637) (590,303)
Total stockholders' equity 340,978 14,701
Total liabilities and stockholders' equity $ 684,247 $133,042
</TABLE>
<TABLE>
<CAPTION> SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS For the years ended
February 29, 2000 and February 28, 1999
2000 1999
<S> <C> <C>
Revenues
Sales $ - $ 19,226
Consulting 897,321 39,300
Total revenues 897,321 58,526
Cost of revenues 560,161 10,341
Gross margin 337,160 48,185
Expenses
Operating expenses 656,291 384,153
Consulting expenses 1,093,710 117,000
Interest expense 26,493 2,097
Total expenses 1,776,494 503,250
Net loss $(1,439,334) $(455,065)
Basic and diluted net loss per share $(0.13) $(0.05)
Shares used to compute basic and diluted
net loss per share 11,028,067 9,464,417
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended February 29, 2000 and February 28, 1999
Common Contributed
Stock and Total
Preferred Stock Common Stock Subscriptions Paid In Accumulated Stockholders'
Shares Value Shares Value Receivable Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1998 - $- 8,900,150 $890 $(170) $115,104 $(135,238) $(19,414)
Issuance of common
stock options to
consultants - - - - - 117,000 - 117,000
Common stock issued - - 1,350,000 135 (15,000) 386,875 - 372,010
Common stock issued
to related parties - - 50,000 5 (10,000) 9,995 - -
Common stock
subscription received - - - - 170 - - 170
Net loss - - - - - - (455,065) (455,065)
Balance at
February 28, 1999 - - 10,300,150 1,030 (25,000) 628,974 (590,303) 14,701
Preferred stock issued 7,120,720 712 - - - - - 712
Issuance of common
stock on exercise
of options - - 785,000 79 - - - 79
Issuance of common
stock options to
consultants - - - - - 214,820 - 214,820
Common stock issued - - 2,150,000 215 (81,000) 1,074,805 - 994,020
(See Notes G and 11)
Common stock canceled
due to non-performance
of services - - (200,000) (20) - - - (20)
Issuable common stock - - ,000,000 100 - 499,900 - 500,000
(See Noted G and 11)
Common stock
subscriptions receivable - - - - 56,000 - - 56,000
Net loss - - - - - - (1,439,334) (1,439,334)
Balance at
February 29, 2000 7,120,720 $ 712 14,035,150 $ 1,404 $ (50,000) $ 2,418,499 $(2,029,637) $340,978
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS For the years ended
February 29, 2000 and February 28, 1999
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,439,334) $ (455,065)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 799 799
Common stock issued for services 878,890 -
Common stock options granted to consultants 214,820 117,000
Changes in operating assets and liabilities:
Increase in accounts receivable (67,898) (19,650)
Increase in other noncurrent assets - (397)
Decrease in organization expenses - 7,456
Decrease (increase) in prepaid expenses 21,706 (21,706)
Increase in deferred revenues 34,700 -
Increase in accounts payable and accrued expenses 174,449 80,184
Net cash used in operating activities (181,868) (291,379)
Cash flow from financing activities:
Issuance of common stock 115,189 372,180
Borrowings on notes payable 36,602 25,214
Repayments of notes payable (20,823) (18,114)
Net cash provided by financing activities 130,968 379,280
Net (decrease) increase in cash (50,900) 87,901
Cash at beginning of year 88,093 192
Cash at end of year $37,193 $88,093
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS (Continued) For the years ended
February 29, 2000 and February 28, 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
2000 1999
<S> <C> <C>
Cash paid during the period for:
Income taxes $ - $ -
Interest $ 26,493 $ 2,097
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During the year ended February 29, 2000, the Company entered into an agreement
to issue 1,000,000 shares of restricted common stock to a consultant after
giving effect to the merger with First Enterprise Service Group, Inc. for
services to be rendered during the initial term of the consulting agreement (one
year) (See Noted G and 11). The shares have been valued at $.50 per share,
$500,000 in total, based on the anticipated offering of shares.
During January 2000, 7,120,720 shares of convertible preferred stock were issued
by the Company. The shares are convertible based on the attainment of certain
revenue goals of the Company. The shares have been valued at par value of $.0001
per share, $712 in total, due to the uncertainty of the attainment of the
revenue goals for conversion into common stock. The conversion feature expires
two years after the date of issue.
During January 2000, 325,000 and 100,000 shares of common stock were sold and
issued to consultants at $.18 and $.20 per share, respectively, and secured by
notes receivable for a total of $81,000. Of this amount, $56,000 was received
subsequent to February 29, 2000. The shares have been valued at $.50 per share
based on the anticipated offering of shares.
Effective March 1, 1998, the Company exchanged 7,200,150 shares of common stock
for all of the assets and liabilities of Space Liaison and Imaging Corporation.
The value of the assets and liabilities acquired were $4,303 and $31,056,
respectively.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Space Systems International Corporation (the "Company") was incorporated in
Delaware on February 19, 1998. The Company provides technology and consulting to
corporations and governments requiring solutions to telecommunications and
remote sensing of the environment. The Company provides an integrated system
approach to the problem by utilizing existing capabilities among sub
contractors.
Effective March 1, 1998, the Company acquired all of the assets and liabilities
of Space Liaison and Imaging Corporation ("SLIC") in exchange for the issuance
of 7,200,150 shares of common stock of the Company. The transaction has been
accounted for as an exchange between entities under common control and was
accounted for at historical cost. Accordingly, the accompanying financial
statements have been presented as if Space Liaison and Imaging Corporation and
Space Systems International Corporation were one company.
In June 1999, the Company's Board of Directors approved a merger between the
Company and First Enterprise Service Group, Inc. ("FESG"). The merger will close
after the Securities and Exchange Commission ("SEC") declares FESG's
registration statement effective and each shareholder of the Company's common
and preferred stock will receive one like share of FESG stock. The transaction
will be accounted for as a reverse merger with a public shell. Accordingly, the
financial statements will be presented as if the Company had always been a part
of FESG.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including instruments embedded
in other contracts and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the balance sheet and measurement
of those instruments at fair value. The new standard becomes effective for
fiscal years beginning after June 15, 2000. Management does not expect this
statement to have a material effect on the Company's financial statements.
Furniture and Equipment
Furniture and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from two to five years.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long Lived Assets
The Company applies the provisions of SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
periodically evaluates whether events or circumstances have occurred that may
affect the estimated useful life or the recoverability of long-lived assets. The
Company performs this evaluation for each individual long lived asset.
Impairment is triggered when the estimated future cash flows do not exceed the
carrying amount. Impairment will be measured on the difference between the
carrying amount and the fair value of such asset determined using the future
cash flows. No impairment of long lived assets has been recognized as of
February 29, 2000 and February 28, 1999.
Revenue Recognition
The Company generally recognizes revenue when technology is shipped or when
consulting services are rendered to customers. Revenue from consulting services
contracts is recognized ratably over the term of the service contract.
Major Customers
During May 1999, the Company entered into a contractual agreement with a
"Fortune 500 Company" to provide consulting services in Russia via Company
employees located in Russia on an as-needed basis. Approximately 96% of total
revenues for the fiscal year ended February 29, 2000 were generated from this
contact.
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 related disclosures at
the date of the financial statements and the amounts of revenues and expenses
reported during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net (Loss) Per Share
Basic net (loss) per common share excludes dilution and is computed by dividing
net (loss) by the weighted average number of common shares outstanding during
the reported periods. Diluted net (loss) per share reflects the potential
dilution that could occur if stock options and other commitments to issue common
stock were exercised. For the years ended February 29, 2000 and February 28,
1999, the effects of stock options and other commitments to issue 3,000,000 and
585,000 shares of common stock, respectively, are not considered in the
calculation as they are anti-dilutive.
Fair Value of Financial Instruments
The Company believes that the recorded values of its financial instruments
approximates their fair value at the balance sheet date due to their immediate
short-term maturity.
Stock Based Compensation
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments based on a fair-value method of accounting.
Companies that do not choose to adopt the expense recognition rules of SFAS No.
123 will continue to apply the existing accounting rules contained in Accounting
Principles Board Opinion ("APBO") No. 25, but will be required to provide
proforma disclosures of the compensation expense determined under the fair-value
provisions of SFAS No. 123. APBO No. 25 requires no recognition of compensation
expense for most of the stock-based compensation arrangements provided by the
Company, namely, option grants where the exercise price is equal to the market
price at the date of the grant.
The Company has opted to follow the accounting provisions of APBO No. 25 for
stock-based compensation and to furnish the pro forma disclosures required
under SFAS No. 123. During the years ended February 29, 2000 and February 28,
1999, the Company did not issue any options under APBO No. 25 which required the
pro forma disclosures under SFAS No. 123.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations, has
limited operating revenue and limited capital resources. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Going Concern (Continued)
The Company's continuation as a going concern is dependent upon its ability to
raise capital from outside sources, generate sufficient cash flow from
operations and ultimately to attain profitability. In order to do this, the
Company intends to continue to pursue telecommunications opportunities in Russia
in order to expend its presence and utilize its existing resources in Russia. If
in the event that this market is slower to develop than expected, the Company
will pare back its Russian resources in order to reduce expenses and maintain
its viability. The Company's management is also exploring various alliances with
certain technology companies to enhance their product and service offerings. The
management's overall goal is to integrate the products from these companies into
the Company's overall strategy. The Company will also attempt to raise
additional funds should they be required to continue its operations.
NOTE 2 - PREPAID EXPENSES
Prepaid expenses at February 28, 1999 represent the remaining amount of costs
incurred for issuance policies covering directors and officers and general
liability. The policies were financed by the finance company.
NOTE 3 - DEFERRED CONSULTING FEES
Deferred consulting fees at February 29, 2000 represent the issuance of
7,120,720 shares of convertible preferred stock during January 2000 at a fair
value of $.0001 (par value) and 1,000,000 shares of restricted common stock at a
fair value of $.50. The charges for the preferred stock issuance will be
expensed when the conversion to common stock takes place (shares are convertible
based on the attainment of certain revenue goals) or the conversion feature
expires. The charges for the common stock will be expensed after giving effect
to the merger with First Enterprise Service Group, Inc. as services are rendered
during the initial term of the consulting agreement of one year (See Notes G and
11).
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at February 29 and February 28,
respectively, consist of:
2000 1999
Accounts payable trade $ 9,229 $ 22,541
Accrued professional fees 41,668 -
Accrued salaries 123,593 67,500
$ 264,490 $ 90,041
NOTE 5 - NOTES PAYABLE
Notes payable at February 29 and February 28, respectively, consists of :
2000 1999
Note payable to a bank, interest payable monthly at
11.37% per annum, principal amount due on demand $35,315 $-
Note payable to a bank, interest payable monthly at
14.50% and 13.50% per annum, respectively,
principal amount due on demand 8,764 13,149
Note payable to a finance company,
interest payable monthly at 12.38% per annum - 15,151
$44,079 $28,300
The Company had unused lines of credit of $25,921 and $6,851 at February 29,
2000 and February 28, 1999, respectively.
NOTE 6 - INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. The tax effect of temporary
differences consisted of the following as of February 29 and February 28,
respectively:
2000 1999
Deferred tax assets:
Net operating loss carry forwards $520,000 $90,000
Compensation element of stock options issued 152,000 66,000
Cash basis accounting for tax purposes 70,000 19,000
Other 12,000 11,000
Gross deferred tax assets 754,000 186,000
Less valuation allowance (754,000) (186,000)
$- $-
Realization of deferred tax assets is dependant upon sufficient future taxable
income during the period that deductible temporary differences and carryforward
are expected to be available to reduce taxable income. As the achievement of
required future taxable income is uncertain, the Company recorded a valuation
allowance. The Company's valuation allowance increased by $568,000 from 1999.
NOTE 6 - INCOME TAXES (Continued)
As of February 29, 2000, the Company has net operating loss carry-forwards for
both federal and state income tax purposes. Federal and state net operating loss
carry-forwards totaling approximately $1,080,000 begin to expire in 2019 and
2004, respectively. Due to federal and state laws, the availability of the
operating loss carry-forwards may be limited if a cumulative change in the
Company's ownership results in a change in control. The Company believes such a
change has not taken place during the years ended February 29, 2000 and February
28, 1999. Due to federal and state tax rules the net operating losses of Space
Liaison and Imaging Corporation are not transferrable to the Company.
A reconciliation of the effective tax rates with the federal statutory rate is
as follows for the years ended February 29 and February 28, respectively:
2000 1999
Income tax benefit at 35% statutory rate $(504,000) $(159,000)
Change in valuation allowance 568,000 186,000
Non deductible expenses 6,000 3,000
State income taxes, net (85,000) (27,000)
Other 15,000 (3,000)
$ - $ -
NOTE 7 - STOCKHOLDERS' EQUITY
Preferred Stock
During January 2000, the Company issued 7,120,720 shares of convertible
preferred stock from consulting services. These shares have no dividend rights
and no mandatory right of redemption. The liquidation preference amount for the
shares is equal to the par value per share. Each share of preferred stock is
entitled to one vote for each share of common stock issuable upon conversion of
the preferred stock on each matter on which shareholders of common stock are
entitled to vote. The preferred stock shall not vote as a separate class, but
shall vote jointly with holders of common stock. The shares shall become
convertible when the Company achieves gross annual sales of $1,000,000 over a
twelve month period. The conversion feature expires two years after the date of
issue.
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
Common Stock
During fiscal 1999, the Company granted options to acquire common stock to a
consultant. The consulting agreement called for options to be granted as
follows: options to purchase 150,000 shares of common stock at an exercise price
of $.0001 per share upon execution of the consulting agreement, options to
acquire 200,000 shares of common stock at an exercise price of $.0001 per share
upon the introduction and successful acquisition of SLIC (see Note 1) and
options to acquire 200,000 shares of common stock at an exercise price of $.0001
per share upon the entry into any contractual relationship with a specified
company (all of these events have occurred as of February 29, 2000). The
consulting agreement is effective for a period which extends for twenty-four
months from the date of the agreement (See Note 9). All of the options have been
exercised as of February 29, 2000.
During May 1998, the Company granted an option to acquire 235,000 shares of
common stock to a consultant at an exercise price of $.0001 per share
exercisable January 1, 1999 through June 30, 2000. All of the options have been
exercised as of February 29, 2000.
During fiscal 2000, the Company granted options to acquire a total of 3,000,000
shares of common stock to consultants. The options are exercisable at $.50 per
share and expire one year after the Company's common stock becomes publicly
traded.
During fiscal 1999, the Company entered into a consulting agreement which
granted the consultant options to acquire 500,000 shares of common stock at an
exercise price of $1.00 per share. The options become exercisable upon the
Securities and Exchange Commission effecting a Registration Statement submitted
by the Company and the Company's common stock quoted average closing bid being
at least $5.00 per share for ten trading days. If both conditions have not been
met within twelve months of an effective Form 10-SB, the options to purchase
common stock are cancellable by the Company. These options expire five years
after they become exercisable.
These options are not exercisable as of February 29, 2000.
Stock option plans
The Company has elected to account for incentive grants and grants under its
Plan following APBO No. 25 and related interpretations. The Company did not
issue any options under APBO No. 25 and accordingly, no compensation costs have
been recognized for the years ended February 29, 2000 and February 28, 1999 and
no pro forma disclosures under SFAS No. 123 are required. Under SFAS No. 123,
the fair value of each option granted will be estimated on the measurement date
utilizing the then current fair value of the underlying shares, as estimated by
management, less the exercise price discounted over the expected life of the
options.
