As filed with the Securities and Exchange Commission on April 10, 2000
Amendment No. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 2; File No. 333-94465)
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DAEDALUS SYSTEMS
INCORPORATED
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Delaware 5039 54-1950671
(State of Incorporation) (SIC) (Employer I.D #)
8653 Richmond Highway
Alexandria, Virginia 22309-4206
(703) 360-5700
(703) 360-1974 - fax
(Address and telephone number of principal
executive offices and principal place of business)
Herbert S. Rosenblum
Attorney and Counselor at Law
526 King Street, Suite 211
Alexandria, Virginia 22313-0058
(703) 684-0060
(703) 684-0072 - fax
(Name, address and telephone number of agent for service)
Approximate date of commencement or proposed sale to the public:
April 20, 2000
This amendment is submitted for the purpose of including new company data in the
submission header.
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of each class Dollar Proposed Proposed maximum
of securities to be amount to maximum offering aggregate offering Registration
registered be registered price per unit price fee
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Common stock
($0.01 par value 1,000,000 shares $.3333(2) $333,333 $170.45**
per share)1
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- ---------------
1 Shares of common stock of the registrant being distributed to shareholders of
Empiric Energy, Inc.
2 Based upon one-third of the liquidating preference value of the preferred
stock of Empiric Energy, Inc. to be exchanged for the subject 1,000,000 shares
of common stock of the registrant, solely for purposes of calculating the
registration fee pursuant to Rule 457(f)(2).
**Paid.
2
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Preliminary Prospectus
Subject to completion
DAEDALUS SYSTEMS
INCORPORATED
"Daedalus"
PROSPECTUS
1,000,000 Shares of Common Stock
Dividend distribution to the shareholders of Empiric Energy, Inc. of
record, May 1, 2000.
On the basis of one share of Daedalus common stock for each 12 shares
of Empiric common stock, and one share of Daedalus common stock for each share
of Empiric Series B preferred stock.
This is our initial public offering and no public market currently
exists for our shares. We cannot guarantee that any market will develop for our
shares. We will apply for listing on the over-the-counter Bulletin Board under
the symbol "DSYS".
The Daedalus shares involve a high degree of risk. You should carefully
consider the information appearing under the caption Risk Factors, on page 7.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
3
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DAEDALUS SYSTEMS, INCORPORATED
PROSPECTUS
TABLE OF CONTENTS
<S> <C> <C>
PROSPECTUS SUMMARY.......................................................................................5
RISK FACTORS.............................................................................................7
CAPITALIZATION...........................................................................................8
DIVIDEND POLICY..........................................................................................9
INFORMATION CONCERNING EMPIRIC...........................................................................9
FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION......................................................................................9
DESCRIPTION OF DAEDALUS' BUSINESS.......................................................................12
MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION............................................................21
MANAGEMENT OF DAEDALUS..................................................................................24
EXECUTIVE COMPENSATION..................................................................................29
RELATED TRANSACTIONS....................................................................................30
PRINCIPAL SHAREHOLDERS OF DAEDALUS COMMON STOCK.........................................................31
DESCRIPTION OF SECURITIES OF DAEDALUS...................................................................33
SHARES ELIGIBLE FOR FUTURE SALE.........................................................................35
LEGAL MATTERS...........................................................................................36
EXPERTS.................................................................................................36
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..........................................................36
FINANCIAL STATEMENTS....................................................................................37
</TABLE>
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PROSPECTUS SUMMARY
<S> <C>
This summary highlights selected information contained elsewhere in this prospectus.
Prospective investors should read the entire prospectus carefully.
</TABLE>
Organization and Business of Daedalus. Daedalus was incorporated in the
state of Delaware, in October of 1999, to focus upon an opportunity to supply
low-cost housing to a large sector of the world's population that is either
homeless or without adequate shelter. Daedalus has one principal functioning
subsidiary, Daedalus Composites, Inc., a Canadian corporation that operates
Daedalus' plastic recycling facility in Brantford, Ontario.
Agreement with Empiric Energy, Inc. In October, 1999, Daedalus reached
agreement with Empiric Energy, Inc. to exchange equity between the companies and
to pursue complementary objectives. Upon completion of the exchange, both
companies will hold a meaningful amount of the stock of the other to maintain a
strong interest in their mutual success. Neither company will hold a controlling
interest in the other. No merger of the companies is planned and neither company
plans on becoming a subsidiary of the other. Empiric plans to distribute a
portion of the stock it receives from Daedalus--that portion covered by this
prospectus--to its shareholders.
Daedalus Building Systems(TM). Daedalus current product line is
comprised of two types of low-cost housing, one fabricated from recycled
plastics, and the other is a foam-filled metal panel system. These products are
priced below the identified competition in the international market.
o Market. The market for Daedalus building systems is the nearly one
billion people in the world who are either homeless or without adequate
shelter, with a specific focus upon developing countries. Additionally,
both systems have cost-competitive applications for refugee and
disaster relief.
o Competition. Unlike competition within other identifiable sectors the
housing markets, the competition to Daedalus products includes scarce
resources--the inability of individuals and governments throughout the
developing world to provide for basic needs.
o Contracts. Daedalus currently has two contracts with a private-sector
entity in Peru, one for each type of housing. Daedalus is actively
pursuing additional contracts.
o Production. Daedalus commenced limited production in December, 1999,
in preparation for fulfillment of its contract for composite
structures.
Business Development Strategy. Daedalus business development strategy
concentrates upon shelter, energy, water, and waste management. Daedalus'
current products will address the first aspect. Daedalus goals in the energy
area will be pursued on a complementary basis with Empiric Energy. Community
water and waste management issues will be the long-range focus of Daedalus
growth activities.
Risks. In addition to those risks that are common to all business
undertakings and investments, Daedalus unproven--and unprecedented--composite
products may present difficulties with acceptance and implementation of the
Company's development plans.
Public Ownership of Daedalus. Daedalus' management and board of
directors decided that public ownership is consistent with, and would best
support, Daedalus' strategic business development plan. To this end, Daedalus
entered into an agreement with Empiric Energy, Inc. that provides for Daedalus
to issue to Empiric, on the date of this prospectus, 1,500,000 shares of
Daedalus common stock in exchange for the following Empiric shares:
o preferred stock that has a liquidating preference of $1,500,000 and
is convertible into 750,000 shares of Empiric common stock
o three year warrants to purchase 750,000 shares of Empiric common
stock for $2.00 per share. Empiric will distribute 1,000,000 of the Daedalus
shares to the Empiric shareholders of record May 1, 2000 on the basis of one
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Daedalus share for each 12 Empiric common share and one Daedalus share for each
Empiric Series B preferred share.
Empiric Energy, Inc. Empiric is a publicly-traded, independent oil and
gas company (OTCBB symbol: EMPE), which also has strong interest in energy
systems.
Daedalus Systems, Incorporated
8653 Richmond Highway
Alexandria, Virginia 22309-4206
(703) 360-5700
(703) 360-1974-fax
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RISK FACTORS
Daedalus Has No Operating History. Daedalus is a new company without a
proven track record. Accordingly, it is very difficult to evaluate either its
business or its prospect for success.
Daedalus Has Never Produced A Profit From Operations. On a consolidated
basis, Daedalus and Daedalus Composites have incurred operating losses of
$354,009 from May 1999--the inception of Daedalus Composites--through January
31, 2000. Although Daedalus has contracts for both its composite and metal
housing systems, no units have yet been delivered under those contracts and
Daedalus continues to incur expenses incident to preparation for production and
delivery.
Daedalus Liquid Financial Position Is Weak. Daedalus lacks cash and
needs additional financing to produce its products. No way exists to determine
the amount of time required to obtain such financing nor that it will be
available on terms favorable to Daedalus. Daedalus is circulating a private
placement memorandum to increase its cash position, but there is no assurance
that the private placement will be successful.
Daedalus' Building Systems Have Never Been Produced Or Deployed In The
Field. Daedalus business is a venture into aspects of housing and
community-building in developing countries that are unproven and, in general,
have not been attempted previously. There is no assurance that Daedalus will be
successful in its business development approach nor that its products will gain
sufficiently broad market acceptance to produce profitability.
No Market Exists For Daedalus Common Stock. There is no public market
for the common stock of Daedalus. Further, there is no assurance that an active
public market will develop for Daedalus' stock or that the stock will ever trade
above the levels established by the market after the registration and initial
distribution.
Daedalus Voting Rights Are Concentrated In One Individual. After the
distribution, Mr. McCulloch will control approximately 61% of Daedalus' common
stock voting rights. That situation may complicate certain transactions, such as
mergers and acquisitions, changes in incumbent management, and other instances
in which other stockholders consider such transactions in their best interests.
Similarly, the inability, incapacity, or reluctance of Mr. McCulloch to take
action in the best interests of the other stockholders could deprive them of an
opportunity to sell their shares at a premium over the market price of the
shares. In an effort at risk reduction, and by agreement, in the event of the
inability or incapacity of Mr. McCulloch to act in the best interests of the
Company and that of its stockholders, in general, Mr. McCulloch's voting rights
will be vested jointly in Dr. Lightbody and Mr. Herbert Rosenblum, counsel to
Daedalus' board of directors. In the event of the incapacity or inability of
both Mr. McCulloch and Dr. Lightbody to perform, the voting rights will be
vested entirely in Mr. Rosenblum.
Daedalus Success Depends Upon Two Key Personnel. Daedalus success
depends, in part, on the continued service of key personnel, particularly Edward
A. McCulloch, Daedalus' president and chief executive officer and Dr. David
Lightbody, its executive vice-president and chief financial officer. Their loss
could deprive Daedalus of technical and business leadership at this critical
time in the growth of the Company. However, in an attempt to minimize the impact
of any unanticipated loss, Daedalus acquired a $5,000,000 "key man" insurance
policy on Mr. McCulloch and intends to obtain similar coverage on Dr. Lightbody.
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CAPITALIZATION
The following table sets forth the capitalization of Daedalus as of
January 31, 2000 as adjusted to reflect the issuance of 1,500,000 shares to
Empiric. This table should be read in conjunction with the accompanying
Financial Statements and notes.
<TABLE>
As
Stockholders Equity Actual Adjusted(4)
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Preferred Stock, $1.00 par value,
3,000,000 shares authorized,
250,000 Series A issued and outstanding $ 250,000 $ 250,000
1,000,000 Series B issued and outstanding 1,000,000 1,000,000
1,000,000 Series C issued and outstanding 1,000,000 1,000,000
375,000 Series D issued and outstanding 375,000 375,000
Common Stock, $0.01 par value,
30,000,000 shares authorized, 8,700,000 shares issued
and outstanding, before the distribution and
10,200,000 shares issued and outstanding after the distribution 87,000 102,000
Additional paid-in capital 896,959 2,381,959
Accumulated deficit (354,009) (354,009)
Accumulated other comprehensive (2,361) (2,361)
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Total Capitalization $3,252,589 $4,752,589
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4 These adjustments will also increase Daedalus total assets by $1,500,000.
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DIVIDEND POLICY
Daedalus has not paid any cash dividends on its common stock and does
not expect to pay dividends for the foreseeable future. Daedalus intends to
re-invest any profits that may be earned into Daedalus' business. Any future
payments of dividends, and the amount thereof will be dependent upon Daedalus'
results of operations, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors.
INFORMATION CONCERNING EMPIRIC
Empiric Energy, Inc., a Delaware corporation, is an independent oil and
gas exploration and production company that is publicly traded on the OTC
Bulletin Board (Symbol: EMPE). Empiric has over 600 shareholders with
approximately 10,000,000 outstanding common shares.
The distribution agreement. On October 1, 1999 Empiric and Daedalus
entered into an agreement that provides for Daedalus to issue to Empiric, on the
date of this prospectus, 1,500,000 shares of Daedalus common stock in exchange
for the following Empiric shares:
o preferred stock that has a liquidating preferences of $1,500,000 and
is convertible into 750,000 shares of Empiric common stock
o three year warrants to purchase 750,000 shares of Empiric common
stock for $2.oo per share.
Empiric will distribute 1,000,000 of the Daedalus shares to the Empiric
shareholders of record date May 1, 2000 on the basis of one Daedalus share for
each 12 Empiric common share and one Daedalus share for each Empiric Series B
preferred share. The agreement provides that Empiric distribute to its
shareholders, as a dividend, at least 1,000,000 shares of the 1,500,000 shares
of Daedalus common stock.
Empiric shareholders of record will initially have their ownership of
Daedalus common stock registered only in book-entry form in which no
certificates are issued. On the distribution date, each Empiric shareholder, as
of the close of business on the record date, will be credited through book-entry
in the records of the transfer agent with the number of shares of Daedalus
common stock distributed to each shareholder. Each Empiric shareholder will
receive an account statement indicating the number of shares of Daedalus common
stock that the shareholder owns. Empiric shareholders that hold their stock in
street name will have their Daedalus common stock credited to their brokerage
accounts. Following the distribution date, any Empiric shareholder may obtain,
at any time without charge, a certificate to represent his Daedalus stock. The
record date for the distribution is the close of business on May 1, 2000
Empiric shareholders will not be required to pay any cash or other
consideration to receive Daedalus common stock in the distribution.
Daedalus was created to develop, produce and sell composite and metal
housing building systems. We believe that if our stock is traded in the public
markets, it will be easier for us to raise capital to fund our operations. We
therefore entered into the agreement with Empiric to exchange our stock for
Empiric stock and to have most of our stock distributed as a dividend to Empiric
shareholders. In addition, we believe that our investment in Empiric stock will
be profitable.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion is a general summary of current Federal income
tax consequences of the Distribution as presently interpreted, and a
shareholder's particular tax consequences may vary depending on his individual
circumstances. You are urged to consult your own tax advisor as to the
particular tax consequences to you of the Distribution, including, without
limitation, the applicability and effect of any state, local or foreign tax laws
and the possible effects of changes of applicable tax laws.
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The Internal Revenue Service will not give an advance ruling as to the
valuation of the Daedalus common stock to be distributed as a dividend by
Empiric to its shareholders. The IRS is not bound by any determination made by
Empiric as to the fair market value of the property distributed to the Empiric
shareholders.
The distribution of Daedalus common stock to Empiric shareholders as a
dividend is a taxable event. Section 301 of the Internal Revenue Code of 1986
provides that the taxable amount of the dividend shall be the fair market value
of the property distributed. Section 316 of the Code provides generally that a
corporate distribution will be treated as a dividend to the extent the
distribution is paid out of earnings and profits accumulated since February 28,
1913, or out of earnings and profits for the year of the distribution.
Management believes Empiric has no accumulated earnings and profits in the
corporation as of December 31, 1999. The year of the distribution will be 2000.
Thus, the distribution will be taxable as an ordinary dividend only to the
extent there are earnings and profits for the year 2000.
If Empiric has no earnings and profits for the year 2000, then the
distribution will be treated as a liquidating dividend of Empiric to the extent
of the fair market value of the property distributed. Generally a liquidating
distribution is treated as a return of the shareholder's basis, reducing his or
her tax basis in the investment. To the extent the distribution exceeds the tax
basis of the investment, the excess will be treated as a gain from the sale of
the investment. If Empiric has earnings and profits for the year 2000, but not
enough earnings and profits to cover the value of the property distributed, then
the distribution will be taxed as an ordinary income dividend to the extent of
the earnings and profits for 2000 and the remainder will be treated as a
liquidating dividend of Empiric.
Corporate holders of Empiric shares (other than S Corporations) may be
entitled to the dividends-received deduction, which would generally allow such
shareholders a deduction, subject to certain limitations, from their gross
income of either 70% or 80% of the amount of the dividend depending on their
ownership percentage in Empiric. The holding period for the Empiric shareholders
for the Daedalus common stock received in the Distribution will commence on the
date of the Distribution.
Computation of Fair Market Value. For income tax purposes, Fair Market
Value is the price at which a willing buyer and a willing seller would agree to
exchange property. Therefore, the best measure of the value of the Daedalus
shares distributed to Empiric shareholders is the amount that will be paid for
those shares at the time they are acquired by Empiric. The 1,500,000 Daedalus
common shares acquired by Empiric are to be acquired by the issuance of
$1,500,000 face value convertible preferred stock, convertible into 750,000
shares of restricted Empiric common stock. The announcement of the
Daedalus/Empiric Agreement was made September 17, 1999. The average closing
price of the Empiric common stock for the ten days prior to the announcement was
$.6312 and the average volume traded was 11,050 shares. Even though the
preferred stock maintains a liquidation preference, the asset value to be placed
upon Empiric's books is the related value of the common shares at the time of
the announcement. Because the common shares are restricted and there is limited
trading volume, the value has been discounted 20%, 10% for restrictions, and 10%
for volume to reach a value of $.5050 per Empiric common share. Utilizing
750,000 Empiric common shares at $.5050 gives a value to the transaction of
$378,720. This valuation assumes that the exchange of warrants will be valued
separately. Since the warrants are not to be distributed to the public, their
value will remain an asset of Empiric until either exercised or the warrants
expire. The transaction value of $378,720 divided by the 1,500,000 Daedalus
common shares received values the common shares of Daedalus at $.2525 per share,
fair market value.
If Empiric has $378,720 in earnings and profits in the year 2000, then
the distributed shares, each worth $.2525, will be treated as ordinary income to
the recipient and must be added to gross income. If Empiric has no earnings and
profits for the year 2000, the distributed shares, each worth $.2525, will be
treated as a liquidating dividend and the tax treatment will depend upon each
recipient's basis in the shares of Empiric owned. Management expects Empiric to
have a loss for the first quarter of 2000 and cannot predict whether Empiric
will have earnings and profits for the year 2000. Therefore, the tax impact of
the distribution cannot be determined at this time and must wait until the
completion of the computation of the earnings and profits for Empiric for the
year 2000.
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The recipients of the distribution are not paying for the shares
received and are therefore not making a decision about investing in the shares.
The tax consequences of the distribution do not change the fact that
shareholders of Empiric will receive the shares and the tax consequences will be
delivered to each shareholder in the ordinary course of business after the
computation of earnings and profits for Empiric for the year 2000.
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DESCRIPTION OF DAEDALUS' BUSINESS
Business Development. Daedalus was formed to help alleviate two of the
world's seemingly intractable and growing, population-related problems: the
disposal of plastics, particularly in municipal solid waste, and the vast world
homeless population for whom there is a critical shortage of adequate shelter
and low-cost housing. Daedalus' contribution to the solution of those problems
is through a common mechanism of producing polymer composite building materials
for low-cost housing fabricated from recycled plastic.
On March 3, 2000, Daedalus resolved to change its name from Daedalus
Building Systems, Inc. to Daedalus Systems, Incorporated to reflect the broader
scope of Daedalus' interest in the development of community systems based upon
structures, water, energy, sewage, and waste management services. Despite
Daedalus' interest, it currently has only two products, both of them structural
systems for low-cost housing.
Formation. Daedalus was incorporated in the State of Delaware
on the 28th of October, 1999 as a C corporation.
Bankruptcy, receivership, or similar proceedings. There have
been no bankruptcy, receivership, or similar proceedings within
Daedalus and Daedalus is not an outgrowth of any organization involved
in such proceedings.
Material reclassification, merger, consolidation. There has
not been any material reclassification, merger, consolidation, purchase
or sale of a significant amount of assets not in the ordinary course of
business within Daedalus.
Litigation. Daedalus is not currently a party to any claim or
legal action.
Business of Daedalus.
Background. The world's population is projected to increase
from the current six billion to approximately 10 billion people in the
next 35-50 years. Virtually all growth will occur in developing
countries where housing requirements are predicted to be more than
doubled by the middle of the twenty-first century. This growth in the
numbers of housing is going to be greatly complicated by shortages in
conventional materials, financial constraints, intensified land
competition, and increased poverty.
The United Nations estimates that there are nearly one billion
people in the world that are homeless or without adequate shelter, a
situation that carries with it the potential for grave social and
economic consequences. Consistent with those figures is the estimate
for housing. Housing requirements for the Asian region alone are
predicted to reach 700 million units during the next 35-50 years. The
use of conventional housing materials, particularly wood, simply will
not sustain the expansion that is necessary.
Estimates today are that in the United States, the per capita
usage of materials of all kinds is approximately 100 kg. per day, or
36.5 tons per year. As the developing world moves toward the increased
utilization of materials, consistent with the US or western model, the
demand for materials will rise dramatically--just to meet the
requirements of the increase in population. The impact upon the demand
for housing materials to construct basic shelters and low-cost houses
will be similarly increased.
Millions of tons of plastics are produced each year throughout
the world. Authoritative estimates are that less than five percent of
the amount produced each year is recycled. Most of the recycled
plastics are of homogeneous types; only an extremely small fraction of
recycled plastics consists of non-homogeneous plastic waste. Even a
smaller portion of combined industrial, commercial, and post-consumer
plastic waste is recycled to produce such items as speed bumps and
plastic wood for livestock stalls, marine applications, and park
benches. The majority of plastic waste is committed to landfills, where
its non-biodegradable nature complicates its disposal, or it is left
lying where its utility ceased.
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Neither homelessness nor waste plastic is new; however, we
believe this is the first time that any project of this nature has been
devised to address both problems. Similarly, the technology to process
plastic waste into useful, after-market products has been available for
years; however, little attention has been given to providing for the
have-nots of this world from the excesses of the haves. Through the
innovative combination of proven technologies, novel design, and
advanced composite compounding, Daedalus offers the Daedalus Building
System(TM), an environmentally-responsible and socially-conscious
utilization of recycled industrial, commercial and post-consumer
plastics, combined with other materials, to produce composite
construction material for the fabrication of low-cost structures.
In addition to the foregoing, which supported Daedalus'
decision to produce this polymer composite housing system, a
foam-filled metal panel system has been incorporated into the business
to pursue a slightly higher socio-economic sector of the world housing
market and to leverage marketing efforts by being able to meet a
broader range of requirements.
Principal products. The principal products of Daedalus are
marketed under the Daedalus Building System(TM), which includes two
components: a polymer composite structural system and a metal composite
structural system.
Materials only. Although Daedalus has a broad
interest in community systems, in general, its current product
lines consist of materials. Those materials are being actively
marketed to conform to specific structures as defined by the
pricing chart. However, they can be asembled into a variety of
structures to meet the customer requirements and can be
purchased by the piece, in the case of the polymer composites,
or by the area (square foot/meter) in the case of the metal
system. Unless specifically requested--at additional cost--the
materials provided will permit the buyer to form unfinished
housing shells.