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
Stock option summary
Under SFAS No. 123, the fair value of each option granted during the years ended
February 29, 2000 and February 28, 1999 was estimated on the measurement date
utilizing the then current fair value of the underlying shares, as estimated by
management, less the exercise price discounted over the expected life of the
options ranging between one and five years, with an average risk free interest
rate ranging between 5.82% and 6.29%, price volatility of .10 and no dividends.
<TABLE>
<CAPTION>
A summary of the activity of the stock options for the years
ended February 29, 2000 and February 28, 1999 is as follows:
Year ended Year ended
February 29, 2000 February 28, 1999
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of
period 1,085,000 $.46 500,000 $1.00
Granted 3,200,000 .47 585,000 .0001
Exercised (785,000) .0001 - -
Forfeited - - - -
Expired - - - -
Outstanding at end of period 3,500,000 $.57 1,085,000 $.46
Exercisable at end of period 3,000,000 $.50 585,000 $.0001
Weighted-average fair value
of options granted during
the period $.07 $.20
Weighted-average remaining
contractual life of options
outstanding at end of period 1.2 years 3.2 years
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
During June 1998, the Company's CEO purchased 30,000 shares of common stock via
the issuance of a promissory note in the amount of $6,000. The note is secured
by the common stock and bears interest at 8.5% per annum and is due on demand.
During June 1998, the Company's Vice President purchased 20,000 shares of common
stock via the issuance of a promissory note in the amount of $4,000. The note is
secured by the common stock and bears interest at 8.5% per annum and is due on
demand.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
During fiscal 1999, the Company entered into a consulting agreement which calls
for payment of $150,000 per year for two years for services to be rendered. This
payment of these fees is contingent upon and begins with the Company's
commencement of trading on any publicly traded market and is payable in a lump
sum at the end of the end of the two year term. In addition the agreement calls
for a payment of $60,000 upon the commencement of the Company's stock trading on
any public market. The agreement also provides for the granting of up to 550,000
options to purchase the Company's common stock at an exercise price of $.0001
per share (see Note 7).
The Company also entered into a financing agreement with a financing company
whereby the financing company will make short term advances to the Company for
foreign payroll needs. These advances are secured by specific billings of the
Company related to the contractual agreement with Russia (see Note 1 "Major
Customers").
In conjunction with the acquisition of the assets and liabilities of Space
Liaison and Imaging Corporation, a dissolved corporation which had common
ownership with the Company, the Company obtained the rights to certain
outstanding contract proposals which were initiated by Space Liaison and Imaging
Corporation. The Company has not assigned any value to these rights as of
February 29, 2000.
The Company has adopted the Incentive Compensation Plan and the Equity Incentive
Plan. The Incentive Compensation Plan covers all employees, is determined by
measured performance and is based on a percentage of annual salary. The Equity
Incentive Plan covers directors, officers and certain key employees of the
Company. Under the Equity Incentive Plan, participants may be granted Incentive
Stock Options or Non-Qualified incentive stock options. In no case may options
be granted at less than fair market value of the underlying common stock. The
Company has reserved 1,000,000 common shares for issuance under the Equity
Incentive Plan. There was no activity under this Plan during the years ended
February 29, 2000 and February 28, 1999.
The Company leases its office facility on a one year term with monthly lease
payments of $300. This lease expired April 2000 and is continuing on a month to
month basis.
Subsequent to fiscal 2000, the Company canceled a contract by and between it and
a consultant (the "Consultant"). The Consultant's counsel has threatened
litigation if the Company does not perform its obligations under the contract
(see Note 11). No legal action has yet been filed by the Consultant. The Company
believes that it acted appropriately in canceling the contract and does not
believe it has any liability in this matter.
NOTE 10 - SERVICE AGREEMENT
During February 2000, the Company entered into a Frame Service agreement with
Metrosvyaz Ltd. (the "Customer") to provide technical services to the Customer
for the integration, installation and testing of wireless communications (CDMA)
systems for the Customer's clients in Russia. This agreement expires on February
4, 2002, unless sooner terminated by either party with seven days notice in
writing. There was no service provided under this agreement as of February 29,
2000.
NOTE 11 - SUBSEQUENT EVENT
During May 2000, the Company canceled a contract with a consultant under which
450,000 shares of the Company's common stock were issued, but never delivered to
the consultant, and 1,000,000 shares of the Company's restricted common stock
were reserved for issuance to the Consultant after giving effect to the merger
with FESG (see Note 9). The Company then entered into contractual agreements
with two other consultants to perform the services required for compensation of
the same type and number of shares.
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
BALANCE SHEET
May 31, 2000 (Unaudited)
ASSETS
<S> <C>
Current assets
Cash $14,999
Accounts receivable 87,190
Prepaid expenses -
Deferred charges on stock issuance 500,712
Total current assets 602,901
Noncurrent assets
Furniture and equipment, net of accumulated depreciation
of $3,892 2,197
Other noncurrent assets 397
Total noncurrent assets 2,594
Total assets $605,495
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 204,861
Notes payable 53,665
Total current liabilities 258,526
Commitments and contingencies
Stockholders' equity
Preferred stock, $.0001 par value, 25,000,000
shares authorized; 7,120,720 issued and outstanding 712
Common stock, $.0001 par value, 50,000,000 shares authorized; issued and
outstanding:
13,035,150 shares; 1,000,000 shares issuable 1,404
Contributed and paid in capital 2,418,499
Common stock subscriptions receivable (50,000)
Accumulated deficit (2,023,646)
Total stockholders' equity 346,969
Total liabilities and stockholders' equity $ 605,495
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS For the three months ended
May 31, 2000 and 1999 (Unaudited)
Three months ended
May 31,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Consulting $ 160,850 $ 104,662
Total revenues 160,850 104,662
Cost of revenues 111,553 39,086
Gross margin 49,297 65,576
Expenses
Operating expenses 41,533 85,725
Consulting expenses - 24,995
Interest expense 1,773 952
Total expenses 43,306 111,672
Net income (loss) $5,991 $ (46,096)
Basic and diluted net income (loss) per share $.0005 $(.005)
Shares used to compute basic and diluted
net income (loss) per share 13,035,150 10,150,150
</TABLE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended May 31, 2000 (Unaudited)
Common Contributed
Stock and Total
Preferred Stock Common Stock Subscriptions Paid In Accumulated Stockholders'
Shares Value Shares Value Receivable Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 29, 2000 7,120,720 $712 14,035,150 $1,404 $(50,000) $2,418,499 $(2,029,637) $340,978
UNAUDITED INFORMATION:
Net loss for the three
months ended
May 31, 2000 - - - - - - 5,991 5,991
Balance at May 31,
2000 (Unaudited) 7,120,720 $712 14,035,150 $1,404 $(50,000) $2,418,499 $(2,023,646) $346,969
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SPACE SYSTEMS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS For the three months ended
May 31, 2000 and 1999 (Unaudited)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $5,991 $ (46,096)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation 200 200
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 358 (66,708)
Decrease in deferred revenues (34,700) -
(Decrease) increase in accounts payable
and accrued expenses (59,629) 72,732
Net cash used in operating activities (87,780) (39,872)
Cash flow from financing activities:
Proceeds from share issuances 56,000 -
Borrowings on notes payable 11,071 140
Repayments of notes payable (1,485) (15,151)
Net cash provided by (used in) financing
activities 65,586 (15,011)
Net decrease in cash (22,194) (54,883)
Cash at beginning of period 37,193 88,093
Cash at end of period $14,999 $33,210
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
2000 1999
Cash paid during the period for:
Income taxes $- $-
Interest $2,028 $952
</TABLE>
NOTE 1 - BASIS OF PRESENTATION
reflect all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the consolidated financial position of Space Systems
International Corporation as of May 31, 2000, and the results of operations and
cash flows for the three months ended May 31, 2000 and 1999. The results of
operations for the three months ended May 31, 2000 are not necessarily
indicative of results that may be expected for the full year. These financial
statements are unaudited and do not include all related footnote disclosures.
These financial statements should be read in conjunction with the consolidated
financial statements for the years ended February 29, 2000 and February 28, 1999
and the notes thereto included in the Company's audited consolidated financial
statements included elsewhere in this registration statement.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable at May 31, 2000 of $87,190 consist principally of amounts
due for consulting services.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at May 31 consist of:
2000
Accounts payable trade $4,468
Accrued salaries 200,393
$204,861
NOTE 4 - NOTES PAYABLE
Notes payable at May 31 consists of :
2000
Note payable to a bank, interest payable monthly at
11.62% per annum, principal amount due on demand $45,000
Note payable to a bank, interest payable monthly at
14.75% per annum, principal amount due on demand 8,665
$53,665
Space Systems International Corporation
INFORMATION STATEMENT FOR STOCKHOLDERS OF SPACE SYSTEMS INTERNATIONAL, CORP.
First Enterprise Service Group, Inc.
PROSPECTUS
TABLE OF CONTENTS
First Enterprise Service Group, Inc.
PROSPECTUS
TABLE OF CONTENTS
SOLICITATION OF WRITTEN CONSENTS 6
WRITTEN CONSENT 7
TABLE OF CONTENTS 9
SUMMARY 11
RISK FACTORS 14
MERGER APPROVALS 19
MERGER TRANSACTION 19
SSI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 33
SSI'S BUSINESS 33
MANAGEMENT 51
INDEMNIFICATION OF DIRECTORS AND OFFICERS 53
RELATED PARTY TRANSACTIONS 54
PRINCIPAL STOCKHOLDERS 55
DESCRIPTION OF SSI CAPITAL STOCK 57
FIRST ENTERPRISE SERVICE GROUP'S BUSINESS 60
DESCRIPTION OF FIRST ENTERPRISE SERVICE
GROUP'S CAPITAL STOCK 66
COMPARISON OF RIGHTS OF FIRST ENTERPRISE
SERVICE GROUP 68
STOCKHOLDERS AND SSI STOCKHOLDERS 68
AVAILABLE INFORMATION 68
EXPERTS 68
LEGAL MATTERS 69
Dealer prospectus delivery obligation
Dealer prospectus delivery obligation
Until, all dealers that effect transactions in these securities, whether or not
participating in this offering, are required to deliver a prospectus.
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware
Under Section 145 of the Delaware General Corporation Law, the Registrant has
broad powers to indemnify its Directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
Under Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability (i) for breach of the
Directors' duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. The provisions also does not affect a Directors'
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
Florida
Florida Business Corporation Act. Section 607.0850(1) of the Florida Business
Corporation Act (the "FBCA") provides that a Florida corporation, such as the
Company, shall have the power to indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the corporation),
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall have
the power to indemnify any person, who was or is a party to any proceeding by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
II-1
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida corporation
is not personally liable for monetary damages to the corporation or any other
person for any statement, vote, decision, or failure to act, regarding corporate
management or policy, by a director, unless: (i) the director breached or failed
to perform his duties as a director; and (ii) the director's breach of, or
failure to perform, those duties constitutes: (A) a violation of criminal law,
unless the director had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful; (B) a transaction
from which the director derived an improper personal benefit, either directly or
indirectly; (C) a circumstance under which the liability provisions regarding
unlawful distributions are applicable; (D) in a proceeding by or in the right of
the corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation, or
willful misconduct; or (E) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. Articles and
Bylaws. The Company's Articles of Incorporation and the Company's Bylaws provide
that the Company shall, to the fullest extent permitted by law, indemnify all
directors of the Company, as well as any officers or employees of the Company to
whom the Company has agreed to grant indemnification.
At present, there is no pending litigation or proceeding involving a Director,
officer or key employee of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Numbers
Exhibit 2.1 Agreement and Plan of Merger and Reorganization*
Exhibit 3.1 Articles of Incorporation of the Registrant.*
Exhibit 3.2 Bylaws of the Registrant*
Exhibit 3.3 Amended and Restated Articles of Incorporation of Registrant,
to be effective after consummation of the proposed Merger.*
Exhibit 3.4 Amended and Restated Bylaws of the Registrant, to be effective
after consummation of the proposed Merger.*
Exhibit 4.1 Form of Common Stock Certificate of the Registrant.*
Exhibit 5.1 Legal Opinion of Williams Law Group, P.A.
Exhibit 8.1 Tax Opinion of Williams Law Group, P.A.*
Exhibit 10.1a Agreement with Rainbow.
Ehhibit 10.1b Agreement with Gulf Atlantic
Exhibit 10.2 Option Agreement with ITR Marketing Inc.*
Exhibit 10.3 Option Agreement with Evan Capital*
Exhibit 10.4 Option Agreement with Novak Graphics Ltd.*
Exhibit 10.5 Option Agreement with Larix International Ltd.*
Exhibit 10.6 Contract with Globalstar
Exhibit 10.7 Contract with Ericsson*
Exhibit 10.8 Promissory note from John Papazian
Exhibit 10.9 Promissory note from Dennis Appel
Exhibit 10.10.1 Promissory notes from Barry Berman dated September 24, 1998
Exhibit 10.10.2 Promissory notes from Barry Berman dated October 6, 1998
Exhibit 10.11 Letter from MGM to Williams Law Group
Exhibit 10.12 Letter from Williams Law Group to MGM
Exhibit 10.13 Letter from MGM to SSI Board*
Exhibit 11.1 Statement of computation of per share earnings.*
Exhibit 23.1 Consent of KINGERY, CROUSE & HOHL, P.A.
Exhibit 23.2 Consent of PANNELL KERR FORSTER, CPAs.
Exhibit 23.3 Consent of WILLIAMS LAW GROUP, P.A. (to be included in
Exhibits 5.1 and 8.1).
Exhibit 27. Financial Data Schedule (for SEC use only)
*To be filed by amendment
All other Exhibits called for by Rule 601 of Regulation S-1 are not applicable
to this filing.
Information pertaining to our Common Stock is contained in our Articles of
Incorporation and By-Laws.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(2) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective;
(3) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-4
(4) The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (3) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
- 28 -
Exhibit 10.1a
RAINBOW COMMUNICATIONS, INC. AGREEMENT
This Rainbow Communications, Inc. Agreement (the "Agreement") is entered
into on this ___ day of May, 2000, between Rainbow Communications, Inc., a
Florida corporation ("RAINBOW"), and Space Systems International Corporation, a
Delaware corporation ("Client").
Whereas, RAINBOW is in the business of planning, developing and
implementing advertising, marketing and promotional campaigns for corporations
and other business entities ("Advertising and Promotional Services");
Whereas, the Client desires to retain RAINBOW to provide the
Advertising and Promotional Services, and RAINBOW desires to provide such
Advertising and Promotional Services to Client, pursuant to the terms,
conditions and provisions contained in this Agreement;
Now, therefore, in consideration of the mutual promises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Advertising and Promotional Services. Subject to Client's compliance
with each of the representations, warranties and covenants and agreements made
by Client in this Agreement, RAINBOW agrees to provide to Client the Advertising
and Promotional Services identified on Exhibit A which is attached hereto and
incorporated herein by reference, for the period commencing on the latter of
(the "Effective Date") the date that this Agreement is executed and delivered by
Client or the date that RAINBOW receives payment of its fees as herein provided
and expiring on the 730th day following the effective date of this Agreement
(the "Term").
2. Obligations and Responsibilities of Client. As of the date hereof and
during the Term of this Agreement, Client agrees as follows.