Design. Daedalus' interest in the design of community
systems and structures is reflected in its marketing approach.
Daedalus provides custom designs--as well as its standard
structures--to meet the requirements of potential customers.
Infrastructure, construction, and assembly. As seen
later under Daedalus' approach to marketing and distribution,
Daedalus considers it absolutely essential to work with
strategic partners in each of the countries in which its
building systems will be used. Those partners may be the same
for marketing and the various aspects of construction.
Daedalus will provide limited training--at additional cost--in
large projects, but it will be the responsibility of the
strategic partner to coordinate land development,
infrastructure development, and assembly of the building
materials.
Polymer composite structural system. The polymer
composite structural system consists of panels fabricated from
recycled polyolefins, compounded with various additives
designed to increase performance parameters and the typical
attributes of composites such as strength, flexibility,
durability, and permanence. The technology of the composite
housing system consists of four principal components:
composites, structural panels, structures, and production
technologies
o Composites. The polymer composites consist
primarily of recycled polyolefins, primarily
polyethylene and polypropylene compounded with
various additives, including glass fiber, talc, and
naturally-occurring materials such as rice husks or
sand may be used to increase performance parameters
such as strength, flexibility, durability, and
permanence.
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<TABLE>
<CAPTION>
o Structural Panels. The polymer composites are
formed into structural panels through various plastic
forming technologies discussed below. Currently,
there are nine different types of panels which are
assembled into a structure:
- floor panels
- wall panels
- mitered wall panels
- window panels
- door panels
- roof truss panels (2)
- roof panels (2)
The design of the polymer composite system
envisioned that all configurations of the panels
could be produced from the same basic mold,
approximately 1.25 by 1.25 meters square. That
objective was achieved.
o Structures. The basic structural unit is the
building block of this system. The basic structural
unit consists of approximately 60 single panels,
assembled three panels wide and two panels high to
form a structure measuring 2.5 meters high by 3.75
meters square with a floor area of on approximately
14 square meters or 150 square feet.
Structural units can be combined to achieve
various configurations of multiple unit structures.
The building system does not use any separate
internal or external framing.
Related selling prices and costs for the
standard configurations of these structures follow:
Production cost (does not include amortization or leasing costs):
o basic structural unit - $632.50 per structure
Selling prices*:
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Structural Units Measurement, Measurement, Area, Area, Price,
sq. meters sq. feet sq. meters sq. feet USD
<S> <C> <C> <C> <C> <C>
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Basic Structural Unit 3.75 x 3.75 12.38 x 12.38 14.06 153.26 $2,000.00
Double Unit 3.75 x 7.50 24.75 x 12.38 28.13 306.41 $2,750.00
Triple Unit 3.75 x 11.25 37.12 x 12.38 42.19 459.55 $3,900.00
-----------------------------------------------------------------------------------------------
</TABLE>
* subject to a five-percent royalty in accordance with the
agreement with The Daedalus Project, Inc.
o Production Technologies. Panels may be produced
using three principal production technologies:
compression, injection-compression, and
Panelform(TM). Any one of the technologies may be
used for the production of the panels and Daedalus
may choose to use any one or all of them. A brief
description of each one follows.
- Compression. Sometimes referred to as lump
forming, compression forming technology forms
items by applying large compression forces--in
this case in the range of 2500-5000 tons--in
large presses to lumps of compounded material
placed in the mold to squeeze the polymer
throughout the volume of the mold. This
technology is one of the oldest, technologies
used in the plastics forming industry. This
technology accommodates large-size additives thus
permitting a broad array of additives and
versatility of compounding. Presses and molds
required for this type of molding technology are
generally expensive, on the order of hundreds of
thousands of dollars.
14
<PAGE>
- Injection-Compression. Injection-compression
technology injects molten polymer through a
relatively small orifice into the mold cavity
that is nearly closed. Once the cavity is filled,
the mold closes completely thereby filling the
vacuous spaces within the mold. One of the
advantages of this system is that allows a
significant improvement of the material
properties through the introduction of
reinforcing long fibers and impact modifiers.
However, because of the relatively small
injection nozzle, it does not permit the
utilization of a wide variety of
naturally-occurring additives. Machinery for this
technology is expensive as are the associated
molds.
- Panelform(TM). In this case, molten material is
extruded directly into a mold until it is filled.
Then, light compression forces--approximately 200
tons--are applied to fill out the vacuous parts
of the mold. This production method has the
advantage of reducing the requirement for heavy
and expensive presses capable of exerting large
compression forces, thereby achieving production
objectives while reducing capital expenditures.
Metal composite structural system. The second part of
the Daedalus Building System(TM), the metal system was added
to the building system through Daedalus' acquisition of the
stock of Cambridge Unique Associates, Inc., of Ontario Canada.
Cambridge Unique Associates, Inc. now known as
Daedalus-Cambridge, Inc. was not conducting operations at the
time of the acquisition. Its sole asset was the worldwide
rights to the production and distribution of the metal
composite panel under US Patent No. 08/988, 697, Load Bearing
Pre-fabricated Building Construction Panel, which is further
addressed below.
The metal composite system consists of two layers of
26 guage steel that are passed through a forming die and
filled with an expanded polyurethane foam to form an
insulating panel. The panels are two feet wide, three or five
inches thick, and have an internal supporting member running
lengthwise that allows the panel to be used as a structural
panel without additional structural support. That feature
differentiates this panel system from other foam-filled
insulating and cladding panel systems.
The metal system will be used to fabricate low-cost
houses, and other structures complementing those of the
polymer composite structural system within a slightly higher
socio-economic level. The panels are very simple and versatile
so as to permit their utilization to build most types of
structures from dwellings to commercial and industrial
structures. The system is capable of forming multi-story
structures to four stories, without additional framework.
Daedalus is not currently producing the metal panel
system. Similar metal panel systems are produced by a variety
of manufacturers and Daedalus' proprietary panel could be
produced on a contract basis in the near term to meet
contractual obligations. Daedalus is currently examining both
in-house and contract production of the metal panel system.
Related selling prices and costs for the standard
configurations of these structures follow:
Production costs (does not include amortization or
leasing costs):
o in-house - $2.10 per foot
o contract - $3.55 per foot
15
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<TABLE>
<CAPTION>
Selling prices*:
-----------------------------------------------------------------------------------------------
Structural Units Measurement, Measurement, Area, Area, Price,
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Basic Structural Unit 3.75 x 3.75 12.38 x 12.38 14.06 153.26 $3,200.00
Double Unit 3.75 x 7.50 24.75 x 12.38 28.13 306.41 $4,100.00
Triple Unit 3.75 x 11.25 37.12 x 12.38 42.19 459.55 $5,100.00
-----------------------------------------------------------------------------------------------
</TABLE>
* subject to a royalty of $.15 per foot ($ Candaian) in
accordance with the agreement between Daedalus-Cambridge and
Douglas Murdock, the inventor of the metal system.
Testing. In general, there are no specific requirements to be
met by building materials within the international market for low-cost
housing. Nonetheless, finite element analysis was conducted on the
structural panels of the composite system by Virginia Polytechnic
Institute and State University. Results of that testing are available
from Daedalus under the title of Recycled Composite Shelter Project:
Structural Analysis and Testing, dated January 29, 1999. The panels
performed well, substantiating their acceptability for use as housing
materials.
Similar finite element analysis was performed on the panels of
the metal composite system which demonstrated the ability of the panels
to comply with the roof and floor loading requirements of the Canadian
National Building Code, which should suffice for any requirements for
low-cost housing imposed by developing countries.
Markets. The primary market for the Daedalus Building
System(TM)is divided into four parts:
o low-cost and socialized housing programs
o programs for those without adequate housing
o programs for the homeless
o disaster relief programs
A secondary market for all Daedalus' structures is the
commercial market, which is currently being investigated by Daedalus
throughout the United States and the rest of the world. Of particular
interest in the United States is the market for residential
outbuildings, such as garden sheds, etc.
The international industry for housing, including low-cost
housing, is enormous--by any measure. Statistics for housing and
construction within developing nations are generally inadequate for
Daedalus' purposes. They do not adequately address the requirements
within the world market for housing at all levels--particularly the
bottom end--rather they support more conventionally recognized housing
industry within developed and developing countries. Daedalus' focus
within the international housing industry is generally focused upon the
lowest level of the socio-economic spectrum, although the structures
are suitable for the conventional construction and building industry
throughout the world.
The figures that are more relevant for Daedalus' purposes are
those that are derived from such sources as the United Nations, the
United Nations development Program, the United Nations High
Commissioner for Refugees, Habitat, and the World Bank. Of even greater
importance and accuracy are those derived from the officials of the
respective countries. The following are several examples of the
requirements for low-cost housing that were derived from their official
representatives:
o Peru - two and three-quarter million
o South Africa - three million
o Philippines - three and three-quarter million
o Sri Lanka - one million
o Madagascar - 35,000
o India - 31-33 million
The combined requirement for the countries listed above is
approximately 41 million low-cost homes. Although the size of low-cost
housing varies tremendously around the world, Daedalus' experience with
16
<PAGE>
low-cost housing markets reveals a tendency toward an average size of
low-cost homes at approximately 450 square feet, which is the
equivalent of Daedalus' three-unit house, or three basic structural
units (see pricing chart above). Accordingly, the requirements
reflected by only the countries listed above equate to approximately
123 million basic structural units of the polymer composite structural
system.
The enormous worldwide demand for housing creates significant
opportunity. One of the challenges in that opportunity is to identify
replacements for conventional materials, namely wood. The impact of
deforestation upon the environment has already raised public
consciousness. The United States government--as announced during
President Clinton's trip to Bangladesh (White House press release March
19, 2000)--announced that the United States will make available up to
$6 million for a debt-for-nature swap for Bangladesh to invest funds in
tropical forest conservation programs.
As example of the enormity of this opportunity, the Worldwatch
Institute of Washington, DC, estimates that the requirement for houses
in the Asian region alone over the next 50 years, is approximately 700
million homes. The amount of wood necessary to construct even minimal
structures to meet that requirement will place further demands upon an
already stressed environment. Accordingly, without the intervention of
other factors, the building materials that Daedalus proposes may gain
general acceptance as the requirement for alternatives to conventional
materials increases.
Marketing and distribution methods for the products.. Although
to date Daedalus has not successfully delivered any of its building
systems, its principal marketing objective is to reach sales of 100,000
shelters per year by the end of the third year of operations and to
establish equivalent production capacity and sales for the metal panels
within that period.
Daedalus intends to market and distribute its structural
panels--composite and metal--through strategic partners--organizations
and individuals acting in their own interest to market Daedalus'
products--in those countries of greatest promise. Daedalus intends to
identify and select strategic partners with a strong interest in
handling all aspects of the relationship with Daedalus, including all
interface with public and private sector individuals and organizations.
Daedalus will seek individuals and organizations that are well
connected in both the private and public sectors; are experienced in
the housing and construction industries; are experienced in contracting
with public-sector organizations; and, possess the requisite financial
strength to complement Daedalus' performance.
Daedalus marketing staff will be expanded and organized to
interface with the strategic partners, to service their requirements,
and provide demonstrations and practical training regarding the
technical aspects of Daedalus' products and applications.
Daedalus markets its products throughout the world, with the
principal source of printed matter being the U.S. Government,
Department of Commerce publication, Commercial News USA. Daedalus
receives daily mail and e-mail from around the world--principally from
the private sector--requesting information on our products.
Additionally, Daedalus continues personal visits to Embassies in
Washington, DC, with such visits now numbering around 70.
New products. Daedalus has not publicly announced any new
product or service.
Competitive business conditions. The low-cost housing market
is very price sensitive and Daedalus' success in this market is not
assured. Daedalus has not encountered a competitive product that offers
the same features and benefits as the polymer composite structural
system--within the same price range. There are direct competitors to
the metal composite structural system, but few that are currently
concentrating upon the lowest priced sector of the housing market and
none other that are known to be both insulating and structural panels.
However, other firms may enter into this market sector with greater
capital resources and the ability to be more competitive.
17
<PAGE>
Although Daedalus' marketing approach is principally upon
private-sector sales to meet its objectives, to the degree that
Daedalus' private-sector customers are dependent upon public funds, the
real competition for Daedalus' products is scarce resources, the
inability of the governments of developing countries to meet the basic
needs of their people. Daedalus--through its private sector
customers--will be competing for those scarce resources.
Daedalus competitive position. At this point in the
development of Daedalus business, it is difficult to assess Daedalus'
competitive position. Part of Daedalus' strategic approach is to
capitalize upon a market that is so vast that competitive position--or
market share--does not have the same relevance or degree of importance
as it might in the US market or that of other developed countries. If
Daedalus is able to meet its objective of producing and selling 100,000
units per year in the polymer composite systems and a corresponding
number of metal systems, it would only reflect one-tenth of one percent
of the market as it is currently understood.
Methods of competition. Daedalus' competitive approach,
principally that of the polymer system, is based upon five principal
considerations:
o Pricing. Daedalus' pricing is believed to be the
most competitive in the marketplace.
o Humanitarian. Daedalus' was based upon a
determination of the need and then engineering a
product to meet that need; it is solving a
humanitarian problem that makes it supportable by
public and private sector organizations.
o Environmental. Daedalus' approach is
environmentally sound by taking materials out of the
waste stream and converting their non-biodegradable
disposal liability into a structural strength.
o Material. Daedalus' approach is focused upon
providing alternative materials, particularly to
developing countries where shortages of conventional
materials-particularly wood--exist and will increase.
o Economic considerations. Daedalus' approach is
solidly focused upon the generation of stable and
sustained economic growth in developing countries by
employing local labor in the sales, assembly, and
eventual manufacture, of the panels of the systems.
Incorporation of the metal composite system into the Daedalus
Building System(TM) increases Daedalus' marketing and competitive
efforts by permitting it to respond to a wider socio-economic sector of
the populations of developing countries.
Sources and availability of raw materials. The primary raw
materials used in the manufacture of the polymer composite housing
system are recycled polyolefins, primarily polyethylene and
polypropylene, with various additives, including glass fiber and talc.
The types of material required may be derived from both post-industrial
and post-consumer waste streams, both of which are readily available.
Principal suppliers. Daedalus Composites, was
established--in Ontario, Canada--for the purpose of acquiring
and processing approximately 125,000 pounds per day of
recycled plastics to meet the material requirements of the
polymer composite building system. That facility will have the
capacity to provide recycled materials to satisfy the
production requirements for the Peruvian contract and beyond.
In the case of the metal building system, there is a plentiful
supply of light gauge steel for production of the structural
panels.
Dependence on major customers. Daedalus has two contracts with
a private-sector organization in Lima, Peru, the World Business
Investors Group (WBIG), which are subject to WBIG qualifying for
financing by the Export-Import Bank of the United States. Currently
these are the only contracts in hand and Daedalus will be dependent
upon these contracts for its near term success unless others are
developed.
The first contract is for a minimum of 36,000 basic structural
units over three years, utilizing polymer composite material, and a
minimum sales value of $67.5 million. The second contract is for the
purchase of 22 million square feet of the metal composite system over
one year for a total of $121 million. The Export-Import Bank of the US
18
<PAGE>
provided a letter of interest to Daedalus with regard to the first
contract and verbally expressed the same interest in the second.
Daedalus is actively marketing its products throughout the
international marketplace, communicating with approximately 300 private
and public-sector entities in over 100 countries. Daedalus does not
view its long term business survival as dependent upon a few major
customers.
Supporting documents and agreements.
Patents. The patent for metal panel building system
has been allowed (but not yet issued) under the US
Patent Application No. 08/988,697, entitled LOAD
BEARING PRE-FABRICATED BUILDING CONSTRUCTION PANEL. A
similar patent application (2,254,497, filed November
24, 1998) exists under the same name in Canada, which
has not yet entered into the examination process.
Both patents provide for load bearing, pre-fabricated
building construction panels that differ principally
from similar metal panel systems by the fact that
they are load bearing as opposed to being exterior,
siding, or merely insulating panels, thus eliminating
the need and expense involved with the use of an
interior, skeletal structure, to support the panels.
Trademarks. Daedalus Building System(TM)is a
registered trademark of Daedalus.
Licenses.
Polymer composite system. The polymer
composite system is licensed to Daedalus by the
Daedalus Project, Inc.
Metal composite system. The rights to the
metal composite system were acquired from Cambridge
Unique Associates, Inc., as covered under an original
agreement with Douglas G. Murdock as further
described under the acquisition and stock transfer
agreement between Daedalus and Cambidge Unique
Associates.
Royalty agreements.
Polymer composite system. The above
referenced license agreement provides for a five
percent royalty on the gross sales of the polymer
composite structural system to be paid to The
Daedalus Project, Inc. by Daedalus.
Metal composite system. The above referenced
acquistion agreement provides for a $.15 ($ Canadian)
per foot royalty to be paid to the inventor of the
metal system.
Need for governmental approvals of principal products. As a
general rule, universal building codes do not exist and few, if any,
exist within the developing world that would adversely impact the sales
of either the composite or metal building systems. However, as a
practical matter, requirements differ by country. Daedalus made a
conscious decision not to pursue the US building industry, preferring
to concentrate in developing countries where the need for low-cost
housing is much greater and government regulation is, generally,
non-existent.
Effect of existing or probable governmental regulations.
Daedalus is subject to a wide range of federal, foreign, state, and
local law and regulations relating to the pollution and protection of
the environment. Among the many environmental requirements applicable
to Daedalus are laws relating to air emissions, wastewater discharges
and the handling, disposal and release of solid and hazardous
substances and wastes. Based upon continuing internal review and advice
from independent consultants, Daedalus believes that it is currently in
compliance with applicable environmental requirements.
19
<PAGE>
Estimate on research and development costs. Daedalus has not
expended any funds on research and development. Product development was
conducted by those organizations from which the products were licensed.
Costs and effects of compliance with environmental laws
(federal, state, and local). Daedalus' operations under Daedalus
Composites and most of manufacturing processes envisioned for its
products are mechanical and are therefore considered to be
environmentally benign. The polyolefin resins used as raw materials are
readily recyclable and are typically reclaimed within Daedalus' own
operations. As a result, Daedalus does not currently anticipate any
adverse effect on its operations, financial condition, or competitive
position as a result of its efforts to comply with environmental
requirements. Some risk of environmental liability is inherent,
however, in the nature of Daedalus' business, and there can be no
assurance that environmental liabilities will not arise. Future
developments in environmental regulation could lead to unanticipated
costs of environmental compliance.
Number of total employees and number of full time employees.
As of the date of this prospectus, Daedalus employs seven people,
working full-time, in its Alexandria office. Daedalus Composites
employs twenty people working full-time at its Canadian facility. No
employee is represented by a labor union or trade council. Daedalus
considers its employee relations to be very good.
Facilities. Daedalus and its subsidiaries operate from the
following leased facilities:
o Alexandria, Virginia 4,556 square feet - Office, Marketing,
and Sales
o Brantford, Ontario, Canada 55,000 square feet - Office,
Marketing, Sales, Manufacturing and Warehousing
Reports to security holders. Daedalus Systems, Inc. filed with
the Securities and Exchange Commission a registration statement on Form
SB-2 to register the shares of Daedalus common stock to be distributed
to the Empiric shareholders.
The registration statement and the exhibits and schedules may
be inspected and copied (at prescribed rates) at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549. Please call 1-800-SEC-0330 for
further information on the public reference rooms in other locations.
Also, you can review this information at the Commission's Electronic
Data Gathering Analysis and Retrieval System, which is publicly
available through the Commission's Web site (http://www.sec.gov).
This prospectus does not contain all of the information set
forth in the registration statement and the exhibits thereto.
Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement for a
more complete description of the matter involved, each such statement
being qualified in its entirety by such reference. Daedalus will
provide without charge to each person who receives this prospectus,
upon written or oral request of such person, a copy of any of the
information that is incorporated by reference herein (excluding
exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference) by
contacting Daedalus at 8653 Richmond Highway, Alexandria, VA
22309-4206, Attention: Chief Financial Officer, telephone:
703.360.5700.
Daedalus has not authorized any dealer, salesperson or other
person to give any information or represent anything not contained in
this prospectus. You must not rely on any unauthorized information.
This prospectus does not offer to sell or buy any shares in any
jurisdiction where it is unlawful.
20
<PAGE>
MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION
Equity exchange with Empiric Energy, Inc. In October, 1999, Daedalus
reached agreement with Empiric Energy, Inc. to exchange equity between the
companies and to pursue complementary objectives. Upon completion of the
exchange, both companies will hold a meaningful amount of the stock of the
company, which is a reflection of the commitment between the parties in
promoting their mutual interests through their combined activities for the
benefit of their respective stockholders.
No merger of the companies is planned and neither company plans on
becoming a subsidiary of the other. Empiric plans to distribute a portion of the
stock it receives from Daedalus--that portion covered by this prospectus--to its
shareholders. The fundamental basis for the agreement is the mutual interests of
the parties in the energy aspects of community planning which reflects Daedalus'
approach to community building. Although Daedalus only has two main products
today, the agreement reflects the broader scope of the parties' interests in
creating community systems based upon structures, water, energy, sewage, and
waste management services. Empiric's stock will be held by Daedalus for the
benefit of its stockholders and may continue to be held or sold depending upon
its appreciation and the continued success in the cooperative activities of the
parties.
Plan of operation. The following discussion contains Daedalus' plan of
operation for the next twelve months. Accordingly, it contains forward-looking
information that reflects Daedalus' plans, estimates and beliefs. Actual results
may differ. Potential investors should read the following discussion in
conjunction with Daedalus' financial statements including the related notes,
which appear elsewhere in this prospectus.
During the next twelve months, Daedalus intends to make progress toward
accomplishing objectives in six principal areas, namely:
o Staffing. Daedalus intends to increase its full-time staff
in Alexandria to meet the requirements of the overall
activities and, specifically, to meet the needs for increased
marketing of its products. As production continues to expand
in the Canadian plant, increases in staff at that location
will also be necessary. Increases in Canada will be coincident
with increased revenue at that location. Increases in
Alexandria may lag positive cash flow, requiring additional
capital.
o Design. Daedalus' in-house design capability requires
expansion to include automation to keep abreast of the demands
of potential customers and industry standards. Costs
associated with an automated system would require additional
capital.
o Marketing. Marketing activities, including the preparation
of both printed and electronic marketing materials, must be
expanded in order to achieve profitability. Daedalus intends
to conduct extensive marketing operations in order to develop
additional contracts for its housing systems. Those activities
will result in the need for additional capital.
o Control and information systems. Daedalus requires
additional control and information systems to permit the
timely and efficient exchange of information both internally
and externally. Acquisition and installation of those systems
will require additional capital.
o Production. Daedalus must commence production, either
through internal means or on a contract basis, to fulfill its
obligations under its existing contracts for its building
systems. Development of an internal production capacity will
require additional funds, although financing options exist for
most of the equipment that Daedalus would require.
o Research and development. Daedalus intends to conduct
research and development to lower the cost of its polymer
composite structural system as further described below.