1.Representation and Warranties.
Client represents and warrants to RAINBOW that:
(1) Organization. Client is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation and it is
duly qualified to do business as a foreign corporation in each jurisdiction in
which it owns or leases property or engages in business.
(2) Formal Action. Client has the corporate power and authority to execute
and deliver this Agreement and to perform each of its obligations hereunder and
this Agreement has been duly approved by Client's Board of Directors.
(3) Valid and Binding Agreement. This Agreement has been duly executed and
delivered by Client and is the valid and binding obligation of Client
enforceable against it in accordance with its terms.
(4) No Violation. The execution, delivery and performance of this Agreement
does not and will not violate any provisions of the charter or bylaws of Client
or any agreement to which Client is a party or any applicable law or regulation
or order or decree of any court, arbitrator or agency of government and no
action of, or filing with, any governmental or public body or authority is
required in connection with the execution, delivery or performance of this
Agreement.
(5) Litigation. No action, suit or proceeding is pending against or
affecting the Client or any of its properties before any court, arbitrator or
governmental body or administrative agency and none of the persons owning
beneficially or of record more than 10% of the outstanding capital stock of the
Client or any of the directors or officers of Client is a party to any action,
suit or proceeding before any federal or state court, arbitrator or governmental
body or administrative agency (other than routine traffic violations) and no
such person has been a party to any such proceedings for more than the past five
years.
(6) Accuracy of Information. The information furnished by Client to RAINBOW
regarding the business, operations, financial condition, including financial
statements, business plans and biographical information regarding the Client's
directors and officers (collectively referred to as the "Information Package")
is complete and accurate in all material respects and does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made not misleading.
2. Covenants and Agreements.
Client covenants and agrees to comply with the following covenants:
(1) Client Certification. Client acknowledges that it is responsible for
the accuracy and completeness of the Information Package and for all other
information furnished to RAINBOW and for the accuracy and completeness of the
contents of all materials prepared by RAINBOW for and on behalf of Client. The
Client hereby designates the individuals listed on Exhibit B attached hereto and
incorporated herein by reference as the duly authorized representatives of
Client for purposes of certifying to RAINBOW the accuracy of all documents,
advertisements or other materials prepared by RAINBOW for and on behalf of
Client. The Client agrees to promptly advise RAINBOW in writing of any
condition, event, circumstance or act that would constitute a material adverse
change in the business, properties, financial condition or business prospects of
the Client or which would make any of the information contained in the
Information Package or in any report, advertorial or other document prepared by
RAINBOW for and on behalf of Client misleading in any material respect. Client
hereby agrees that RAINBOW and its directors, officers, agents and employees may
rely on the Information Package and on all other information furnished by
Client, and on each and every certification provided by an authorized
representative of Client, until RAINBOW is advised in writing by an authorized
representative of Client that the information previously furnished to RAINBOW is
inaccurate or incomplete in any material respect. Client acknowledges that
RAINBOW shall have no obligation to provide services hereunder until it has
received a written certificate from an authorized representative of Client as
follows: RAINBOW shall prepare proofs and/or tapes of the agreed upon materials
and information, as set for dissemination, for the Client's review and approval
and Client shall sign and return such materials marking all corrections and
changes that the Client believes appropriate. Client acknowledges that RAINBOW
will make oral representations based on the information furnished hereunder and
the Client authorizes such representations.
(2) Books and Records. Client shall maintain true and complete books,
records and accounts in which true and correct entries shall be made of its
transactions in accordance with generally accepted accounting principles
consistently applied ("GAAP").
(3) Financial and Other Information. Client agrees to furnish to RAINBOW
the following information:
(i) Annual Financial Statements. As soon as practicable, and in any event
within 90 days after the close of the Client's fiscal year, annual financial
statements including a balance sheet, an income statement, a statement of cash
flows, and a statement of stockholder's equity, and all notes thereto prepared
in accordance with GAAP and audited by an independent certified public
accountant.
(ii) Quarterly Financial Statements. As soon as practicable, and in any
event within 45 days after the end of each fiscal quarter, quarterly financial
statements, including a balance sheet, a quarterly and year-to-date income
statement, a statement of cash flows, and a statement of stockholder's equity,
prepared by Client in accordance with GAAP and certified by the chief financial
officer and chief executive officer of Client as fairly presenting, subject to
normal year-end audit adjustments, the Client's financial position as of and for
the periods indicated.
(4) RAINBOW Reliance on Clients's Full Disclosure. Client will provide, or
cause to be provided, to RAINBOW all financial and other information requested
by RAINBOW for the purpose of rendering its services pursuant to this Agreement.
Client recognizes and confirms that RAINBOW will use such information in
performing the services contemplated by this Agreement without independently
verifying such information and that RAINBOW does not assume any responsibility
for the accuracy or completeness of such information. The persons executing this
Agreement on behalf of Client certify that there is no fact known to them which
materially adversely affects or may (so far as the Client's senior management
can now reasonably foresee) materially adversely affect the business,
properties, condition (financial or other) or operations (present or
prospective) of the Client which has not been set forth in written form
delivered by Client to RAINBOW. The persons executing this Agreement on behalf
of Client agree to keep RAINBOW promptly informed of any facts hereafter know to
Client which materially adversely affects or may (so far as the Client's senior
management can now reasonably foresee) materially adversely affect the business,
properties, condition (financial or other) or operations (present or
prospective) of Client.
(5) Legal Representation. Client acknowledges and agrees that it has been
and will continue to be, represented by legal counsel experienced in corporate
and securities laws and Client acknowledges that it has been advised as to the
obligations imposed on it pursuant to such laws and understands that it will
have the obligation and responsibility to see that all such laws are complied
with at all times during the Term of this Agreement.
3. Compensation. In consideration of the Advertising and Promotional
Services to be performed by RAINBOW hereunder, Client hereby agrees to
compensate RAINBOW in the manner and in the amount specified in Exhibit C which
is attached hereto and incorporated herein by reference thereto. In addition to
the compensation to be paid to RAINBOW as provided in Exhibit C, Client shall
reimburse RAINBOW promptly after a written request therefor accompanied by
appropriate documentation, for all reasonable out-of-pocket expenses (including
reasonable fees and disbursements of RAINBOW's counsel, if any) incurred in
connection with providing services hereunder or to the extent provided in
Exhibit C.
4. Indemnity. Client acknowledges that it is responsible for the
accuracy of the Information Package and all other information provided to
RAINBOW and for the contents of all materials, advertorials and other
information prepared by RAINBOW for an on behalf of Client as provided herein
and Client agrees to indemnify RAINBOW in accordance with the Indemnification
Agreement set forth in Exhibit D, which is attached hereto and incorporated
herein by reference.
5. Relationship of the Parties. This Agreement provides for the
providing of marketing, promotional and advertising services by RAINBOW to
Client and the provisions herein for compliance with financial covenants,
delivery of financial statements, and similar provisions are intended solely for
the benefit of RAINBOW to provide it with information on which it may rely in
providing services hereunder and nothing contained in this Agreement shall be
construed as permitting or obligating RAINBOW to act as a financial or business
advisor or consultant to Client, as permitting or obligating RAINBOW to
participate in the management of client's business, as creating or imposing any
fiduciary obligation on the part of RAINBOW with respect to the provisions of
services hereunder and RAINBOW shall have no such duty or obligation to client,
as providing or counseling Client as to the compliance by Client with any
federal or state securities or other laws effecting the services to be provided
hereunder, or as creating any joint venture, agency, or other relationship
between the parties other than as explicitly and specifically stated in this
Agreement. The Client acknowledges that it has had the opportunity to obtain the
advice of experienced counsel of its own choosing in connection with the
negotiation and execution of this Agreement, the provision of services hereunder
and with respect to all matters contained herein, including, without limitation,
the provisions of Section 4 hereof.
6. Survival of Certain Provisions. The Client's obligations to pay the
fees and expenses of RAINBOW pursuant to Section 3 of this Agreement and to
comply with the indemnification provisions pursuant to Section 4 shall remain
operative and in full force and effect regardless of any termination of this
Agreement and shall be binding upon, and shall inure to the benefit of, RAINBOW
and, in the case of the indemnity agreement, the persons, agents, employees,
officers, directors and controlling persons referred to in the Indemnification
Agreement, and their respective successors and assigns and heirs, and no other
person shall acquire or have any right under or by virtue of this Agreement. All
amounts paid or required to be paid under Sections 3 and 4 of this Agreement
shall be fully earned on the Effective Date of this Agreement notwithstanding
prior termination of this Agreement.
7. Termination. RAINBOW shall have the right in its sole and absolute
discretion to terminate its obligations hereunder and to immediately cease
providing Advertising and Promotional Services pursuant to this Agreement if
RAINBOW, in the exercise of its reasonable judgment, believes that the
representations and warranties made by Client hereunder are inaccurate in any
material respect or if Client breaches any of its covenants and agreements
contained herein or if any federal or state governmental agency or
instrumentality institutes an investigation or suit against Client or pertaining
to the services hereunder.
8. Non-Solicitation Covenant. Client agrees that it will not directly
or indirectly during the term of this Agreement or for three years following the
termination or expiration of this Agreement, either voluntarily or
involuntarily, for any reason whatsoever, recruit or hire or attempt to recruit
or hire any employee of RAINBOW or of any of its affiliates or subsidiaries, or
otherwise induce any such employees to leave the employment of RAINBOW or of any
of its affiliates or subsidiaries or to become an employee of or otherwise be
associated with Client or any affiliate or subsidiary of Client. Client
acknowledges that RAINBOW and its affiliates and subsidiaries have invested a
significant amount of time, energy and expertise in the training of their
employees to be able to provide Advertising and Promotional Services and Client
therefore agrees that this covenant is reasonable and agrees that the breach of
such covenant is very likely to result in irreparable injury to RAINBOW, which
is unlikely to be adequately compensated by damages. Accordingly, in the event
of a breach or threatened breach by Client of this Section 8, RAINBOW shall be
entitled to an injunction restraining Client and any affiliate, subsidiary or
director or officer thereof from recruiting, or hiring or attempting to recruit
or hire any employee of RAINBOW or of any affiliate or subsidiary of RAINBOW.
Nothing herein shall be construed as prohibiting RAINBOW from pursuing any other
remedies available to RAINBOW for such breach or threatened breach, including
recovery of damages from Client. The undertakings herein shall survive the
termination or cancellation of the Agreement for three years.
9. Miscellaneous.
A. Governing Law. This Agreement shall be governed by the laws of the State
of Florida applicable to contracts executed and performed in the Circuit Court,
Orange County, in the State of Florida (without regard to the principles of
conflicts of laws).
B. Entire Agreement. This Agreement and the Exhibits hereto embody the
entire agreement of the parties with respect to its subject matter. There are no
restrictions, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
C. Amendments to be in Writing. This Agreement may be amended only in a
writing signed by all of the parties.
D. No Waivers by Course of Dealing; Limited Effect of Waivers. No waiver
shall be effective against any party unless it is in a writing signed by that
party. No course of dealing and no delay on the part of RAINBOW in exercising
its rights shall operate as a waiver of that right or otherwise prejudice
RAINBOW. RAINBOW's failure to insist upon the strict performance of any
provision of this Agreement, or to exercise any right or remedy available to
RAINBOW, shall not constitute a waiver by RAINBOW of such provision. No specific
waiver by RAINBOW of any specific breach of any provision of this Agreement
shall operate as a general waiver of the provision or of any other breach of the
provision. Client shall have no right to cure any breach except as specifically
provided herein.
E. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
F. Cumulation of Rights and Remedies. No right or remedy of RAINBOW under
this Agreement is intended to preclude any other right or remedy and every right
and remedy shall coexist with every other right and remedy now or hereafter
existing, whether by contract, at law, or in equity.
G. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the parties and their successors and assigns. Client shall not
have any right to assign any of its rights or delegate any of its obligations or
responsibilities under this Agreement except as expressly stated herein.
H. Payment of Fees and Expenses on Enforcing Agreement. In the event of any
dispute between the parties arising out of or related to this Agreement or the
interpretation thereof, at the trial level or appellate level, the prevailing
party shall be entitled to recover from the non-prevailing party all costs and
expenses, including reasonable fees and disbursements of counsel which may be
incurred in connection with such proceeding, without limitation, including any
costs and expenses of experts, witnesses, depositions and other costs.
I. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing, and shall be delivered to the parties at
the addresses set forth below (or to such other addresses as the parties may
specify by due notice to the others). Notices or other communications shall be
effective when received at the recipient's location (or when delivered to that
location if receipt is refused). Notices or other communications given by
facsimile transmission shall be presumed received at the time indicated in the
recipient's automatic acknowledgment. Notices or other communications given by
Federal Express or other recognized overnight courier service shall be presumed
received on the following business day. Notices or other communications given by
certified mail, return receipt requested, postage prepaid, shall be presumed
received 3 business days after the date of mailing.
Client: Space Systems International Corporation
16325 Roca Drive
San Diego, California 92128
Attn: John Papazian, President/CEO
Telephone: 858-618-7149
Fax: 858-618-1873
Rainbow Communications, Inc.
1947 Lee Road
Winter Park, Florida 32789
Attn: Roberto E. Veitia, President
Telephone: 407-628-5700
Fax: 407-628-0807
J. Headings. The headings in this Agreement are intended solely for
convenience of reference. They shall be given no effect in the construction or
interpretation of this Agreement.
K. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not impair the validity or enforceability of any other
provision.
In Witness Whereof, the parties have executed this Agreement as of the date
first above written. Attest: Space Systems International Corporation
By: By:
----------------------------------- -----------------------------------
Secretary John Papazian,
President
[Corporate Seal]
Attest: Rainbow Communications, Inc.
By: By:
----------------------------------- ----------------------------------
Secretary Roberto E. Veitia, President
[Corporate Seal]
EXHIBIT A
Advertising and Promotional Services
The services to be provided are as follows:
A. Company will be featured in four (4) web sites including
E-mail alert to subscriber base.
B. Growth Industry Report - A minimum of four-page, two-color
follow-up mail pieces designed for additional informational
purposes, that is mailed to respondents, in addition to those
brokers requesting said information. A total of 10,000 will be
printed to satisfy RAINBOW's responsibility to the Client. Any
additional Growth Industry Reports needed or requested by the
Client will be at the Client's expense.
C. The Lead Distribution Program - RAINBOW will contact retail
brokers, market makers and/or money managers and will arrange
a meeting between representative of the Client and interested
retail brokers, market makers, and money managers, which will
include a show and tell from the top management of the
"Client" in disseminating information to these interested
parties. The aforementioned may be accomplished by a Road
Show.
This process will begin immediately upon RAINBOW receiving the
payment as stipulated in Exhibit "C".
D. Other Advertising and Promotional Services.
1. Public relations exposure to newsletter writers,
trade and financial publications. The Client shall be
totally responsible for all travel expenses for the
purpose of due diligence of the Client by financial
newsletter writers and/or brokers. The Client will
have total pre-approval rights on these trips. Road
Show(s) - Locations to be determined. Client will
cover all expenses of Road Show(s). Client will have
prior approval of those expenses. RAINBOW will be
responsible for RAINBOW's own travel expenses to
support the show
2. Inclusion as a featured Lead Generator of the Month
in Confidential Fax Alert, a newsletter transmitted
by fax to over 5,000 Brokers.
3. Preparation of a Broker Bullet Sheet to be sent to
every broker who indicates an interest in the Client.