21
<PAGE>
In order to meet the objectives briefly outlined above,
Daedalus will have to raise additional capital, either equity or debt,
to meet a combination of increased level-of-effort expenditures and
those for machinery and equipment.
Cash requirements and additional funds. As of the January 31,
2000, Daedalus had approximately $80,000 in cash, receivables, and
prepaid deposits. Additionally, Daedalus Composites has approximately
$20,000 in inventory of recycled plastics available for sale. As of the
said date, Daedalus had approximately $337,000 in current payables.
Considerably more funds will be required to accomplish the general
objectives outlined above.
Daedalus is presently considering all available options to
generate adequate cash to meet its needs. Under the current conditions,
Daedalus will require an average of approximately $85,000 per month
over the next twelve months to meet its level-of-effort expenditures.
On March 31, 2000, Daedalus--under Daedalus
Composites--received limited debt financing from GE Capital of Canada
in the amount of $750,000 Cdn. (approximately $500,000 USD) with a
security guaranty taken against two pieces of equipment in the Canadian
facility; both Erema plastic extruders. The term of the loan is 60
months commencing April 29, 2000, at a rate of prime rate plus 1.75%.
Currently, Daedalus is circulating a private placement
memorandum to raise a combination of debt and equity totaling $5
million. Simultaneously, we are communicating with additional
asset-based lending institutions to borrow against the remaining
unencumbered equipment at the Canadian plant. That equipment was
recently appraised--at the request of GE Capital, Canada, at
approximately $5.6 million (orderly disposition) and $2.9 million
(forced sale). However, there can be no assurance that the requested
financing will be available or, if so, will be available on terms
favorable to Daedalus. If adequate funds are not available or are not
available on acceptable terms, Daedalus' ability to fund expansion,
take advantage of unanticipated opportunities, develop or enhance
products or otherwise respond to competitive pressures could be
significantly limited.
If Daedalus is unable to generate sufficient capital through
debt or equity placement in the near term, Daedalus will concentrate
effort upon moving the Canadian facility toward greater profitability
until it is able to support greater debt service to meet the desired
objectives.
Planned research and development. In expansion of the earlier
statement, Daedalus' principal research and development objective over
the next 12 months is to lower the cost of its polymer composite
building system. In addition to the constituent polymers, the panels
may contain various amounts of other natural or synthetic recyclable or
virgin materials. Daedalus intends to conduct research and development
using additives, such as ground glass, volcanic ash, fly ash, rice
husks, sand, and other materials that occur naturally in the countries
of interest, such as rubber, glass, fiberglass, paper, fiber, and metal
in proportions that may contribute to their structural integrity while
remaining compatible with the basic manufacturing processes. Rather
than simply using the polymer composites as structural material,
Daedalus' planned developmental activities, to be undertaken in
cooperation with Virginia Tech, George Washington University, the
University of Toronto, and the University of Newcastle, UK, will
eventually permit the utilization of the locally-available materials
listed above. As a goal, in contrast to the production costs shown
above, the estimated material cost of a basic structural unit
fabricated from a 60% sand/polymer alloy is approximately $100. Local
production of these materials, in countries in which markets are
developed, is one of the competitive aspects of Daedalus' overall
competitive strategy.
Expected purchase of plant and equipment. Daedalus is
committed to near-term production of both the polymer and metal
systems, but has not yet committed to a large cash expenditure for
equipment. The Canadian facility has adequate space for expansion of
production for the polymer panels. The approximate cost for the
required equipment would be $2,500,000, but would be financed, not
purchased for cash.
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In the case of the metal system the approximate costs for
production equipment would be the same as that for the polymer panels.
The principal difference is that the metal system would require an
additional facility.
In order to balance the requirement for production of both the
polymer and metal systems against a cash short position, Daedalus will
probably opt for contract production for the structural material until
sufficient cash is available. The costs associated with that approach
would entail--at most--purchase of molds in the case of the polymer
system, and metal forming dies for the metal system. The total
expenditure for those items should not exceed $500,000. Daedalus'
preference would be for the contract producers to pay for the molds and
dies with an impression charge applied for each piece of the polymer
system and a running foot charge in the case of the metal panels. Such
arrangements are not uncommon within either industry.
Increases in work force. Along with the increase in the work
force anticipated to meet increased production in Canada and the
marketing activities in Virginia, general and administrative expenses
are expected to increase as we expand our staff to support the growth
of the business. Those costs are included in the figure stated above
for level-of-effort activity. Increases above those levels will require
realization of income before they can be implemented.
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MANAGEMENT OF DAEDALUS
Executive Officers and Directors
Following is a summary listing of the Executive Officers and Directors
of Daedalus, providing their names, ages, and positions. All Executive Officers
and Directors have been with Daedalus since its inception.
Executive Officers
Name Age Position
---- --- --------
Edward A. McCulloch 57 President, Chief Executive
Officer
David Lightbody 43 Executive Vice President
and Chief Financial Officer
Patricia L. Espino-Nayar 30 Vice President, Secretary-
Treasurer, and Controller
Abbey Nash 72 Vice President, Production
and Engineering, and Director,
Daedalus Composites, Inc. (Canada)
Norio Sakai 70 Vice President, Design
Directors
Name Age Position
---- --- --------
James A. Lyons, Jr. 72 Chairman
Edward A. McCulloch 57 Director
Grant L. Hopkins 53 Director
Ralph O. Hutchison 76 Director
David Lightbody 43 Director
George C. Montgomery 55 Director
Norio Sakai 70 Director
Robert J. Salmon 57 Director
Walker A. Williams 59 Director
Term of office. All current officers and directors serve until the next
annual meeting of shareholders or until they are elected and qualified. Each
executive officer and director of Daedalus holds office until a successor is
elected, or until the earliest of death, resignation or removal. All officers
serve at the discretion of the Board of Directors.
Significant employees. While all employees of Daedalus are expected to
make a significant contribution to the business, there are no further
individuals that will be listed under the spirit and intent of the guiding
regulation.
Family relationships. There are no family relationships among
directors, executive officers, or significant employees of Daedalus.
24
<PAGE>
Involvement in certain legal proceedings. None of Daedalus' directors,
or executive officers have been involved in any legal proceedings related to
bankruptcy; criminal proceedings; orders, judgements, or decrees; have been
found in violation of federal or state securities or commodities laws; or, any
other act requiring reporting as defined by reference.
Other directorships held in reporting companies. None of Daedalus'
directors hold other directorships in reporting companies.
Business experience. Following are biographical summaries that
highlight the business experience of Daedalus' executive officers and directors
during the past five years.
Executive Officers.
Edward A. McCulloch, President, Chief Executive Officer,
Director, and founder of Daedalus. Mr. McCulloch has spent the past two
and one-half years--as president of the Daedalus Project, Inc.,
developing the business development model and technology that permitted
the formation of Daedalus.
During the previous two and one-half years, he was involved in
international marketing and business development, principally with the
commercialization of technology for the removal of metal ions from
aqueous-based waste streams using water-soluble polymers and
hollow-fiber membrane technology; developed by Los Alamos National
Laboratory for which the small company he previously owned--Micro-Set
Inc.--was chosen as the industrial partner for the laboratory.
During the same time period, through his company, The
Chesapeake Group, International Programs In Applied Technology, Inc.,
Mr. McCulloch was directly involved in the international marketing of a
broad range of products, processes, and technologies including:
immunochemicals, biological raw material; medical diagnostics;
contraceptive devices; special coatings; low-cost drinking water
systems for developing countries; absorbent and superabsorbent polymers
for the recovery of a variety of hazardous and non-hazardous liquids
and the filtration of primary aromatics. Additionally, Mr. McCulloch
designed a business model for small business participation within the
global economy based upon population-based, critical, non-discretionary
products, processes and technologies. He maintains a general
contracting license and has recent and relevant experience in disaster
response planning in foreign countries.
Mr. McCulloch was the principal organizational recipient of a
1998 Innovation Award from Virginia's Center for Innovative Technology
for Daedalus' World Shelter Project, the recycled polymer composite
housing system now known as the Daedalus Building System(TM)
David Lightbody, Ph.D., Executive Vice President, Chief
Financial Officer, and Director is a Polymer Chemist who participated,
along with Mr. McCulloch, in the development of Daedalus' composite
housing concept from its inception.
Prior to joining Daedalus, Dr. Lightbody was the molded
products manager with British Polythene Industries, PLC--the largest
polyethylene film company in Europe, and a leader in the field of
plastics recycling, where he managed a plastics recycling business that
processed over 5000 tons per year.
25
<PAGE>
Patricia Espino-Nayar, Vice President, Secretary-Treasurer,
and Controller, has been with Daedalus since its inception. Ms.
Espino-Nayar is a Chemical Engineer with responsibility for
administration, corporate matters, accounting, financial execution and
accounting, and project development. She was instrumental in
negotiation of Daedalus' first contract with Peru.
In addition to her responsibilities within Daedalus's domestic
activities, Ms. Espino-Nayar established, and is the Managing Director
of, Daedalus Construction, Inc., a Philippine-based affiliate of
Daedalus formed for the purposes of contracting with the public and
private sectors of the Philippines. Similarly, Ms. Espino-Nayar was
instrumental in the recognition of Daedalus' World Shelter Project by
Virginia's Center for Innovative Technology with an Innovation Award.
Ms. Espino-Nayar has been the Secretary-Treasurer of The
Chesapeake group of companies, including The Daedalus Project, Inc.,
from which the Daedalus Building System(TM) was licensed. She was also
the General Manager of Chesapeake BioProducts, Inc., from 1996. As with
her current assignment in Daedalus, her previous duties included
responsibility for administration, corporate matters, accounting,
financial execution and accounting, and project development.
From 1994-1996 Ms. Espino-Nayar was the Product Manager for
Nike International Philippines, Incorporated, a distributor of Nike
products.
Abbey Nash, Vice President, Production and Engineering,
Director, Daedalus Composites, Inc. (Canada), and ex-officio member,
Daedalus Systems, Inc., Board of Directors. Mr. Nash has direct and
relevant experience in the plastics recycling industry, holds patents
on several articles that can be fabricated from recycled composites, is
experienced in the production of plastic molded products, and, is
experienced in modular and low-cost housing projects, worldwide. Mr.
Nash was the principal motivating force behind Daedalus' acquisition of
Cambridge Unique Associates, Inc.
Mr. Nash is the co-founder, Executive Vice President, Chief
Technology Officer, director and minority shareholder of Palletronix,
Inc., Ontario, Canada.
Norio Sakai, Vice President, Design and Director, has
participated with Mr. McCulloch as the chief architect of the project
since its inception, participating in basic design of the structural
components of the composite building system, designing its most
elaborate structures, and providing engineering drawings for the
fabrication of molds. Mr. Sakai has been an architectural consultant
for over 30 years.
Mr. Sakai's broad personal experience brought greater depth to
the Daedalus Building System(TM) than simply the design of
prefabricated, modular, or panel systems. He has permitted Daedalus to
capitalize upon demographically-driven community design as a
fundamental and competitive aspect of Daedalus' composite and metal
panel systems.
Directors
Admiral James A. Lyons, Jr., USN (Ret.). Admiral Lyons,
Chairman of the Board of Directors of Daedalus and former
Commander-in-Chief of the US Pacific Fleet, is President and CEO of
LION Associates, an international consulting firm that provides
technical expertise in the areas of international marketing and trade,
foreign policy and security affairs along with defense and commercial
procurement. Additionally, Admiral Lyons is Chairman, President, and
CEO of Guam Industrial Services, Inc. and Guam Shipyard, Inc.,
providing ship repair and maintenance services to deployed units of the
U.S. Pacific Fleet.
26
<PAGE>
In addition to his association with Daedalus, Admiral Lyons
serves as: Director, Wilson UTC; Director, SHIPINVEST, II; Director,
Defense Intelligence Scientific and Technical Advisory Board; Director,
The National Coalition for Defense Advisory Board; and, Member,
Advisory Committee National Foundation for Cancer Research
Grant L. Hopkins is the founder of Combined Area Studies of
Pittsburgh, Pennsylvania. Combined Area Studies is a strategic
facilitator of relationships within the defense, national security, and
technology sectors, with a number of domestic and foreign clients, most
recently the Republic of Yemen.
Prior to Combined Area Studies Mr. Hopkins was employed for
over a decade by the Washington DC based petroleum consultancy, The
Petroleum Finance Company, Ltd. where he headed Special Projects and
founded its Studies & Observations Group, which used the intelligence
cycle to provide clients with real time information on events affecting
petroleum markets thus allowing them to make independent market-related
assessments regarding supply, production and commercial trading. Mr.
Hopkins left Petroleum Finance in 1997 to found Combined Area Studies.
Ralph O. Hutchison. Mr. Hutchison is a licensed Professional
Engineer in South Carolina, Georgia and Texas, who has served for
twenty-eight years as President and CEO of National Stonehenge
Corporation, a management consulting firm that provides management
audits, acquisition analysis and evaluation, operations analysis,
financial and management controls to improve profits. The company also
provides asset audits for refinancing, production planning and
management. Additionally, Mr. Hutchison served as the Honorary Consul
for the Grande-Duche' de Luxembourg for the Southeastern United States.
Mr. Hutchison is the founder of United Real Estate Management
Corporation serving as President and CEO of that real estate management
company. National Stonehenge Corporation and United Real Estate
Management Corporation have acted as advisors to major banks, trusts,
pension funds and the FDIC since 1972.
Ambassador George C. Montgomery. Ambassador Montgomery is the
former US Ambassador to the Sultanate of Oman. He is a partner in the
Washington office of Baker, Donelson, Bearman and Caldwell where he is
managing partner.
Robert J. Salmon. Mr. Salmon has been a director with Daedalus
since its inception. Mr. Salmon is an independent management consultant
who developed medical insurance, emergency procedures, equipment and
supplies outfitting and a medical management plan for NESCOR
Incorporated, a private natural resources company operating in the Gobi
Desert region of Mongolia and China.
He has provided research services and reports to a private
sponsor of medical facilities and food for disaster relief. In
addition, he also participated in the refinancing of a private auto
parts manufacturer.
Mr. Salmon has broad experience as a developer and project
Manager for EXXON Chad/Cameroon malaria control; including recruitment
of paramedical personnel for emergency and disaster relief activities;
development of specifications for emergency medical supplies; and
vendor networks for turnkey hospitals; medical equipment and supplies;
and, pharmaceuticals and drugs necessary to support emergency medical
and mortuary services.
Walker A. Williams. Mr. Williams has worked with Daedalus over
the past two years, first as a consultant and then as a Director of the
Daedalus Project, to advance the company's objectives of with specific
emphasis upon the District of Columbia, west and south Africa and
humanitarian programs directed toward solution of the worldwide housing
shortage, such as Habitat for Humanity International.
Mr. Williams is President of Education Africa USA, a
non-profit, non-political organization committed to providing quality
educational opportunities within South Africa. Mr. Williams is also
president of Alternative Marketing Access, a full-service
communications and management consulting firm.
27
<PAGE>
<TABLE>
<CAPTION>
Executive Compensation
Directors of the corporation are not compensated unless they otherwise
perform duties for the corporation, such as those of the officers.
There has been no compensation awarded to, earned by, or paid to Mr.
McCulloch and Dr. Lightbody for the year ended December 31, 1999. Therefore, the
table detailing executive compensation for the past fiscal year has been
omitted.
The following table sets forth the executive officers of Daedalus whose
aggregate compensation for the year ended December 31, 2000, is expected to
exceed $100,000 per year:
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (f) (g)
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
Name and Year Salary Bonus Restricted Securities Underlying
Principal Position ($) ($) Stock Options/SAR (#)
Awards ($)
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
Edward A. McCulloch 2000 225,000 0 0 0
President and 2001 275,000 0 0 0
Chief Executive Officer, 2002 325,000 0 0 0
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
David Lightbody 2000 130,000 0 0 0
Executive Vice President and 2001 160,000 0 0 0
Chief Financial Officer 2002 190,000 0 0 0
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
All officers and directors 2000 553,000 0 0 0
as a group (5 officers)
- ------------------------------------- ---------- ------------ ------------ -------------- ---------------------------
</TABLE>
The employment agreements are relatively straightforward agreements
that provide compensation, without complicated bonuses or stock options, for the
founder of the company, the developers of the composite technology, and
Daedalus' senior decision-makers. Under the agreements, both employees are
provided the same level of health insurance as all other employees and the
opportunity to participate in any program of higher education at the expense of
the company so long as that education relates to the business of Daedalus and to
the functions for which they are employed. To date, no educational expense has
been incurred on the part of either employee.
29
<PAGE>
Related Transactions
The Daedalus Project, Inc. is affiliated with Daedalus Systems, Inc.
Edward A. McCulloch is the principal shareholder and President of The Daedalus
Project, Inc. Initial ownership of common shares in Daedalus Systems, Inc.--on
October 28, 1999--was pursuant to the original subscription agreements with
investors in The Daedalus Project, Inc., which provided, among other things, for
the ownership by those shareholders of any other entities created by The
Daedalus Project, Inc. for public or distributed ownership. Thus, with the
exception of the equity position of Mr. McCulloch--who agreed to take a
reduction--the initial equity positions of the owners of Daedalus Systems, Inc.,
reflect their absolute ownership of The Daedalus Project, Inc. Mr. McCulloch
received 3,447,150 shares of Daedalus Systems, Inc. common stock, all 250,000
shares of Daedalus Series A preferred and all 1,000,000 shares of Daedalus
Series B preferred, the latter containing certain "earn-out" provisions
pertaining to the performance of the company and their conversion to common
stock.
On October 31, 1999, The Daedalus Project, Inc. and Daedalus Systems,
Inc., entered into agreement to transfer all rights to the composite housing
technology of the Daedalus Building System(TM), developed by Mr. McCulloch and
advanced by The Daedalus Project, Inc., and the capital stock of Daedalus
Composites, Inc., its Canadian subsidiary, in exchange for a five percent
royalty on the gross sales of Daedalus.
Mr. McCulloch is also the principal shareholder of Chesapeake Services
Corporation. Daedalus leases approximately 4,556 square feet of office space in
Alexandria, Virginia from Chesapeake for approximately $82,000 per year, under a
five-year lease. Mr. McCulloch owns all of Chesapeake Services Corporation
through its parent corporation, The Chesapeake Group, International Programs In
Applied Technology, Inc. The terms of the lease are as fair to Daedalus as those
that could have been obtained from unrelated third parties and arms-length
negotiation.
30
<PAGE>
PRINCIPAL SHAREHOLDERS OF DAEDALUS COMMON STOCK
(Before the Distribution - 8,700,000 common shares issued)
Common
Name and Address Shares Owned Percentage
of Beneficial Owner Beneficially Owned
- ------------------- ------------ ----------
Edward A. McCulloch (5) 3,336,982 38.36%
7514 Ridgecrest Drive
Alexandria, VA 22308
Robert J. Salmon
3623 Raymond Street
Chevy Chase, MD 20815 1,000,000 11.49%
Steve Stone and
William Johns, Sr. (jointly held)
25802 Novi Road
Novi, MI 48375 819,000 9.41%
All officers and directors(6)
As a group (11 persons) 5,414,482 62.24%
Note: The principal shareholders will not receive additional shares in the
offering.
- ---------------
5 Mr. McCulloch owns 3,336,982 shares of Daedalus common stock, 250,000 shares
of Daedalus Series A Preferred Stock, and 1,000,000 shares of Daedalus Series B
Preferred Stock, each of which has one vote on matters pertaining to preferred
shareholders. Additionally, each share of the Series A Preferred Stock has 30
votes on all matters submitted to shareholders of common stock; and, each common
share has one vote. Therefore, Mr. McCulloch will own 38.36% of the outstanding
common stock, 33.33% of the preferred stock, 66.89% of the common voting rights
and 33.33% of the preferred voting rights of all of Daedalus' outstanding
capital stock. Mr. McCulloch will have, as a practical matter, control of
Daedalus.
6 All officers and directors, as a group, own a total of 62.24% common shares
and control of cumulative voting rights of 79.70%.
31
<PAGE>
<TABLE>
<CAPTION>
Voting class of preferred stock
- --------------------------- ----------------------------- -------------------------- --------------------
(1) (2) (3) (4)
- --------------------------- ----------------------------- -------------------------- --------------------
<S> <C> <C> <C>
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Owner Class Owned
- --------------------------- ----------------------------- -------------------------- --------------------
Preferred Stock Edward A. McCulloch, 250,000 shares 100
Series A 7514 Ridgecrest Drive,
Alexandria, VA 22308
- --------------------------- ----------------------------- -------------------------- --------------------
</TABLE>
32
<PAGE>
DESCRIPTION OF SECURITIES OF DAEDALUS
Common Stock
Daedalus has 30,000,000 shares of authorized common stock, with
8,700,000 shares issued and outstanding, at $0.01 par value per share. Upon
completion of the registration statement and distribution of 1,000,000 shares to
the stockholders of Empiric, 10,200,000 shares of common stock will be issued
and outstanding. Daedalus does not intend to distribute dividends to its common
stockholders in the foreseeable future. Each outstanding share of common stock
is entitled to cast one vote on all matters submitted to a vote of stockholders.
The shares of common stock will not be redeemable or convertible, and the holder
will have no preemptive rights to purchase any securities of Daedalus
Preferred Stock
Daedalus has 3,000,000 shares of authorized preferred stock at $1.00 par
value per share, with 2,625,000 shares issued and outstanding, as Series A, B,
C, and D preferred stock. The remaining 375,000 shares of authorized stock is
issuable in one or more series, and shall have the rights, preferences, and
other features to be determined by Daedalus' board of directors.