4. Lead Tracking Summary maintained for all response
leads generated and provided to the "Client" monthly.
5. Press releases - Up to four (4) press releases - the
first Press Release shall announce the hiring of
RAINBOW by the "Client"; with three Press Releases
remaining which may be extended at the option of the
"Client", at the Client's expense, at a rate of
$1,000.00 per Press Release. Should the Client chose
to publish their own Press Release, RAINBOW shall be
mentioned as the Client's Public Relations firm.
6. RAINBOW will distribute at its cost the due
diligence packages to all inquiring brokers only. The
Client shall supply the necessary materials for this
package, if an Arrow Marketing Contract is not
entered into. In the event an Arrow Marketing
Contract is not entered into, the Client will provide
RAINBOW with 300 packages or in the alternative
provide a master to RAINBOW and RAINBOW will then
charge the Client for the cost of reproduction.
7. RAINBOW targets a minimum of 3% return of qualified
investor leads specifically generated for the Client.
8. Production of Due Diligence Folder (minimum 500) with
company Sector Report.
E. Performance By Client.
1. Client is required to do a Standard & Poor's listing
at the Client's expense.
2. Client is required to provide RAINBOW with all S& P l
istings on their attorney's stationary.
3. Client will provide its shareholder's with audited
financials on a yearly basis and unaudited financials
on a quarterly basis.
4. Client agrees to send RAINBOW, DTC sheets on a weekly
basis.
5. Client agrees to provide RAINBOW with a complete
shareholders list on a semi-annual basis.
6. Client will use its reasonable best efforts to
register or qualify any shares of common stock of
Client under the securities or blue sky laws of
such jurisdictions as any broker or market maker may
reasonably request and do any and all other acts and
things which may be reasonably necessary or advisable
to enable such broker or market maker to consummate
the disposition in such jurisdictions of shares of
common stock of Client, provided that the Client will
not be required to (1) qualify generally to do
business in any jurisdiction where it would not
otherwise be required to qualify but for this Section
and (2) subject itself to taxation in any such
jurisdiction or (3) consent to general service of
process in any such jurisdiction.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement regarding the service to be provided by RAINBOW under
the Agreement.
Space Systems International Corporation
By:__________________________________
John Papazian, President
Rainbow Communications, Inc..
By: ________________________________
Roberto E. Veitia, President
EXHIBIT B
Client hereby designates the following person or persons to act on its behalf
for the purposes set forth in Section 2 of the Agreement.
------------------------------------ ---------------------------------
DIRECTOR (PLEASE SIGN) DIRECTOR (PLEASE PRINT)
------------------------------------ ---------------------------------
PRESIDENT (PLEASE SIGN) PRESIDENT (PLEASE PRINT)
------------------------------------ ---------------------------------
VICE PRESIDENT (PLEASE SIGN) VICE PRESIDENT (PLEASE PRINT)
EXHIBIT C
COMPENSATION
1. Client agrees to pay to RAINBOW Five Hundred Thousand and 00/100
Dollars ($500,000.00) in cash on execution and delivery of the Agreement or, at
the option of Client, to issue to RAINBOW 225,000 free trading shares of Common
Stock and 500,000 restricted shares in Client (the "Shares"), which Shares shall
be duly and validly issued, fully paid and nonassessable and shall not be issued
in violation of any preemptive right of any stockholders of client. The Shares
shall be issued in compliance with the exemption from the registration
requirements of the Securities Act of 1933 (the "Act") provided by Section 4(2)
of the Act and/or pursuant to Rules 505 or 506 of the General Rules and
Regulation under the Securities Act of 1933.
2. Concurrently with the payment of cash or the issuance of the Shares,
Client will execute and deliver the Registration Rights Agreement attached
hereto as Exhibit E under which the Client agrees to register the Shares for
sale in compliance with the Act as therein provided and to comply with all
conditions necessary or required to enable the Shares to be sold pursuant to
Rule 144 of the General Rules and Regulation under the Securities Act of 1933.
3. The Shares, if any, to be issued to RAINBOW shall be approved for
issuance in accordance with the rules and regulations of any stock exchange on
which the Shares are listed for trading or by the NASDAQ if the shares are
listed for trading thereon and shall be issued in compliance with all
appropriate federal or state governmental rules and regulations.
4. Client acknowledges that the consideration to be paid to RAINBOW
shall be fully earned on the date that RAINBOW commences providing services
under the Agreement regardless of whether the Agreement is terminated as
provided in the Agreement prior to completion of all services.
5. Client agrees to pay or reimburse RAINBOW for all expenses arising out
of or related to the provision of services by RAINBOW under the Agreement to the
extent provided in the Agreement and/or in Exhibit A thereto.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the compensation provisions contained herein.
Space Systems International Corporation
By: _______________________________
John Papazian, President
Rainbow Communications, Inc.
By: ______________________________
Roberto E. Veitia, President
EXHIBIT D
INDEMNIFICATION
This Indemnification Agreement constitutes part of the Rainbow
Communications, Inc. Agreement (the Agreement) dated the ____ day of May, 2000,
between Client (as defined in the Agreement) and RAINBOW.
Client acknowledges and agrees that if, in connection with the services
or matters that are the subject of or arise out of such Agreement, RAINBOW
becomes involved (whether or not as a named party) in any action, claim or legal
proceeding (including any governmental inquiry or investigation), Client agrees
to reimburse RAINBOW for its reasonable legal fees, disbursements of counsel and
other expenses (including the cost of investigation and preparation) as they are
incurred by RAINBOW. Client also agrees to indemnify and hold RAINBOW harmless
against any losses, claims, damages or liabilities, joint or several, as
incurred, to which RAINBOW may become subject in connection with the services or
matters which are the subject of or arise out of the Agreement; provided,
however, that Client shall not be liable under the foregoing indemnity in
respect of any loss, claim, damage or liability to the extent that a court
having jurisdiction shall have determined by a final judgment that such loss,
claim, damage or liability is a consequence of intentional fraudulent acts
committed by RAINBOW without the knowledge and/or consent of Client. In the
event that the foregoing indemnity is unavailable by operation of law, then
Client shall contribute to amounts paid or payable by RAINBOW in respect of such
losses, claims, damages and liabilities in the proportion that Client's interest
bears to RAINBOW's interest in the matters contemplated by the Agreement. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, or otherwise, then Client shall contribute to such
amount paid or payable by RAINBOW in such proportion as is appropriate to
reflect not only such relative interests but also the relative fault of Client
on the one hand and RAINBOW on the other hand in connection with the matters as
to which such losses, claims, damages or liabilities relate and other equitable
considerations.
Promptly after RAINBOW's receipt of notice of the commencement of any
action or of any claim, RAINBOW will, if a claim in respect thereof is to be
made against Client under this Indemnity Agreement, notify Client of the
commencement thereof. In case any such action or claim is brought against
RAINBOW, Client will be entitled to participate therein and, to the extent that
Client may wish, to assume the defense thereof, with counsel satisfactory to
RAINBOW. After notice from Client to RAINBOW of Client's election to so assume
the defense thereof, Client will not be liable to RAINBOW for indemnification as
provided in the preceding paragraph for any legal fees, disbursements of counsel
or other expenses subsequently incurred by RAINBOW in connection with the
defense thereof other than reasonable costs of investigation; provided that
RAINBOW shall have the right to employ separate counsel if, in the reasonable
judgment of RAINBOW's counsel, it is advisable for RAINBOW to be represented by
separate counsel or if in the reasonable judgment of RAINBOW's counsel, Client
is not vigorously and actively defending against any such claim or claims, and
in either such event the reasonable legal fees and disbursements of such
separate counsel shall be paid by Client.
The foregoing agreements shall apply to any modification of the
Agreement, shall remain in full force and effect following the completion or
termination of RAINBOW's engagement under the Agreement and shall be in addition
to any rights that RAINBOW may have at common law or otherwise. The agreements
in this Indemnification Agreement shall extend to and inure to the benefit of
each person, if any, who may be deemed to control RAINBOW, be controlled by
RAINBOW or be under common control with RAINBOW and to RAINBOW's, and to each
such other person's respective affiliates, directors, officers, employees and
agents. This Indemnification Agreement shall be binding on any successor of
Client.
Client represents that the Indemnification Agreement contained herein
is the legal, valid, binding and enforceable obligation of Client, enforceable
against Client according to its terms.
This Indemnification Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida without regard to principles
of conflicts of law, and the forum for resolution of legal and interpretative
issues shall be the Federal District courts in the State of Florida.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the indemnification provisions contained herein.
Space Systems International Corporation
By: ----------------------------------
John Papazian, President
Rainbow Communications, Inc.
By:
-----------------------------------
Roberto E. Veitia, President
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Agreement") is
made and entered into as of _____________, 2000 by and between Rainbow
Communications, Inc., a Florida corporation (RAINBOW), and Space Systems
International Corporation a Delaware corporation (the Client).
WHEREAS, RAINBOW concurrently with the execution of this Registration
Agreement is acquiring shares of the Client's common stock, par value $____ per
share ("Common Stock") and/or options to purchase shares of Common Stock; and
WHEREAS, as a condition to such acquisition, the parties are willing to
enter into the agreements contained herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Definitions
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Agreement" means the Public Relations and Advertising
Agreement dated as of the date of this Registration Agreement between RAINBOW
and Client.
"Client" is defined in the Preamble to this Registration
Agreement.
"Common Stock" is defined in the Recitals to this Registration
Agreement.
"RAINBOW" is defined in the Preamble to this Registration
Agreement.
"Holder" is defined in Section 2.1 hereof.
"Lock-Up Period" is defined in Section 2.1 hereof.
"Options" mean the Options issuable, in certain circumstances,
pursuant to the Agreement, which are exercisable for Common Stock.
"Other Holders" is defined in Section 4.3 hereof.
"Permitted Transfer" is defined in Section 2.2 hereof.
"Person" means an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and government or any
department or agency thereof.
"Piggyback Notice" is defined in Section 4.1 hereof.
"Piggyback Registration" is defined in Section 4.1 hereof.
"Registrable Securities" means (i) the Common Stock issued to
RAINBOW pursuant to the Agreement, (ii) any Common Stock issued to RAINBOW
pursuant to the exercise of Options, and (iii) any securities issued or issuable
with respect to the Common Stock referred to in clauses (i) or (ii) by way of
replacement, share dividend, share split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Registration Agreement" is defined in the Preamble to this
Registration Agreement.
"Registration Expenses" is defined in Section 6.1 hereof.
"Restricted Securities" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act"means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Transfer"is defined in Section 2.1 hereof.
Section 2. Restrictions on Transfer
2.1 Lock-Up Period. Without the express prior written consent of the
Client, RAINBOW agrees that, except as set forth in Section 2.2 below, it will
not, directly or indirectly, offer, sell, contract to sell or otherwise dispose
of (or announce any offer, sale, contract of sale or other disposition of)
("Transfer") any Registrable Securities or Options (collectively, "Restricted
Securities") prior to the first anniversary following the date of this
Registration Agreement.
2.2 Permitted Transfers. The restrictions contained in this Section 2 will
not apply with respect to any of the following transactions (each, a "Permitted
Transfer"):
2.2.1 a natural person may Transfer Restricted Securities to his or her
spouse, siblings, parents or any natural or adopted children or other
descendants or to any personal trust in which such family members or such
transferee retains the entire beneficial interest;
2.2.2 RAINBOW may (A) Transfer Restricted Securities to one or more other
entities that are wholly owned and controlled, legally and beneficially, by
RAINBOW or an Affiliate, or (B) Transfer Restricted Securities by distributing
such Restricted Securities in a liquidation, winding up or otherwise without
consideration to the equity owners of such corporation, partnership or business
entity or to any other corporation, partnership or business entity that is
wholly owned by such equity owners; or (C) Transfer Restricted Securities to a
director, officer or key employee of RAINBOW or an Affiliate;
2.2.3 a transferee acquiring Restricted Securities in a Permitted Transfer
may Transfer Restricted Securities on his or her death or mental incapacity to
such Person's estate, executor, administrator or personal representative or to
such Person's beneficiaries pursuant to a devise or bequest or by the laws of
descent and distribution; or
2.2.4 RAINBOW or any transferee acquiring Restricted Securities in a
Permitted Transfer may Transfer Restricted Securities pursuant to an effective
Registration Statement as provided herein or pursuant to an exemption from the
registration requirements of the Securities Act.
If any Person Transfers Restricted Securities as described in this Section 2.2,
such Restricted Securities shall remain subject to this Registration Agreement
and, as a condition of the validity of such Transfer, the transferee shall be
required to execute and deliver a counterpart of this Registration Agreement.
Thereafter, such transferee shall be deemed to be a Holder for purposes of this
Registration Agreement.
2.3 Rights of Subsequent Holder. Subject to the foregoing restrictions, the
Client and RAINBOW hereby agree that any subsequent holder of Registrable
Securities shall be entitled to all benefits hereunder as a holder of such
securities.
Section 3. Demands for Registration.
3.1 Demand Period3.1 From the date hereof, until the date which is four
years from the date hereof (the "Demand Period"), subject to the terms and
conditions set forth herein, RAINBOW and the Permitted Transferees will have in
the aggregate three opportunities, in addition to other rights enumerated in
this Registration Agreement, to request registration under the Securities Act of
all or part of its Registrable Securities (a "Demand Registration"). The Holders
of 50% or more of the Registrable Securities shall have the right to exercise
the registration rights under this Section 3.
3.2 Demand Procedure.
3.2.1 Subject to Sections 3.2.2 and 3.2.4 below, during the Demand Period
any Holder or combination of Holders (the "Demanding Shareholders") owning 50%
or more of the Registrable Securities may deliver to the Client a written
request (a "Demand Registration Request") that the Client register any or all of
such Demanding Shareholders' Registrable Shares.
3.2.2 Holders, in the aggregate, may only make one Demand Registration
Request in each six-month period during the Demand Period (the "Interim Demand
Periods"). The Client shall only be required to file one registration statement
(as distinguished from supplements or pre-effective or post-effective amendments
thereto) in response to each Demand Registration Request.
3.2.3 A Demand Registration Request from Demanding Shareholders shall (i)
set forth the number of Registrable Securities intended to be sold pursuant to
the Demand Registration Request (ii) disclose whether all or any portion of a
distribution pursuant to such registration will be sought by means of an
underwriting, and (iii) identify any managing underwriter or managing
underwriters proposed for the underwritten portion, if any, of such
registration.
3.2.4 If during any Interim Demand Period, the Client receives a Demand
Registration Request from Demanding Shareholders for the registration of
Registrable Securities having an aggregate market value of $100,000 or greater,
as determined according to the closing price of the Common Stock on the NASDAQ
National Market, on the Bulletin Board or in the Pink Sheets on the date of such
Demand Registration Request, then the Client shall, subject to the limitations
in Sections 3.2.5 and 3.2.6 hereof, (i) use its reasonable best efforts to
prepare and file within 30 days of receipt of the Demand registration request
with the SEC a registration statement under the Securities Act with respect to
all the Registrable Securities that the Demanding Shareholders requested to be
registered in the Demand Registration Request, (ii) use its reasonable best
efforts to cause such registration statement to become effective within 75 days
of receipt of the Demand Registration Request, and (iii) if such registration
can be accomplished by means of a registration statement on Form S-3, keep such
registration statement effective until such time as the Demanding Shareholders
shall have sold or otherwise disposed of all of their Registrable Securities
included in the registration. If such registration cannot be accomplished by
means of a registration statement on Form S-3, the Client shall use its
reasonable best efforts to keep such registration statement effective for at
least 180 days.