Designated, Issued and Outstanding:
o Series A preferred stock have 250,000 shares designated, issued and
outstanding, with liquidation preference of $1.00 per share. Series
A is equal to Series B preferred stock, and senior to all other
series of preferred stock of Daedalus. Each share of Series A stock
may, at the option of the holder, be converted into one share of
common stock of Daedalus at any time within twenty years. This
preferred stock is entitled to cast thirty votes, in common with
the votes to which holders of Daedalus common stock are entitled to
cast, one vote per share, on all matters submitted for action by
the stockholders, as stated in the Certificate of Incorporation of
Daedalus or applicable provisions of the General Corporation Law of
Delaware. There holders have no redemption rights and dividends
will not be distributed. Provided funds are legally available, all
shares of Series A preferred stock outstanding on the twentieth
anniversary of the Closing of the Agreement with Empiric (note 3)
may be called by Daedalus at a price of $1.00 per share.
o Series B preferred stock have 1,000,000 shares designated, issued
and outstanding, with liquidation preference of $2.50 per share.
Series B is equal to Series A preferred stock, and senior to all
other series of preferred stock of Daedalus. Subject to Daedalus'
satisfying the conditions pertaining to its Pre-Tax Earnings and
quantity limitations, the shares of Series B preferred stock may,
at the option of the holder, be converted into shares of common
stock of Daedalus upon reaching the following earning plateaus, on
or before December 31, 2003:
- Upon record of $5,000,000 pre-tax earnings, 333,333 Series B
shares can be converted into 1,666,665 Daedalus common
shares.
- Upon record of an additional $5,000,000 in pre-tax earnings
(a total of $10,000,000 pre-tax earnings), an additional
333,333 Series B shares can be converted into 1,666,665
Daedalus common shares.
- Upon the record of an additional $6,000,000 (a total of
$16,000,000 pre-tax earnings), an additional 333,334 Series
B shares can be converted into 1,666,670 Daedalus common
shares.
o Series C preferred stock have 1,000,000 shares designated, issued
and outstanding, with liquidation preference of $2.50 per share.
Series C is subsequent to Series A and Series B, equal to Series D,
and senior to all other series of preferred stock of Daedalus.
33
<PAGE>
Series C does not hold voting rights and dividends will not be
distributed to its holders. Subject to Daedalus satisfying the
conditions pertaining to its Pre-Tax Earnings, the shares of Series
C preferred stock may, at the option of the holder, be converted
into shares of common stock at $2.00 per share upon reaching the
earning plateau of $1,000,000.
o Series D preferred stock have 375,000 shares designated, issued and
outstanding, with liquidation preference of $2.50 per share. Series
D is subsequent to Series A and Series B, equal to Series C, and
senior to all other series of preferred stock of Daedalus. Series D
does not hold voting rights and dividends will not be distributed
to its holders. Subject to Daedalus' satisfying the conditions
pertaining to its Pre-Tax Earnings and quantity limitations, the
shares of Series D preferred stock may, at the option of the
holder, be converted into shares of common stock of Daedalus at
$2.00 per share, upon reaching the following earning plateaus, on
or before December 31, 2003:
- Upon record of $10,000,000 pre-tax earnings, 125,000 Series
D shares can be converted into 62,500 Daedalus common
shares.
- Upon record of an additional $10,000,000 in pre-tax earnings
(a total of $20,000,000 pre-tax earnings), an additional
125,000 Series D shares can be converted into 62,500
Daedalus common shares.
- Upon the record of an additional $10,000,000 (a total of
$30,000,000 pre-tax earnings), an additional 125,000 Series
D shares can be converted into 62,500 Daedalus common
shares.
Warrants
Daedalus has 750,000 of authorized Series A common stock warrants, with
expiration date of September 30, 2003. The holders of each Series A warrant will
have the right to purchase one share of Daedalus' common stock at a price of
$2.00 per share. Daedalus shall have the right to call for redemption of all
Series A warrants then outstanding when the Average Market Price of Daedalus'
common stock is at least $3.00 per share for a period of ten consecutive market
days. The redemption price is $0.10 per warrant.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the common stock may be adversely affected by the
sale, or availability for sale, of substantial amounts of the common stock in
the public market following the distribution. The 1,000,000 shares included in
the distribution will be freely tradable.
All of the 8,700,000 outstanding shares of common stock may be sold in
the public market only if registered or pursuant to Rule 144 of the Securities
Act. The provisions of Rules 144 provide that these securities will be available
for sale in the public market on October 31, 2000 which is one year from the
date they were issued, subject to the volume limitations and other conditions of
Rule 144.
Daedalus also has 250,000 shares of Series A Preferred Stock
outstanding owned by Mr. McCulloch that are convertible into a number of shares
of common stock. Mr. McCulloch also owns 1,000,000 outstanding shares of
Daedalus Series B Preferred Stock that are convertible into as many as 5,000,000
shares of common stock, in accordance with a pre-tax earnings formula. We also
have outstanding 1,000,000 shares of Series C Preferred Stock that are
convertible into 500,000 shares of common stock and 375,000 shares of Series D
Preferred Stock that are convertible into 187,500 shares of common stock if
certain pre-tax earnings levels are achieved. These shares of common stock that
become outstanding upon any conversion of the said preferred stock may also be
sold in the public market pursuant to Rule 144.
Rule 144. In general, under Rule 144, a person who has owned shares of
our common stock for at least one year would be entitled to sell within any
three- month period a number of shares that does not exceed the greater of: one
percent of the number of shares common stock then outstanding, which will equal
approximately 102,000 shares immediately after the distribution; or the average
weekly trading volume of the common stock on the National Association of
Securities Dealers Over-the-Counter Electronic Bulletin Board during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Daedalus.
35
<PAGE>
LEGAL MATTERS
The validity of the common stock covered by this prospectus will be
passed upon for Daedalus by our counsel, Herbert S. Rosenblum, Esq., Alexandria,
Virginia. Carl A. Generes, Esq., Dallas, Texas, has acted as special securities
counsel to Daedalus.
EXPERTS
This registration statement includes the financial statements of
Daedalus for the period May 20, 1999 (inception) to October 31, 1999, which have
been audited by Pannell Kerr Forster PC, independent certified public
accountants. These financial statements have been included herein in reliance
upon the audit reports appearing elsewhere herein, given upon the authority of
said firm as experts in accounting and auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation and by-laws provide that we shall
indemnify all of our directors and officers to the fullest extent permitted by
Delaware law. Under such provisions, the director or officer, who in his
capacity as such is made or threatened to be made, party to any suit or
proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of Daedalus. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, and persons controlling Daedalus pursuant to the foregoing
provision, or otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
We maintain officer's liability insurance providing aggregate coverage
of $5,000,000.
36
<PAGE>
DAEDALUS BUILDING SYSTEMS, INC.
AND SUBSIDIARIES
Financial Statements
For The Period May 20, 1999 (Inception)
To October 31, 1999 and
For The Three Months Ended
January 31, 2000 (Unaudited)
37
<PAGE>
Table of Contents
Independent Auditors' Report ....................................
Consolidated Balance Sheets .....................................
Consolidated Statements of Operations ...........................
Consolidated Statements of Stockholders' Equity .................
Consolidated Statements of Cash Flows ...........................
Notes to Consolidated Financial Statements ......................
38
<PAGE>
Pannell Kerr Forster PC
Fairfax, Virginia
Independent Auditors' Report
To the Stockholders and Board of Directors
Daedalus Building Systems, Inc.
Alexandria, Virginia
We have audited the accompanying consolidated balance sheet of Daedalus Building
Systems, Inc. and subsidiaries as of October 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period May 20, 1999 (inception) to October 31, 1999. These financial
statements are the responsibility of Daedalus' management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Daedalus Building Systems, Inc. and subsidiaries at October 31, 1999, and the
results of their operations and their cash flows for the period May 20, 1999
(inception) to October 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Pannell Kerr Forster
- -------------------------
Pannell Kerr Forster PC
April 10, 2000
39
<PAGE>
<TABLE>
<CAPTION>
Daedalus Building Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
October 31 January 31
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets
Cash $ 74,953 $ 17,949
Accounts receivable trade 18,272 47,227
Inventories 11,596 20,960
Prepaid expenses 8,161 14,134
----------- -----------
Total current assets 112,982 100,270
Equipment (net) (note 1) 1,887,917 1,914,870
Patent (note 1) 1,575,000 1,575,000
----------- -----------
Total assets $ 3,575,899 $ 3,590,140
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 27,680 $ 296,080
Accrued expenses 11,387 41,471
----------- -----------
Total current liabilities 39,067 337,551
----------- -----------
Commitments and contingencies (notes 3, 4, 5, and 6)
Stockholders' equity (note 2)
Common stock, par value $0.01 per share, authorized
30,000,000 shares; issued and outstanding 8,700,000 87,000 87,000
shares
Convertible preferred stock, par value $1.00 per
share, 2,625,000 aggregate shares authorized
and outstanding, $6,187,500 aggregate liquidation
preference (note 2) 2,625,000 2,625,000
Additional paid-in capital 896,959 896,959
Accumulated deficit (72,127) (354,009)
Accumulated other comprehensive (loss) -- (2,361)
----------- -----------
Total stockholders' equity 3,536,832 3,252,589
----------- -----------
Total liabilities and stockholders' equity $ 3,575,899 $ 3,590,140
=========== ===========
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Consolidated Statement of Operations
Period Ended Three
May 20, 1999 Months
(Inception) to Ended
October 31, January 31,
1999 2000
----------- -----------
(Unaudited)
Net sales $ 38,296 $ 54,202
Cost of goods sold 23,788 59,177
----------- -----------
Gross profit (loss) 14,508 (4,975)
Operating expenses
General and administrative 32,238 148,602
Repairs and maintenance 5,046 10,504
Utilities 16,412 31,557
Property tax 24,480 11,475
Insurance 4,073 3,848
Other 4,386 --
Depreciation -- 70,921
----------- -----------
Total operating expenses 86,635 276,907
----------- -----------
Net (loss) $ (72,127) $ (281,882)
=========== ===========
Basic (loss) per share $ (0.01) $ (0.03)
=========== ===========
(Loss) per common share, assuming full dilution $ (0.01) $ (0.03)
=========== ===========
Weighted average shares outstanding 8,700,000 8,700,000
=========== ===========
See notes to consolidated financial statements
41
<PAGE>
<TABLE>
<CAPTION>
Daedalus Building Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For The Period May 20, 1999 (Inception) to October 31, 1999 and The
Three Months Ended January 31, 2000 (Unaudited)
Inception of Acquisition of Contributed Net Balances, Net Foreign Balances
Daedalus Cambridge Capital (loss) October 31, (loss) currency January 31
Composites, Unique, Inc. (note 5) 1999 translation 2000
Inc. adjustment
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock
Shares 8,500,000 200,000 -- -- 8,700,000 -- -- 8,700,000
Amount at Par $ 85,000 $ 2,000 $ -- $ -- $ 87,000 $ -- $ -- $ 87,000
Preferred Stock
Series A
Shares 250,000 -- -- -- 250,000 -- -- 250,000
Amount at Par 250,000 -- -- -- 250,000 -- -- 250,000
Series B
Shares 1,000,000 -- -- -- 1,000,000 -- -- 1,000,000
Amount at Par 1,000,000 -- -- -- 1,000,000 -- -- 1,000,000
Series C
Shares -- 1,000,000 -- -- 1,000,000 -- -- 1,000,000
Amount at Par -- 1,000,000 -- -- 1,000,000 -- -- 1,000,000
Series D
Shares -- 375,000 -- -- 375,000 -- -- 375,000
Amount at Par -- 375,000 -- -- 375,000 -- -- 375,000
Additional Paid-In
Capital 648,037 198,000 50,922 -- 896,959 -- -- 896,959
Accumulated
Deficit -- -- -- (72,127) (72,127) (281,882) -- (354,009)
Accumulated
Other
Comprehensive
(loss) -- -- -- -- -- -- (2,361) (2,361)
------------------------------------------------------------------------------------------------------------------
Total $ 1,983,037 $ 1,575,000 $ 50,922 $ (72,127) $ 3,536,832 $ (281,882) $ (2,361) $ 3,252,589
==================================================================================================================
</TABLE>
See notes to consolidated financial statements
42
<PAGE>
<TABLE>
<CAPTION>
Daedalus Building Systems, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Increase (Decrease) In Cash
Period Ended Three
May 20, 1999 Months
(Inception) to Ended
October 31, January 31,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (72,127) $(281,882)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Depreciation -- 70,921
Changes in assets and liabilities:
Accounts receivable trade (18,272) (28,955)
Inventories (11,596) (9,364)
Prepaid expenses (8,161) (5,973)
Accounts payable 27,680 268,400
Accrued expenses 11,387 30,084
--------- ---------
Net cash provided (used) by operating activities (71,089) 43,231
Cash flows from investing activities:
Purchase of equipment -- (97,874)
--------- ---------
Cash flows from financing activities:
Contributed capital 50,922 --
Stock issued for cash 95,120 --
--------- ---------
Net cash provided by financing activities 146,042 --
--------- ---------
Foreign currency translation adjustment -- (2,361)
--------- ---------
Net change in cash 74,953 (57,004)
Cash at beginning of period -- 74,953
--------- ---------
Cash at end of period $ 74,953 $ 17,949
========= =========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Patent rights valued at $1,575,000 and equipment valued at $1,887,917
were acquired through the issuance of common stock and warrants.