3.2.5 It is anticipated that the registration contemplated under this
Section 3 will be accomplished by means of the filing of a Form S-3, and that
registration on such form will allow for different means of distribution,
including sales by means of an underwriting as well as sales into the open
market. If the Demanding Shareholders desire to distribute all or part of the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Client in writing in their initial Demand Registration
Request as described in Section 3.2.3 above. A determination of whether all or
part of the distribution will be by means of an underwriting shall be made by
Demanding Shareholders holding a majority of the Registrable Securities to be
included in the registration. If all or part of the distribution is to be by
means of an underwriting, all subsequent decisions concerning the underwriting
which are to be made by the Demanding Shareholders pursuant to the terms of this
Registration Agreement, which shall include the selection of the underwriter or
underwriters to be engaged and the representative, if any, of the underwriters
so engaged, shall be made by the Demanding Shareholders who hold a majority of
the Registrable Securities to be included in the underwriting, subject to
approval by the Board of Directors of the Client.
3.2.6 Upon the receipt by the Client of a Demand Registration Request in
accordance with Section 3.2.4 hereof, the Client shall, within ten days
following receipt of such Demand Registration Request, give written notice of
such request to all Holders. The Client shall include in such notice information
concerning whether all, part or none of the distribution is expected to be made
by means of an underwriting, and, if more than one means of distribution is
contemplated, may require Holders to notify the Client of the means of
distribution of their Registrable Securities to be included in the registration.
If any Holder who is not a Demanding Shareholder desires to sell any Registrable
Securities owned by such Holder, such Holder may elect to have all or any
portion of its Registrable Securities included in the registration statement by
notifying the Client in writing (a "Supplemental Demand Registration Request")
within 20 days of receiving notice of the Demand Registration Request from the
Client. The right of any Holder to include all or any portion of its Registrable
Securities in an underwriting shall be conditioned upon the Client's having
received a timely written request for such inclusion by way of a Demand
Registration Request or Supplemental Demand Registration Request (which right
shall be further conditioned to the extent provided in this Registration
Agreement). All Holders proposing to distribute their Registrable Securities
through an underwriting shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
3.2.7 Notwithstanding any other provision of this Section 3, if an
underwriter advises the Client in writing that marketing factors require a
limitation on the number of shares to be underwritten, then the number of shares
of Registrable Securities that may be included in the underwriting shall be
allocated among the Holders in proportion (as nearly as practicable) to the
respective amounts of Registrable Securities each Holder owns (or in such other
proportion as they shall mutually agree). Registrable Securities excluded or
withdrawn from the underwriting in accordance with this Section 3.2.7 shall be
withdrawn from the registration.
3.3 Priority on Request Registration. The Client will not include in any
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the Holders of a majority of the shares of
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Client in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of securities that can be sold in an orderly manner in such
offering within a price range acceptable to the Holders of a majority of the
shares of Registrable Securities initially requesting registration, the Client
will include in such registration prior to the inclusion of any securities which
are not Registrable Securities the number of shares of Registrable Securities
requested to be included that in the opinion of such underwriters can be sold in
an orderly manner within such acceptable price range, pro rata among the
respective Holders thereof on the basis of the number of shares of Registrable
Securities owned by each such Holder.
Section 4. Piggyback Registrations
4.1 Right to Piggyback. If the Client proposes to undertake an offering
ofshares of Common Stock for its account or for the account of other
stockholders and the registration form to be used for such offering may be used
for the registration of Registrable Securities (a "Piggyback Registration"),
each such time the Client will give prompt written notice to all Holders of
Registrable Securities of its intention to effect such a registration (each, a
"Piggyback Notice") and, subject to Sections 4.3 and 4.4 hereof, the Client will
use its best efforts to cause to be included in such registration all
Registrable Securities with respect to which the Client has received written
requests for inclusion therein within 20 days after the date of sending the
Piggyback Notice.
4.2 Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Client, and the managing
underwriters advise the Client in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner within a price range acceptable to the Client,
the Client will include in such registration (a) first, the securities the
Client proposes to sell and (b) second, the Registrable Securities requested to
be included in such registration and any other securities requested to be
included in such registration that are held by Persons other than the Holders of
Registrable Securities pursuant to registration rights, pro rata among the
holders of Registrable Securities and the holders of such other securities
requesting such registration on the basis of the number of shares of such
securities owned by each such holder.
4.3 Priority on Secondary. If a Piggyback Registration is an underwritten
secondary registration on behalf of holders of the Client's securities other
than the Holders of Registrable Securities (the "Other Holders"), and the
managing underwriters advise the Client in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in an orderly manner in such offering within a price
range acceptable to the Other Holders requesting such registration, the Client
will include in such registration (a) first, the securities requested to be
included therein by the Other Holders requesting such registration and (b)
second, the Registrable Securities requested to be included in such registration
hereunder, pro rata among the Holders of Registrable Securities requesting such
registration on the basis of the number of shares of such securities owned by
each such Holder.
4.4 Selection of Underwriters4. In the case of an underwritten Piggyback
Registration, the Client will have the right to select the investment banker(s)
and manager(s) to administer the offering.
Section 5. Registration ProceduresSection. Whenever the Holders of
Registrable Securities have requested that any Registrable Securities be sold
pursuant to this Registration Agreement, the Client will use its reasonable best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Client will as expeditiously as possible:
5.1.1 Registration Statement. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective.
5.1.2 Amendments and Supplements. Promptly prepare and file with the SEC
such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for the period required by the intended method of
disposition and the terms of this Registration Agreement and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement.
5.1.3 Provision of Copies. Promptly furnish to each seller of Registrable
Securities the number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller.
5.1.4 Blue Sky Laws. Use its reasonable best efforts to register or qualify
such Registrable Securities under the securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, provided, that the Client will not be required
to (a) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5.1.4, (b) subject itself
to taxation in any such jurisdiction or (c) consent to general service of
process in any such jurisdiction.
5.1.5 Anti-fraud Rules.. Promptly notify each seller of such Registrable
Securities when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any material fact necessary to make the statements
therein not misleading, and in such event, at the request of any such seller,
the Client will promptly prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, provided, that the Client will not take any action which causes the
prospectus included in such registration statement to contain an untrue
statement of material fact or omit any material fact necessary to make the
statements therein not misleading, except as permitted by Section 5.5.
5.1.6 Securities Exchange Listings.. Use its reasonable best efforts to
cause all such Registrable Securities to be listed on each securities exchange
on which securities of the same class issued by the Client are then listed and
use its reasonable best efforts to qualify such Registrable Securities for
trading on each system on which securities of the same class issued by the
Client are then qualified.
5.1.7 Underwriting Agreements. Enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the shares of Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities.
5.1.8 Due Diligence. Make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Client, and cause the Client's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such registration
statement.
5.1.9 applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earning statement
covering the period of at least twelve months beginning with the first day of
the Client's first full calendar quarter after the effective date of the
registration statement, which earning statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
5.1.10 Deemed Underwriters or Controlling Persons. Permit any Holder of
Registrable Securities which Holder, in such Holder's reasonable judgment, might
be deemed to be an underwriter or a controlling person of the Client, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material in form and substance satisfactory
to such Holder and to the Client and furnished to the Client in writing, which
in the reasonable judgment of such Holder and its counsel should be included.
5.1.11 Management Availability.. In connection with underwritten offerings,
make available appropriate management personnel for participation in the
preparation and drafting of such registration or comparable statement, for due
diligence meetings and for "road show" meetings.
5.1.12 Stop Orders. Promptly notify Holders of the Registrable Securities
of the threat of issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceeding
for that purpose, and make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement. In the event
of the issuance of any stop order suspending the effectiveness of a registration
statement, or of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable Securities
included in such registration statement for sale in any jurisdiction, the Client
will use its reasonable best efforts promptly to obtain the withdrawal of such
order.
5.1.13 Opinions. At each closing of an underwritten offering, request
opinions of counsel to the Client and updates thereof (which opinions and
updates shall be reasonably satisfactory to the underwriters of the Registrable
Securities being sold) addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders or their counsel.
5.1.14 Comfort Letter.. Obtain a cold comfort letter and related bring down
letters from the Client's independent public accountants addressed to the
selling Holders of Registrable Securities in customary form and covering such
matters of the type customarily covered by cold comfort letters as the Holders
of a majority of the Registrable Securities being sold reasonably request.
5.2 Further Information. The Client may require each Holder of Registrable
Securities to furnish to the Client in writing such information regarding the
proposed distribution by such Holder of such Registrable Securities as the
Client may from time to time reasonably request.
5.3 Notice to Suspend Offers and Sales. Each Investor severally agrees
that, upon receipt of any notice from the Client of the happening of any event
of the kind described in Sections 5.1.5 or 5.1.12 hereof, such Investor will
forthwith discontinue disposition of shares of Common Stock pursuant to a
registration hereunder until receipt of the copies of an appropriate supplement
or amendment to the prospectus under Section 5.1.5 or until the withdrawal of
such order under Section 5.1.12.
5.4 Reference to Holders. If any such registration or comparable statement
refers to any Holder by name or otherwise as the holder of any securities of the
Client and if, in the Holder's reasonable judgment, such Holder is or might be
deemed to be a controlling person of the Client, such Holder shall have the
right to require (a) the insertion therein of language in form and substance
satisfactory to such Holder and the Client and presented to the Client in
writing, to the effect that the holding by such Holder of such securities is not
to be construed as a recommendation by such Holder of the investment quality of
the Client's securities covered thereby and that such holding does not imply
that such Holder will assist in meeting any future financial requirements of the
Client, or (b) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force, the deletion of the reference to such Holder; provided that with
respect to this clause (b) such Holder shall furnish to the Client an opinion of
counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Client.
5.5 Client's Ability to Postpone. Notwithstanding anything to the contrary
contained herein, the Client shall have the right twice in any twelve month
period to postpone the filing of any registration statement under Sections 3 or
4 hereof or any amendment or supplement thereto for a reasonable period of time
(all such postponements not exceeding 90 days in the aggregate in any twelve
month period) if the Client furnishes the Holders of Registrable Securities a
certificate signed by the Chairman of the Board of Directors or the President of
the Client stating that, in its good faith judgment, the Client's Board of
Directors (or the executive committee thereof) has determined that effecting the
registration at such time would materially and adversely affect a material
financing, acquisition, disposition of assets or stock, merger or other
comparable transaction, or would require the Client to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Client.
Section 6. Registration ExpensesSection.
6.1 Expenses Borne by Client. Except as specifically otherwise provided in
Section 6.2 hereof, the Client will be responsible for payment of all expenses
incident to any registration hereunder, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, road show
expenses, advertising expenses and fees and disbursements of counsel for the
Client and all independent certified public accountants and other Persons
retained by the Client in connection with such registration (all such expenses
borne by the Client being herein called the "Registration Expenses").
6.2 Expenses Borne by Selling Securityholders.. The selling securityholders
will be responsible for payment of their own legal fees (if they retain legal
counsel separate from that of the Client), underwriting fees and brokerage
discounts, commissions and other sales expenses incident to any registration
hereunder, with any such expenses which are common to the selling
securityholders divided among such securityholders (including the Client and
holders of the Client's securities other than Registrable Securities, to the
extent that securities are being registered on behalf of such Persons) pro rata
on the basis of the number of shares being registered on behalf of each such
securityholder, or as such securityholders may otherwise agree.
Section 7. Indemnification Section.
7.1 Indemnification by Client.. The Client agrees to indemnify, to the
fullest extent permitted by law, each Holder of Registrable Securities and each
Person who controls within the meaning of the Securities Act) such Holder
against all losses, claims, damages, liabilities and expenses in connection with
defending against any such losses, claims, damages and liabilities or in
connection with any investigation or inquiry, in each case caused by or based on
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading or arise out of any violation by the Client of any rules or
regulation promulgated under the Securities Act applicable to the Client and
relating to action or inaction required of the Client in connection with such
registration, except insofar as the same are (i) contained in any information
furnished in writing to the Client by such Holder expressly for use therein,
(ii) caused by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto, or (iii)
caused by such Holder's failure to discontinue disposition of shares after
receiving notice from the Client pursuant to Section 5.3 hereof. In connection
with an underwritten offering, the Client will indemnify such underwriters,
their officers and directors and each Person who controls (within the meaning of
the Securities Act) such underwriters at least to the same extent as provided
above with respect to the indemnification of the Holders of Registrable
Securities.
7.2 Indemnification by Holder. In connection with any registration
statement in which a Holder of Registrable Securities is participating, each
such Holder will furnish to the Client in writing such information as the Client
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Client,
its directors and officers and each Person who controls (within the meaning of
the Securities Act) the Client against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by such Holder expressly for use in connection with such registration;
provided that the obligation to indemnify will be individual to each Holder and
will be limited to the net amount of proceeds received by such Holder from the
sale of Registrable Securities pursuant to such registration statement. In
connection with an underwritten offering, each such Holder will indemnify such
underwriters, their officers and directors and each Person who controls (within
the meaning of the Securities Act) such underwriters at least to the same extent
as provided above with respect to the indemnification of the Client.
7.3 Assumption of Defense by Indemnifying Party. Any Person entitled to
indemnification hereunder will (a) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
7.4 Binding Effect. The indemnification provided for under this
Registration Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities. The Client also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Client's indemnification is unavailable for any reason. Each
Holder of Registrable Securities also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event such Holder's indemnification is unavailable for any reason.
Section 8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
Section 9. Miscellaneous.
9.1 No Inconsistent Agreements. The Client will not hereafter enter into
any agreement with respect to its securities which violates the rights granted
to the Holders of Registrable Securities in this Registration Agreement.
9.2 Remedies. Any Person having rights under any provision of this
Registration Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Registration Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Registration Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Registration Agreement.
9.3 Term. Except for the provisions of Section 7 or as specifically
otherwise provided herein, the provisions of this Registration Agreement shall
apply until such time as all Registrable Securities have ceased to be
Registrable Securities hereunder but in no event later than three years from the
date of this Registration Agreement.
9.4 Amendments and Waivers. Except as otherwise specifically provided
herein, this Registration Agreement may be amended or waived only upon the prior
written consent of the Client and of the Holders of a majority of the then
outstanding shares of Registrable Securities.
9.5 Successors and Assigns.. Subject to Section 2 hereof, all covenants and
agreements in this Registration Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of (i) the respective successors and
assigns of the parties hereto whether so expressed or not and (ii) the persons
referred to in clause (iv) of the definition of Registrable Securities. In
addition, whether or not any express assignment has been made but subject in any
case to Section 2 hereof, the provisions of this Registration Agreement which
are for the benefit of RAINBOW or Holders of Registrable Securities are also for
the benefit of, and enforceable by, any subsequent holder of such securities so
long as such securities continue to be restricted securities, as that term is
defined in Securities Act Rule 144.
9.6 Severability. Whenever possible, each provision of this Registration
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Registration Agreement is held to
be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Registration Agreement.
9.7 Counterparts. This Registration Agreement may be executed
simultaneously in multiple counterparts, any one of which need not contain the
signatures of more than one party, but all such counterparts taken together will
constitute one and the same Registration Agreement.
9.8 Descriptive Headings. The descriptive headings of this Registration
Agreement are inserted for convenience only and do not constitute a part of this
Registration Agreement.
9.9 Governing Law. All questions concerning the construction, validity and
interpretation of this Registration Agreement will be governed by and construed
in accordance with the domestic laws of the State of Florida, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida.
9.10 Entire Agreement. This Registration Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
with respect of the subject matter contained herein. This Registration Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
9.11 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Registration Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by facsimile transmission,
sent to the recipient by reputable express courier service (charges prepaid) or
three business days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications will be sent to each Holder at the address
indicated on the records of the Client and to the Client at the address set
forth in the Agreement or to such other address or to the attention of such
other person as the recipient party has specified by prior written notice to the
sending party.
9 .12 Confidentiality. The Client shall hold in strict confidence and shall
not disclose information with respect to sales of Common Stock by any Holder,
including the fact of such sales, the amount of such sales and the timing of
such sales, except as such information shall become public without violation of
this Section 9.12, as may be required by applicable law, rules or regulations or
with the express written consent of such Investor.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement as of the date first above written.
Space Systems International Corporation
By:________________________________
John Papazian, President
RAINBOW COMMUNICATIONS, INC.
By__________________________________
Roberto E. Veitia, President
EXHIBIT 10.1b
GULF ATLANTIC PUBLISHING, INC. AGREEMENT
This GULF ATLANTIC PUBLISHING, INC. Agreement (the "Agreement") is entered
into on this ___ day of May,2000, between Gulf Atlantic Publishing, Inc., a
Florida corporation ("GAP"), and Space Systems International Corporation., a
Delaware corporation ("Client").
Whereas, GAP is in the business of planning, developing and
implementing advertising, marketing and promotional campaigns for corporations
and other business entities ("Advertising and Promotional Services");
Whereas, the Client desires to retain GAP to provide the Advertising
and Promotional Services, and GAP desires to provide such Advertising and
Promotional Services to Client, pursuant to the terms, conditions and provisions
contained in this Agreement;
Now, therefore, in consideration of the mutual promises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Advertising and Promotional Services. Subject to Client's compliance
with each of the representations, warranties and covenants and agreements made
by Client in this Agreement, GAP agrees to provide to Client the Advertising and
Promotional Services identified on Exhibit A which is attached hereto and
incorporated herein by reference, for the period commencing on the latter of
(the "Effective Date") the date that this Agreement is executed and delivered by
Client or the date that GAP receives payment of its fees as herein provided and
expiring on the 730h day following the effective date of this Agreement (the
"Term").
2. Obligations and Responsibilities of Client. As of the date hereof and
during the Term of this Agreement, Client agrees as follows.
1. Representation and Warranties.
Client represents and warrants to GAP that:
(1) Organization. Client is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation and it is
duly qualified to do business as a foreign corporation in each jurisdiction in
which it owns or leases property or engages in business.
(2) Formal Action. Client has the corporate power and authority to execute
and deliver this Agreement and to perform each of its obligations hereunder and
this Agreement has been duly approved by Client's Board of Directors.
(3) Valid and Binding Agreement. This Agreement has been duly executed and
delivered by Client and is the valid and binding obligation of Client
enforceable against it in accordance with its terms.
(4) No Violation. The execution, delivery and performance of this Agreement
does not and will not violate any provisions of the charter or bylaws of Client
or any agreement to which Client is a party or any applicable law or regulation
or order or decree of any court, arbitrator or agency of government and no
action of, or filing with, any governmental or public body or authority is
required in connection with the execution, delivery or performance of this
Agreement.
(5) Litigation. No action, suit or proceeding is pending against or
affecting the Client or any of its properties before any court, arbitrator or
governmental body or administrative agency and none of the persons owning
beneficially or of record more than 10% of the outstanding capital stock of the
Client or any of the directors or officers of Client is a party to any action,
suit or proceeding before any federal or state court, arbitrator or governmental
body or administrative agency (other than routine traffic violations) and no
such person has been a party to any such proceedings for more than the past five
years.
(6) Accuracy of Information. The information furnished by Client to GAP
regarding the business, operations, financial condition, including financial
statements, business plans and biographical information regarding the Client's
directors and officers (collectively referred to as the "Information Package")
is complete and accurate in all material respects and does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made not misleading.
2. Covenants and Agreements.
Client covenants and agrees to comply with the following covenants:
(1) Client Certification. Client acknowledges that it is responsible for
the accuracy and completeness of the Information Package and for all other
information furnished to GAP and for the accuracy and completeness of the
contents of all materials prepared by GAP for and on behalf of Client. The
Client hereby designates the individuals listed on Exhibit B attached hereto and
incorporated herein by reference as the duly authorized representatives of
Client for purposes of certifying to GAP the accuracy of all documents,
advertisements or other materials prepared by GAP for and on behalf of Client.
The Client agrees to promptly advise GAP in writing of any condition, event,
circumstance or act that would constitute a material adverse change in the
business, properties, financial condition or business prospects of the Client or
which would make any of the information contained in the Information Package or
in any report, advertorial or other document prepared by GAP for and on behalf
of Client misleading in any material respect. Client hereby agrees that GAP and
its directors, officers, agents and employees may rely on the Information
Package and on all other information furnished by Client, and on each and every
certification provided by an authorized representative of Client, until GAP is
advised in writing by an authorized representative of Client that the
information previously furnished to GAP is inaccurate or incomplete in any
material respect. Client acknowledges that GAP shall have no obligation to
provide services hereunder until it has received a written certificate from an
authorized representative of Client as follows: GAP shall prepare proofs and/or
tapes of the agreed upon materials and information, as set for dissemination,
for the Client's review and approval and Client shall sign and return such
materials marking all corrections and changes that the Client believes
appropriate. Client acknowledges that GAP will make oral representations based
on the information furnished hereunder and the Client authorizes such
representations.
(2) Books and Records. Client shall maintain true and complete books,
records and accounts in which true and correct entries shall be made of its
transactions in accordance with generally accepted accounting principles
consistently applied ("GAAP").
(3) Financial and Other Information. Client agrees to furnish to GAP the
following information:
(i) Annual Financial Statements. As soon as practicable, and in any event
within 90 days after the close of the Client's fiscal year, annual financial
statements including a balance sheet, an income statement, a statement of cash
flows, and a statement of stockholder's equity, and all notes thereto prepared
in accordance with GAAP and audited by an independent certified public
accountant.
(ii) Quarterly Financial Statements. As soon as practicable, and in any
event within 45 days after the end of each fiscal quarter, quarterly financial
statements, including a balance sheet, a quarterly and year-to-date income
statement, a statement of cash flows, and a statement of stockholder's equity,
prepared by Client in accordance with GAAP and certified by the chief financial
officer and chief executive officer of Client as fairly presenting, subject to
normal year-end audit adjustments, the Client's financial position as of and for
the periods indicated.
(4) GAP Reliance on Client's Full Disclosure. Client will provide, or cause
to be provided, to GAP all financial and other information requested by GAP for
the purpose of rendering its services pursuant to this Agreement. Client
recognizes and confirms that GAP will use such information in performing the
services contemplated by this Agreement without independently verifying such
information and that GAP does not assume any responsibility for the accuracy or
completeness of such information. The persons executing this Agreement on behalf
of Client certify that there is no fact known to them which materially adversely
affects or may (so far as the Client's senior management can now reasonably
foresee) materially adversely affect the business, properties, condition
(financial or other) or operations (present or prospective) of the Client which
has not been set forth in written form delivered by Client to GAP. The persons
executing this Agreement on behalf of Client agree to keep GAP promptly informed
of any facts hereafter know to Client which materially adversely affects or may
(so far as the Client's senior management can now reasonably foresee) materially
adversely affect the business, properties, condition (financial or other) or
operations (present or prospective) of Client.
(5) Legal Representation. Client acknowledges and agrees that it has been
and will continue to be, represented by legal counsel experienced in corporate
and securities laws and Client acknowledges that it has been advised as to the
obligations imposed on it pursuant to such laws and understands that it will
have the obligation and responsibility to see that all such laws are complied
with at all times during the Term of this Agreement.
3. Compensation. In consideration of the Advertising and Promotional
Services to be performed by GAP hereunder, Client hereby agrees to compensate
GAP in the manner and in the amount specified in Exhibit C which is attached
hereto and incorporated herein by reference thereto. In addition to the
compensation to be paid to GAP as provided in Exhibit C, Client shall reimburse
GAP promptly after a written request therefor accompanied by appropriate
documentation, for all reasonable out-of-pocket expenses (including reasonable
fees and disbursements of GAP's counsel, if any) incurred in connection with
providing services hereunder or to the extent provided in Exhibit C.
4. Indemnity. Client acknowledges that it is responsible for the accuracy
of the Information Package and all other information provided to GAP and for the
contents of all materials, advertorials and other information prepared by GAP
for an on behalf of Client as provided herein and Client agrees to indemnify GAP
in accordance with the Indemnification Agreement set forth in Exhibit D, which
is attached hereto and incorporated herein by reference.
5. Relationship of the Parties. This Agreement provides for the providing
of marketing, promotional and advertising services by GAP to Client and the
provisions herein for compliance with financial covenants, delivery of financial
statements, and similar provisions are intended solely for the benefit of GAP to
provide it with information on which it may rely in providing services hereunder
and nothing contained in this Agreement shall be construed as permitting or
obligating GAP to act as a financial or business advisor or consultant to
Client, as permitting or obligating GAP to participate in the management of
client's business, as creating or imposing any fiduciary obligation on the part
of GAP with respect to the provisions of services hereunder and GAP shall have
no such duty or obligation to client, as providing or counseling Client as to
the compliance by Client with any federal or state securities or other laws
effecting the services to be provided hereunder, or as creating any joint
venture, agency, or other relationship between the parties other than as
explicitly and specifically stated in this Agreement. The Client acknowledges
that it has had the opportunity to obtain the advice of experienced counsel of
its own choosing in connection with the negotiation and execution of this
Agreement, the provision of services hereunder and with respect to all matters
contained herein, including, without limitation, the provisions of Section 4
hereof..
6. Survival of Certain Provisions. The Client's obligations to pay the fees
and expenses of GAP pursuant to Section 3 of this Agreement and to comply with
the indemnification provisions pursuant to Section 4 shall remain operative and
in full force and effect regardless of any termination of this Agreement and
shall be binding upon, and shall inure to the benefit of, GAP and, in the case
of the indemnity agreement, the persons, agents, employees, officers, directors
and controlling persons referred to in the Indemnification Agreement, and their
respective successors and assigns and heirs, and no other person shall acquire
or have any right under or by virtue of this Agreement. All amounts paid or
required to be paid under Sections 3 and 4 of this Agreement shall be fully
earned on the Effective Date of this Agreement notwithstanding prior termination
of this Agreement.
7. Termination. GAP shall have the right in its sole and absolute
discretion to terminate its obligations hereunder and to immediately cease
providing Advertising and Promotional Services pursuant to this Agreement if
GAP, in the exercise of its reasonable judgment, believes that the
representations and warranties made by Client hereunder are inaccurate in any
material respect or if Client breaches any of its covenants and agreements
contained herein or if any federal or state governmental agency or
instrumentality institutes an investigation or suit against Client or pertaining
to the services hereunder.
8. Non-Solicitation Covenant. Client agrees that it will not directly or
indirectly during the term of this Agreement or for three years following the
termination or expiration of this Agreement, either voluntarily or
involuntarily, for any reason whatsoever, recruit or hire or attempt to recruit
or hire any employee of GAP or of any of its affiliates or subsidiaries, or
otherwise induce any such employees to leave the employment of GAP or of any of
its affiliates or subsidiaries or to become an employee of or otherwise be
associated with Client or any affiliate or subsidiary of Client. Client
acknowledges that GAP and its affiliates and subsidiaries have invested a
significant amount of time, energy and expertise in the training of their
employees to be able to provide Advertising and Promotional Services and Client
therefore agrees that this covenant is reasonable and agrees that the breach of
such covenant is very likely to result in irreparable injury to GAP, which is
unlikely to be adequately compensated by damages. Accordingly, in the event of a
breach or threatened breach by Client of this Section 8, GAP shall be entitled
to an injunction restraining Client and any affiliate, subsidiary or director or
officer thereof from recruiting, or hiring or attempting to recruit or hire any
employee of GAP or of any affiliate or subsidiary of GAP. Nothing herein shall
be construed as prohibiting GAP from pursuing any other remedies available to
GAP for such breach or threatened breach, including recovery of damages from
Client. The undertakings herein shall survive the termination or cancellation of
the Agreement for three years.
9. Miscellaneous.
A. Governing Law. This Agreement shall be governed by the laws of the State
of Florida applicable to contracts executed and performed in the Circuit Court,
Orange County, in the State of Florida (without regard to the principles of
conflicts of laws).
B. Entire Agreement. This Agreement and the Exhibits hereto embody the
entire agreement of the parties with respect to its subject matter. There are no
restrictions, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
C. Amendments to be in Writing. This Agreement may be amended only in a
writing signed by all of the parties.
D. No Waivers by Course of Dealing; Limited Effect of Waivers. No waiver
shall be effective against any party unless it is in a writing signed by that
party. No course of dealing and no delay on the part of GAP in exercising its
rights shall operate as a waiver of that right or otherwise prejudice GAP. GAP's
failure to insist upon the strict performance of any provision of this
Agreement, or to exercise any right or remedy available to GAP, shall not
constitute a waiver by GAP of such provision. No specific waiver by GAP of any
specific breach of any provision of this Agreement shall operate as a general
waiver of the provision or of any other breach of the provision. Client shall
have no right to cure any breach except as specifically provided herein.
E. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
F. Cumulation of Rights and Remedies. No right or remedy of GAP under this
Agreement is intended to preclude any other right or remedy and every right and
remedy shall coexist with every other right and remedy now or hereafter
existing, whether by contract, at law, or in equity.
G. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the parties and their successors and assigns. Client shall not
have any right to assign any of its rights or delegate any of its obligations or
responsibilities under this Agreement except as expressly stated herein.
H. Payment of Fees and Expenses on Enforcing Agreement. In the event of any
dispute between the parties arising out of or related to this Agreement or the
interpretation thereof, at the trial level or appellate level, the prevailing
party shall be entitled to recover from the non-prevailing party all costs and
expenses, including reasonable fees and disbursements of counsel which may be
incurred in connection with such proceeding, without limitation, including any
costs and expenses of experts, witnesses, depositions and other costs.
I. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing, and shall be delivered to the parties at
the addresses set forth below (or to such other addresses as the parties may
specify by due notice to the others). Notices or other communications shall be
effective when received at the recipient's location (or when delivered to that
location if receipt is refused). Notices or other communications given by
facsimile transmission shall be presumed received at the time indicated in the
recipient's automatic acknowledgment. Notices or other communications given by
Federal Express or other recognized overnight courier service shall be presumed
received on the following business day. Notices or other communications given by
certified mail, return receipt requested, postage prepaid, shall be presumed
received 3 business days after the date of mailing.
Client: Space Systems International Corporation
16325 Roca Drive
San Diego, California 92128
Attn: John Papazian, President/CEO
Telephone: 858-618-7149
Fax: 858-618-1873
GAP: Gulf Atlantic Publishing, Inc.
1947 Lee Road
Winter Park, Florida 32789
Attn:Irmgard Dotzauer, President
Telephone: 407-628-5700
Fax: 407-628-0807
J. Headings. The headings in this Agreement are intended solely for
convenience of reference. They shall be given no effect in the construction or
interpretation of this Agreement.
K. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not impair the validity or enforceability of any other
provision.
In Witness Whereof, the parties have executed this Agreement as of the
date first above written.
Attest: Space Systems International Corporation
By: By:
----------------------------------- -----------------------------------
Secretary John Papazian, President
[Corporate Seal]
Attest: Gulf Atlantic Publishing, Inc.
By: By:
----------------------------------- ---------------------------------
Secretary Irmgard Dotzauer, President
[Corporate Seal]
EXHIBIT A
Advertising and Promotional Services
The services to be provided are as follows:
A. A Four-Color Financial Sentinel - Featured advertorial mailing
of 800,000 (for a total of eight (8) issues) will be created
of which a two (2) page advertorial will be dedicated to the
Client.
B. A Four-Color Project "Z" Magazine - Two (2) featured
advertorial mailings of 100,000 each, will be created of which
a four (4) page advertorial will be dedicated to the Client.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement regarding the service to be provided by GAP under the
Agreement.
Space Systems International Corporation
By: ________________________________
John Papazian, President
Gulf Atlantic Publishing, Inc.
By: ________________________________
Irmgard Dotzauer, President
EXHIBIT B
Client hereby designates the following person or persons to act on its behalf
for the purposes set forth in Section 2 of the Agreement.
------------------------------------ ---------------------------------
DIRECTOR (PLEASE SIGN) DIRECTOR (PLEASE PRINT)
------------------------------------ ---------------------------------
PRESIDENT (PLEASE SIGN) PRESIDENT (PLEASE PRINT)
------------------------------------ ---------------------------------
VICE PRESIDENT (PLEASE SIGN) VICE PRESIDENT (PLEASE PRINT)
EXHIBIT C
COMPENSATION
1. Client agrees to pay to GAP Five Hundred Thousand and 00/100 Dollars
($500,000.00) in cash on execution and delivery of the Agreement or, at the
option of Client, to issue to GAP 225,000shares of Common Stock and 500,000
restricted shares in Client (the "Shares"), to be based upon the total issued
upon completion of the Companies Reverse Merger/ or becoming a publicly traded
company, which Shares shall be duly and validly issued, fully paid and
nonassessable and shall not be issued in violation of any preemptive right of
any stockholders of client. The Shares shall be issued in compliance with the
exemption from the registration requirements of the Securities Act of 1933 (the
"Act") provided by Section 4(2) of the Act and/or pursuant to Rules 505 or 506
of the General Rules and Regulation under the Securities Act of 1933, or free
trading if available
2. Concurrently with the payment of cash or the issuance of the Shares,
Client will execute and deliver the Registration Rights Agreement attached
hereto as Exhibit E under which the Client agrees to register the Shares for
sale in compliance with the Act as therein provided and to comply with all
conditions necessary or required to enable the Shares to be sold pursuant to
Rule 144 of the General Rules and Regulation under the Securities Act of 1933.
3. The Shares, if any, to be issued to GAP shall be approved for issuance
in accordance with the rules and regulations of any stock exchange on which the
Shares are listed for trading or by the NASDAQ if the shares are listed for
trading thereon and shall be issued in compliance with all appropriate federal
or state governmental rules and regulations.
4. Client acknowledges that the consideration to be paid to GAP shall be
fully earned on the date that GAP commences providing services under the
Agreement regardless of whether the Agreement is terminated as provided in the
Agreement prior to completion of all services.
5. Client agrees to pay or reimburse GAP for all expenses arising out of or
related to the provision of services by GAP under the Agreement to the extent
provided in the Agreement and/or in Exhibit A thereto.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the compensation provisions contained herein.
Space Systems International Corporation
By: _______________________________
John Papazian, President
Gulf Atlantic Publishing, Inc.
By: ______________________________
Irmgard Dotzauer, President
EXHIBIT D
INDEMNIFICATION
This Indemnification Agreement constitutes part of the Gulf Atlantic
Publishing, Inc. (the Agreement) dated the ____ day of May, 2000, between Client
(as defined in the Agreement) and GAP.
Client acknowledges and agrees that if, in connection with the services or
matters that are the subject of or arise out of such Agreement, GAP becomes
involved (whether or not as a named party) in any action, claim or legal
proceeding (including any governmental inquiry or investigation), Client agrees
to reimburse GAP for its reasonable legal fees, disbursements of counsel and
other expenses (including the cost of investigation and preparation) as they are
incurred by GAP. Client also agrees to indemnify and hold GAP harmless against
any losses, claims, damages or liabilities, joint or several, as incurred, to
which GAP may become subject in connection with the services or matters which
are the subject of or arise out of the Agreement; provided, however, that Client
shall not be liable under the foregoing indemnity in respect of any loss, claim,
damage or liability to the extent that a court having jurisdiction shall have
determined by a final judgment that such loss, claim, damage or liability is a
consequence of intentional fraudulent acts committed by GAP without the
knowledge and/or consent of Client. In the event that the foregoing indemnity is
unavailable by operation of law, then Client shall contribute to amounts paid or
payable by GAP in respect of such losses, claims, damages and liabilities in the
proportion that Client's interest bears to GAP's interest in the matters
contemplated by the Agreement. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, or otherwise,
then Client shall contribute to such amount paid or payable by GAP in such
proportion as is appropriate to reflect not only such relative interests but
also the relative fault of Client on the one hand and GAP on the other hand in
connection with the matters as to which such losses, claims, damages or
liabilities relate and other equitable considerations.
Promptly after GAP's receipt of notice of the commencement of any action or
of any claim, GAP will, if a claim in respect thereof is to be made against
Client under this Indemnity Agreement, notify Client of the commencement
thereof. In case any such action or claim is brought against GAP, Client will be
entitled to participate therein and, to the extent that Client may wish, to
assume the defense thereof, with counsel satisfactory to GAP. After notice from
Client to GAP of Client's election to so assume the defense thereof, Client will
not be liable to GAP for indemnification as provided in the preceding paragraph
for any legal fees, disbursements of counsel or other expenses subsequently
incurred by GAP in connection with the defense thereof other than reasonable
costs of investigation; provided that GAP shall have the right to employ
separate counsel if, in the reasonable judgment of GAP's counsel, it is
advisable for GAP to be represented by separate counsel or if in the reasonable
judgment of GAP's counsel, Client is not vigorously and actively defending
against any such claim or claims, and in either such event the reasonable legal
fees and disbursements of such separate counsel shall be paid by Client.
The foregoing agreements shall apply to any modification of the Agreement,
shall remain in full force and effect following the completion or termination of
GAP's engagement under the Agreement and shall be in addition to any rights that
GAP may have at common law or otherwise. The agreements in this Indemnification
Agreement shall extend to and inure to the benefit of each person, if any, who
may be deemed to control GAP, be controlled by GAP or be under common control
with GAP and to GAP's, and to each such other person's respective affiliates,
directors, officers, employees and agents. This Indemnification Agreement shall
be binding on any successor of Client.
Client represents that the Indemnification Agreement contained herein is
the legal, valid, binding and enforceable obligation of Client, enforceable
against Client according to its terms.
This Indemnification Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida without regard to principles
of conflicts of law, and the forum for resolution of legal and interpretative
issues shall be the Federal District courts in the State of Florida.
The parties hereto by signing this Exhibit in the space provided below
signify their agreement to the indemnification provisions contained herein.
Space Systems International Corporation
By:
-------------------------------
John Papazian, President
Gulf Atlantic Publishing, Inc. .
By:
-------------------------------
Irmgard Dotzauer, President
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Agreement") is made
and entered into as of _____________, 2000 by and between Gulf Atlantic
Publishing, Inc., a Florida corporation (GAP), and Space Systems International
Corporation, a Delaware corporation (the Client).
WHEREAS, GAP concurrently with the execution of this Registration Agreement
is acquiring shares of the Client's common stock, par value $____ per share
("Common Stock") and/or options to purchase shares of Common Stock; and
WHEREAS, as a condition to such acquisition, the parties are willing to
enter into the agreements contained herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Definitions
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Agreement" means the Public Relations and Advertising Agreement dated as
of the date of this Registration Agreement between GAP and Client.
"Client" is defined in the Preamble to this Registration Agreement.
"Common Stock" is defined in the Recitals to this Registration Agreement.
"GAP" is defined in the Preamble to this Registration Agreement.
"Holder" is defined in Section 2.1 hereof.
"Lock-Up Period" is defined in Section 2.1 hereof.
"Options" mean the Options issuable, in certain circumstances, pursuant to
the Agreement, which are exercisable for Common Stock.
"Other Holders" is defined in Section 4.3 hereof.
"Permitted Transfer" is defined in Section 2.2 hereof.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and government or any
department or agency thereof.
"Piggyback Notice" is defined in Section 4.1 hereof.
"Piggyback Registration"is defined in Section 4.1 hereof.
"Registrable Securities" means (i) the Common Stock issued to GAP pursuant
to the Agreement, (ii) any Common Stock issued to GAP pursuant to the exercise
of Options, and (iii) any securities issued or issuable with respect to the
Common Stock referred to in clauses (i) or (ii) by way of replacement, share
dividend, share split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Registration Agreement" is defined in the Preamble to this Registration
Agreement.
"Registration Expenses" is defined in Section 6.1 hereof.
"Restricted Securities" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act"means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Transfer"is defined in Section 2.1 hereof.
Section 2. Restrictions on Transfer
2.1 Lock-Up Period. Without the express prior written consent of the
Client, GAP agrees that, except as set forth in Section 2.2 below, it will not,
directly or indirectly, offer, sell, contract to sell or otherwise dispose of
(or announce any offer, sale, contract of sale or other disposition of)
("Transfer") any Registrable Securities or Options (collectively, "Restricted
Securities") prior to the first anniversary following the date of this
Registration Agreement.
2.2 Permitted Transfers. The restrictions contained in this Section 2 will
not apply with respect to any of the following transactions (each, a "Permitted
Transfer"):
2.2.1 a natural person may Transfer Restricted Securities to his or her
spouse, siblings, parents or any natural or adopted children or other
descendants or to any personal trust in which such family members or such
transferee retains the entire beneficial interest;
2.2.2 GAP may (A) Transfer Restricted Securities to one or more other
entities that are wholly owned and controlled, legally and beneficially, by GAP
or an Affiliate, or (B) Transfer Restricted Securities by distributing such
Restricted Securities in a liquidation, winding up or otherwise without
consideration to the equity owners of such corporation, partnership or business
entity or to any other corporation, partnership or business entity that is
wholly owned by such equity owners; or (C) Transfer Restricted Securities to a
director, officer or key employee of GAP or an Affiliate;
2.2.3 a transferee acquiring Restricted Securities in a Permitted Transfer
may Transfer Restricted Securities on his or her death or mental incapacity to
such Person's estate, executor, administrator or personal representative or to
such Person's beneficiaries pursuant to a devise or bequest or by the laws of
descent and distribution; or
2.2.4 GAP or any transferee acquiring Restricted Securities in a Permitted
Transfer may Transfer Restricted Securities pursuant to an effective
Registration Statement as provided herein or pursuant to an exemption from the
registration requirements of the Securities Act.
If any Person Transfers Restricted Securities as described in this Section 2.2,
such Restricted Securities shall remain subject to this Registration Agreement
and, as a condition of the validity of such Transfer, the transferee shall be
required to execute and deliver a counterpart of this Registration Agreement.
Thereafter, such transferee shall be deemed to be a Holder for purposes of this
Registration Agreement.
2.3 Rights of Subsequent Holder. Subject to the foregoing restrictions, the
Client and GAP hereby agree that any subsequent holder of Registrable Securities
shall be entitled to all benefits hereunder as a holder of such securities.
Section 3. Demands for Registration.
3.1 Demand Period3.1 From the date hereof, until the date which is four
years from the date hereof (the "Demand Period"), subject to the terms and
conditions set forth herein, GAP and the Permitted Transferees will have in the
aggregate three opportunities, in addition to other rights enumerated in this
Registration Agreement, to request registration under the Securities Act of all
or part of its Registrable Securities (a "Demand Registration"). The Holders of
50% or more of the Registrable Securities shall have the right to exercise the
registration rights under this Section 3.
3.2 Demand Procedure.
3.2.1 Subject to Sections 3.2.2 and 3.2.4 below, during the Demand Period
any Holder or combination of Holders (the "Demanding Shareholders") owning 50%
or more of the Registrable Securities may deliver to the Client a written
request (a "Demand Registration Request") that the Client register any or all of
such Demanding Shareholders' Registrable Shares.
3.2.2 Holders, in the aggregate, may only make one Demand Registration
Request in each six-month period during the Demand Period (the "Interim Demand
Periods"). The Client shall only be required to file one registration statement
(as distinguished from supplements or pre-effective or post-effective amendments
thereto) in response to each Demand Registration Request.
3.2.3 A Demand Registration Request from Demanding Shareholders shall (i)
set forth the number of Registrable Securities intended to be sold pursuant to
the Demand Registration Request (ii) disclose whether all or any portion of a
distribution pursuant to such registration will be sought by means of an
underwriting, and (iii) identify any managing underwriter or managing
underwriters proposed for the underwritten portion, if any, of such
registration.
3.2.4 If during any Interim Demand Period, the Client receives a Demand
Registration Request from Demanding Shareholders for the registration of
Registrable Securities having an aggregate market value of $100,000 or greater,
as determined according to the closing price of the Common Stock on the NASDAQ
National Market, on the Bulletin Board or in the Pink Sheets on the date of such
Demand Registration Request, then the Client shall, subject to the limitations
in Sections 3.2.5 and 3.2.6 hereof, (i) use its reasonable best efforts to
prepare and file within 30 days of receipt of the Demand registration request
with the SEC a registration statement under the Securities Act with respect to
all the Registrable Securities that the Demanding Shareholders requested to be
registered in the Demand Registration Request, (ii) use its reasonable best
efforts to cause such registration statement to become effective within 75 days
of receipt of the Demand Registration Request, and (iii) if such registration
can be accomplished by means of a registration statement on Form S-3, keep such
registration statement effective until such time as the Demanding Shareholders
shall have sold or otherwise disposed of all of their Registrable Securities
included in the registration. If such registration cannot be accomplished by
means of a registration statement on Form S-3, the Client shall use its
reasonable best efforts to keep such registration statement effective for at
least 180 days.
3.2.5 It is anticipated that the registration contemplated under this
Section 3 will be accomplished by means of the filing of a Form S-3, and that
registration on such form will allow for different means of distribution,
including sales by means of an underwriting as well as sales into the open
market. If the Demanding Shareholders desire to distribute all or part of the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Client in writing in their initial Demand Registration
Request as described in Section 3.2.3 above. A determination of whether all or
part of the distribution will be by means of an underwriting shall be made by
Demanding Shareholders holding a majority of the Registrable Securities to be
included in the registration. If all or part of the distribution is to be by
means of an underwriting, all subsequent decisions concerning the underwriting
which are to be made by the Demanding Shareholders pursuant to the terms of this
Registration Agreement, which shall include the selection of the underwriter or
underwriters to be engaged and the representative, if any, of the underwriters
so engaged, shall be made by the Demanding Shareholders who hold a majority of
the Registrable Securities to be included in the underwriting, subject to
approval by the Board of Directors of the Client.
3.2.6 Upon the receipt by the Client of a Demand Registration Request in
accordance with Section 3.2.4 hereof, the Client shall, within ten days
following receipt of such Demand Registration Request, give written notice of
such request to all Holders. The Client shall include in such notice information
concerning whether all, part or none of the distribution is expected to be made
by means of an underwriting, and, if more than one means of distribution is
contemplated, may require Holders to notify the Client of the means of
distribution of their Registrable Securities to be included in the registration.
If any Holder who is not a Demanding Shareholder desires to sell any Registrable
Securities owned by such Holder, such Holder may elect to have all or any
portion of its Registrable Securities included in the registration statement by
notifying the Client in writing (a "Supplemental Demand Registration Request")
within 20 days of receiving notice of the Demand Registration Request from the
Client. The right of any Holder to include all or any portion of its Registrable
Securities in an underwriting shall be conditioned upon the Client's having
received a timely written request for such inclusion by way of a Demand
Registration Request or Supplemental Demand Registration Request (which right
shall be further conditioned to the extent provided in this Registration
Agreement). All Holders proposing to distribute their Registrable Securities
through an underwriting shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
3.2.7 Notwithstanding any other provision of this Section 3, if an
underwriter advises the Client in writing that marketing factors require a
limitation on the number of shares to be underwritten, then the number of shares
of Registrable Securities that may be included in the underwriting shall be
allocated among the Holders in proportion (as nearly as practicable) to the
respective amounts of Registrable Securities each Holder owns (or in such other
proportion as they shall mutually agree). Registrable Securities excluded or
withdrawn from the underwriting in accordance with this Section 3.2.7 shall be
withdrawn from the registration.
3.3 Priority on Request Registration. The Client will not include in any
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the Holders of a majority of the shares of
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Client in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of securities that can be sold in an orderly manner in such
offering within a price range acceptable to the Holders of a majority of the
shares of Registrable Securities initially requesting registration, the Client
will include in such registration prior to the inclusion of any securities which
are not Registrable Securities the number of shares of Registrable Securities
requested to be included that in the opinion of such underwriters can be sold in
an orderly manner within such acceptable price range, pro rata among the
respective Holders thereof on the basis of the number of shares of Registrable
Securities owned by each such Holder.
Section 4. Piggyback Registrations
4.1 Right to Piggyback. If the Client proposes to undertake an offering
ofshares of Common Stock for its account or for the account of other
stockholders and the registration form to be used for such offering may be used
for the registration of Registrable Securities (a "Piggyback Registration"),
each such time the Client will give prompt written notice to all Holders of
Registrable Securities of its intention to effect such a registration (each, a
"Piggyback Notice") and, subject to Sections 4.3 and 4.4 hereof, the Client will
use its best efforts to cause to be included in such registration all
Registrable Securities with respect to which the Client has received written
requests for inclusion therein within 20 days after the date of sending the
Piggyback Notice.
4.2 Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Client, and the managing
underwriters advise the Client in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner within a price range acceptable to the Client,
the Client will include in such registration (a) first, the securities the
Client proposes to sell and (b) second, the Registrable Securities requested to
be included in such registration and any other securities requested to be
included in such registration that are held by Persons other than the Holders of
Registrable Securities pursuant to registration rights, pro rata among the
holders of Registrable Securities and the holders of such other securities
requesting such registration on the basis of the number of shares of such
securities owned by each such holder.
4.3 Priority on Secondary. If a Piggyback Registration is an underwritten
secondary registration on behalf of holders of the Client's securities other
than the Holders of Registrable Securities (the "Other Holders"), and the
managing underwriters advise the Client in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in an orderly manner in such offering within a price
range acceptable to the Other Holders requesting such registration, the Client
will include in such registration (a) first, the securities requested to be
included therein by the Other Holders requesting such registration and (b)
second, the Registrable Securities requested to be included in such registration
hereunder, pro rata among the Holders of Registrable Securities requesting such
registration on the basis of the number of shares of such securities owned by
each such Holder.
4.4 Selection of Underwriters4. In the case of an underwritten Piggyback
Registration, the Client will have the right to select the investment banker(s)
and manager(s) to administer the offering.
Section 5. Registration ProceduresSection. Whenever the Holders of
Registrable Securities have requested that any Registrable Securities be sold
pursuant to this Registration Agreement, the Client will use its reasonable best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Client will as expeditiously as possible:
5.1.1 Registration Statement. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective.
5.1.2 Amendments and Supplements. Promptly prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period required by the intended method
of disposition and the terms of this Registration Agreement and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement.
5.1.3 Provision of Copies. Promptly furnish to each seller of Registrable
Securities the number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller.
5.1.4 Blue Sky Laws. Use its reasonable best efforts to register or qualify
such Registrable Securities under the securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, provided, that the Client will not be required
to (a) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5.1.4, (b) subject itself
to taxation in any such jurisdiction or (c) consent to general service of
process in any such jurisdiction.
5.1.5 Anti-fraud Rules.. Promptly notify each seller of such Registrable
Securities when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any material fact necessary to make the statements
therein not misleading, and in such event, at the request of any such seller,
the Client will promptly prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading, provided, that the Client will not take any action which causes the
prospectus included in such registration statement to contain an untrue
statement of material fact or omit any material fact necessary to make the
statements therein not misleading, except as permitted by Section 5.5.
5.1.6 Securities Exchange Listings.. Use its reasonable best efforts to
cause all such Registrable Securities to be listed on each securities exchange
on which securities of the same class issued by the Client are then listed and
use its reasonable best efforts to qualify such Registrable Securities for
trading on each system on which securities of the same class issued by the
Client are then qualified.
5.1.7 Underwriting Agreements. Enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the shares of Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities.
5.1.8 Due Diligence. Make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Client, and cause the Client's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such registration
statement.
5.1.9 Earning Statement. Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months beginning with the first day of the Client's
first full calendar quarter after the effective date of the registration
statement, which earning statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder.
5.1.10 Deemed Underwriters or Controlling Persons. Permit any Holder of
Registrable Securities which Holder, in such Holder's reasonable judgment, might
be deemed to be an underwriter or a controlling person of the Client, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material in form and substance satisfactory
to such Holder and to the Client and furnished to the Client in writing, which
in the reasonable judgment of such Holder and its counsel should be included.
5.1.11 Management Availability.. In connection with underwritten offerings,
make available appropriate management personnel for participation in the
preparation and drafting of such registration or comparable statement, for due
diligence meetings and for "road show" meetings.
5.1.12 Stop Orders. Promptly notify Holders of the Registrable Securities
of the threat of issuance by the SEC of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceeding
for that purpose, and make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement. In the event
of the issuance of any stop order suspending the effectiveness of a registration
statement, or of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable Securities
included in such registration statement for sale in any jurisdiction, the Client
will use its reasonable best efforts promptly to obtain the withdrawal of such
order.
5.1.13 Opinions. At each closing of an underwritten offering, request
opinions of counsel to the Client and updates thereof (which opinions and
updates shall be reasonably satisfactory to the underwriters of the Registrable
Securities being sold) addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders or their counsel.
5.1.14 Comfort Letter.. Obtain a cold comfort letter and related bring down
letters from the Client's independent public accountants addressed to the
selling Holders of Registrable Securities in customary form and covering such
matters of the type customarily covered by cold comfort letters as the Holders
of a majority of the Registrable Securities being sold reasonably request.
5.2 Further Information. The Client may require each Holder of Registrable
Securities to furnish to the Client in writing such information regarding the
proposed distribution by such Holder of such Registrable Securities as the
Client may from time to time reasonably request.
5.3 Notice to Suspend Offers and Sales. Each Investor severally agrees
that, upon receipt of any notice from the Client of the happening of any event
of the kind described in Sections 5.1.5 or 5.1.12 hereof, such Investor will
forthwith discontinue disposition of shares of Common Stock pursuant to a
registration hereunder until receipt of the copies of an appropriate supplement
or amendment to the prospectus under Section 5.1.5 or until the withdrawal of
such order under Section 5.1.12.
5.4 Reference to Holders. If any such registration or comparable statement
refers to any Holder by name or otherwise as the holder of any securities of the
Client and if, in the Holder's reasonable judgment, such Holder is or might be
deemed to be a controlling person of the Client, such Holder shall have the
right to require (a) the insertion therein of language in form and substance
satisfactory to such Holder and the Client and presented to the Client in
writing, to the effect that the holding by such Holder of such securities is not
to be construed as a recommendation by such Holder of the investment quality of
the Client's securities covered thereby and that such holding does not imply
that such Holder will assist in meeting any future financial requirements of the
Client, or (b) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force, the deletion of the reference to such Holder; provided that with
respect to this clause (b) such Holder shall furnish to the Client an opinion of
counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Client.
5.5 Client's Ability to Postpone. Notwithstanding anything to the contrary
contained herein, the Client shall have the right twice in any twelve month
period to postpone the filing of any registration statement under Sections 3 or
4 hereof or any amendment or supplement thereto for a reasonable period of time
(all such postponements not exceeding 90 days in the aggregate in any twelve
month period) if the Client furnishes the Holders of Registrable Securities a
certificate signed by the Chairman of the Board of Directors or the President of
the Client stating that, in its good faith judgment, the Client's Board of
Directors (or the executive committee thereof) has determined that effecting the
registration at such time would materially and adversely affect a material
financing, acquisition, disposition of assets or stock, merger or other
comparable transaction, or would require the Client to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Client.
Section 6. Registration ExpensesSection.
6.1 Expenses Borne by Client. Except as specifically otherwise provided in
Section 6.2 hereof, the Client will be responsible for payment of all expenses
incident to any registration hereunder, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, road show
expenses, advertising expenses and fees and disbursements of counsel for the
Client and all independent certified public accountants and other Persons
retained by the Client in connection with such registration (all such expenses
borne by the Client being herein called the "Registration Expenses").
6.2 Expenses Borne by Selling Securityholders.. The selling securityholders
will be responsible for payment of their own legal fees (if they retain legal
counsel separate from that of the Client), underwriting fees and brokerage
discounts, commissions and other sales expenses incident to any registration
hereunder, with any such expenses which are common to the selling
securityholders divided among such securityholders (including the Client and
holders of the Client's securities other than Registrable Securities, to the
extent that securities are being registered on behalf of such Persons) pro rata
on the basis of the number of shares being registered on behalf of each such
securityholder, or as such securityholders may otherwise agree.
Section 7. Indemnification Section.
7.1 Indemnification by Client.. The Client agrees to indemnify, to the
fullest extent permitted by law, each Holder of Registrable Securities and each
Person who controls (within the meaning of the Securities Act) such Holder
against all losses, claims, damages, liabilities and expenses in connection with
defending against any such losses, claims, damages and liabilities or in
connection with any investigation or inquiry, in each case caused by or based on
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading or arise out of any violation by the Client of any rules or
regulation promulgated under the Securities Act applicable to the Client and
relating to action or inaction required of the Client in connection with such
registration, except insofar as the same are (i) contained in any information
furnished in writing to the Client by such Holder expressly for use therein,
(ii) caused by such Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto, or (iii)
caused by such Holder's failure to discontinue disposition of shares after
receiving notice from the Client pursuant to Section 5.3 hereof. In connection
with an underwritten offering, the Client will indemnify such underwriters,
their officers and directors and each Person who controls (within the meaning of
the Securities Act) such underwriters at least to the same extent as provided
above with respect to the indemnification of the Holders of Registrable
Securities.
7.2 Indemnification by Holder. In connection with any registration
statement in which a Holder of Registrable Securities is participating, each
such Holder will furnish to the Client in writing such information as the Client
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Client,
its directors and officers and each Person who controls (within the meaning of
the Securities Act) the Client against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by such Holder expressly for use in connection with such registration;
provided that the obligation to indemnify will be individual to each Holder and
will be limited to the net amount of proceeds received by such Holder from the
sale of Registrable Securities pursuant to such registration statement. In
connection with an underwritten offering, each such Holder will indemnify such
underwriters, their officers and directors and each Person who controls (within
the meaning of the Securities Act) such underwriters at least to the same extent
as provided above with respect to the indemnification of the Client.
7.3 Assumption of Defense by Indemnifying Party. Any Person entitled to
indemnification hereunder will (a) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
7.4 Binding Effect. The indemnification provided for under this
Registration Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities. The Client also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Client's indemnification is unavailable for any reason. Each
Holder of Registrable Securities also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event such Holder's indemnification is unavailable for any reason.
Section 8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
Section 9. Miscellaneous.
9.1 No Inconsistent Agreements. The Client will not hereafter enter into
any agreement with respect to its securities which violates the rights granted
to the Holders of Registrable Securities in this Registration Agreement.
9.2 Remedies. Any Person having rights under any provision of this
Registration Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Registration Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Registration Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Registration Agreement.
9.3 Term. Except for the provisions of Section 7 or as specifically
otherwise provided herein, the provisions of this Registration Agreement shall
apply until such time as all Registrable Securities have ceased to be
Registrable Securities hereunder but in no event later than three years from the
date of this Registration Agreement.
9.4 Amendments and Waivers. Except as otherwise specifically provided
herein, this Registration Agreement may be amended or waived only upon the prior
written consent of the Client and of the Holders of a majority of the then
outstanding shares of Registrable Securities.
9.5 Successors and Assigns.. Subject to Section 2 hereof, all covenants and
agreements in this Registration Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of (i) the respective successors and
assigns of the parties hereto whether so expressed or not and (ii) the persons
referred to in clause (iv) of the definition of Registrable Securities. In
addition, whether or not any express assignment has been made but subject in any
case to Section 2 hereof, the provisions of this Registration Agreement which
are for the benefit of GAP or Holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of such securities so long
as such securities continue to be restricted securities, as that term is defined
in Securities Act Rule 144.
9.6 Severability. Whenever possible, each provision of this Registration
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Registration Agreement is held to
be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Registration Agreement.
9.7 Counterparts. This Registration Agreement may be executed
simultaneously in multiple counterparts, any one of which need not contain the
signatures of more than one party, but all such counterparts taken together will
constitute one and the same Registration Agreement.
9.8 Descriptive Headings. The descriptive headings of this Registration
Agreement are inserted for convenience only and do not constitute a part of this
Registration Agreement.
9.9 Governing Law. All questions concerning the construction, validity and
interpretation of this Registration Agreement will be governed by and construed
in accordance with the domestic laws of the State of Florida, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida.
9.10 Entire Agreement.. This Registration Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
with respect of the subject matter contained herein. This Registration Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
9.11 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Registration Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by facsimile transmission,
sent to the recipient by reputable express courier service (charges prepaid) or
three business days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications will be sent to each Holder at the address
indicated on the records of the Client and to the Client at the address set
forth in the Agreement or to such other address or to the attention of such
other person as the recipient party has specified by prior written notice to the
sending party.
9 .12 Confidentiality. The Client shall hold in strict confidence and shall
not disclose information with respect to sales of Common Stock by any Holder,
including the fact of such sales, the amount of such sales and the timing of
such sales, except as such information shall become public without violation of
this Section 9.12, as may be required by applicable law, rules or regulations or
with the express written consent of such Investor.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement as of the date first above written.
Space Systems International Corporation
By: _____________________________
John Papazian, President
GULF ATLANTIC PUBISHING, INC.
By:_____________________________
Irmgard Dotzauer, President
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of , State of , on .
FIRST ENTERPRISE SERVICE GROUP, INC.
By: /s/ MICHAEL T. WILLIAMS.
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
President and Treasurer