See notes to consolidated financial statements
43
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 1 - Nature of business and significant accounting policies
- ---------------------------------------------------------------
Nature of business
- ------------------
Daedalus Building Systems, Inc., (Daedalus) is marketing and commencing
manufacturing operations for the production of low-cost structures comprised of
panels that are formed by advanced composite technology, the Daedalus Building
System(TM). Daedalus recycles plastic waste. Panels will be fabricated
principally from recycled polyolefins, compounded with various additives to form
polymer alloys and to increase performance parameters and the typical attributes
of composites such as strength, flexibility, durability, and permanence.
Additionally, Daedalus recently acquired the worldwide rights to the production
and distribution of a polyurethane foam filled metal panel building system that
will complement the marketing efforts of the low-cost composite structures in a
slightly higher socio-economic sector of the worldwide market.
Basis of presentation
- ---------------------
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles and include the accounts of Daedalus
and its subsidiaries, all of which are wholly owned. All material inter-company
accounts have been eliminated in consolidation. 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Daedalus is a Delaware corporation incorporated on October 28, 1999. Daedalus'
fiscal year ends April 30, 2000. Daedalus entered into the following
acquisitions immediately after incorporation.
Acquisition of Cambridge Unique Associates, Inc.
- ------------------------------------------------
On October 30, 1999, Daedalus acquired all of the stock of Cambridge Unique
Associates, Inc., (Cambridge), a Canadian corporation, in exchange for 200,000
shares of common stock of Daedalus and 1,000,000 shares Series "C" preferred
stock and 375,000 shares of Series "D" preferred stock in Daedalus. The
acquisition was accounted for using the purchase method. The purchase price of
$1,575,000 was allocated solely to the patent which was the only asset of
Cambridge. Cambridge has worldwide manufacturing and distribution rights for a
metal building system patented under US Patent No. 08/988,697 Load Bearing
Pre-fabricated Building Construction Panel, which is a polyurethane foam filled
metal panel building system that will be used to fabricate houses to complement
those of the Daedalus Building System(TM) at a slightly higher socio-economic
level. The inventor of the metal building system assigned the patent in return
44
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 1 - Nature of business and significant accounting policies (continued)
- ---------------------------------------------------------------------------
Acquisition of Cambridge Unique Associates, Inc. (continued)
- ------------------------------------------------------------
for certain royalty payments as follows. Upon the establishment of a factory in
Canada the inventor shall receive a royalty of fifteen cents per square foot of
all material processed by the equipment. The royalties are to be paid in
Canadian dollars. All royalties from plants established outside of Canada by
Cambridge shall be fifteen cents per square foot calculated and payable in U.S.
dollars. The inventor is to receive a $50,000 per year guarantee from each
factory that Cambridge opens.
Acquisition of Daedalus Composites, Inc.
- ----------------------------------------
On October 31, 1999, Daedalus acquired all of the stock of Daedalus Composites,
Inc. (Daedalus Composites), a Canadian corporation, as well as the exclusive,
nontransferable right and license to manufacture, use, market, and sell and
otherwise to commercialize the patents, potential patents, technology,
information and processes, and the improvements (the "Technology") throughout
the world, related to residential housing units, from a company under common
control, The Daedalus Project, Inc., in exchange for a royalty of five percent
of gross sales in which the Technology is embedded; and the issuance of
8,500,000 shares of common stock, 250,000 shares of Series "A" preferred stock
and 1,000,000 shares of Series "B" preferred stock of Daedalus, to the
stockholders of The Daedalus Project, Inc. The purchase price of the acquisition
was determined to be the historical cost of the net assets of Daedalus
Composites, ($1,911,532) and no goodwill was recognized with the transaction.
The acquisition was accounted for as a reorganization of entities under common
control and, accordingly, the financial statements for all periods presented
have been adjusted to reflect the combination of the entities at their
historical bases.
Foreign currency translation
- ----------------------------
The functional currency of Daedalus' subsidiaries is the Canadian dollar.
Because of the importance of Daedalus' financial activities in the United
States, the financial statements are presented in U.S. dollars. Assets and
liabilities of Daedalus' subsidiaries are translated at the exchange rate in
effect at period end. Income statement accounts are translated at the average
rate of exchange prevailing during the period. Translation adjustments arising
from differences in exchange rates from period to period from the subsidiaries'
assets and liabilities are included in the accumulated other comprehensive loss
account in stockholders' equity. There were no such material adjustments during
the period ended October 31, 1999 due to the stability of the U.S. and Canadian
dollar exchange rate.
Revenue recognition
- -------------------
Revenue is recognized at the time the ownership of goods transfers to the
customers and the earnings process is complete.
45
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 1 - Nature of business and significant accounting policies (continued)
- ---------------------------------------------------------------------------
Cash
- ----
For purposes of reporting the statement of cash flows, Daedalus considers all
cash accounts, which are not subject to withdrawal restrictions or penalties and
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Equipment
- ---------
Equipment, consisting of various plastic manufacturing and recycling machines,
is stated at cost. The equipment was acquired from an unrelated party.
Depreciation is computed on the straight-line method over the estimated useful
lives ranging from three to fifteen years. The equipment is housed in a facility
in Canada, which is leased under the terms of a verbal agreement (note 6), and
at the corporate headquarters in Alexandria, Virginia. Accumulated depreciation
at January 31, 2000 totaled $70,921.
Income taxes
- ------------
To the extent that taxable income differs from financial reporting net income
due to temporary differences, deferred taxes are recognized. Income tax credits,
if any, are recognized by the flow through method.
Loss per share
- --------------
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period.
Fair value of financial instruments
- -----------------------------------
The carrying amounts of Daedalus' financial instruments, including cash,
accounts receivable, accounts payable, and accrued expenses, approximate fair
values because of the short maturities of these instruments.
Patent
- ------
Amortization of the patent is computed by the straight-line method over its
useful life of seventeen (17) years.
46
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 1 - Nature of business and significant accounting policies (continued)
- ---------------------------------------------------------------------------
Interim financial information
- -----------------------------
The financial information as of January 31, 2000 and for the three months then
ended is unaudited and includes all adjustments, consisting only of normal and
recurring accruals, that management considers necessary for the fair
presentation of its consolidated financial position, operating results and cash
flows. Results for the three months ended January 31, 2000 are not necessarily
indicative of results to be expected for the full fiscal year 2000 or for any
future period.
Note 2 - Preferred stock
Preferred stock
- ---------------
Authorized: 3,000,000 shares, par value $1.00, issuable
in series, with 250,000 shares Series "A"
and 1,000,000 shares of Series "B",
1,000,000 of Series "C", and 375,000 of
Series "D" preferred stock. The remaining
375,000 shares of authorized preferred stock
being issuable in one or more series, as
designated and determined from time to time
by the Board of Directors of Daedalus.
Except for the above mentioned Series "A"
and "B" preferred stock, each subsequently
designated series of preferred stock shall
consist of the number of shares so
designated for such series, and shares of
that series shall have the rights,
preferences, and other features as so
determined and designated.
Designated, issued, and outstanding:
Series "A"
No. of shares designated: 250,000
No. of shares issued and
outstanding: 250,000
Liquidation preference: $1.00 per share
Ranking: Pari passu with the Series "B" preferred
stock and senior to all other series of
preferred stock.
47
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 2 - Preferred stock (continued)
- ------------------------------------
Conversion rights: Each share of Series "A" preferred stock
may, at the option of the holder, be
converted into one (1) share of common stock
of Daedalus at any time within twenty (20)
years following the Closing of the Agreement
with Empiric (see note 3).
Voting rights: Each share of Series "A" preferred stock
shall have and be entitled to cast thirty
(30) votes, in common with the votes to
which holders of common stock then
outstanding shall be entitled to cast (one
vote per share) on all matters submitted
for, or required to be submitted for action
by the stockholders, as set forth in the
Certificate of Incorporation of Daedalus or
applicable provisions of the General
Corporation Law of the State of Delaware.
Additionally, holders of Series "A"
preferred stock shall be entitled to cast
one (1) vote for each share of such Series
"A" preferred stock on all matters submitted
for, or required to be submitted for, voting
by holders of such Series "A" preferred
stock, as a separate class of stock, as set
forth in the Certificate of Incorporation of
Daedalus or applicable provisions of the
General Corporation Law of the State of
Delaware.
Dividends: None
Redemption rights: None
Call provisions: Provided funds are legally available
therefore, all shares of Series "A"
preferred stock outstanding on the twentieth
(20th) anniversary of the Closing of the
Agreement with Empiric (note 3) may be
called by Daedalus at a price of $1.00 per
share.
Series "B"
No. of shares designated: 1,000,000
No. of shares issued and
outstanding: 1,000,000
Liquidation preference: $2.50 per share
48
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 2 - Preferred stock (continued)
Ranking: Pari passu with the Series "A" preferred
stock, and senior to all other series of
preferred stock.
Conversion rights: Subject to Daedalus satisfying the
conditions pertaining to its "Pre-Tax
Earnings", as described below, during the
following prescribed periods and subject to
the following quantity limitations, the
shares of Series "B" preferred stock may, at
the option of the holder thereof, be
converted into shares of common stock upon
reaching the following earning plateaus on
or before December 31, 2003:
(1) 333,333 Series "B" shares can be converted
into 1,666,665 common shares, upon
achievement of $5,000,000 pre-tax earnings.
(2) Upon achievement of an additional $5,000,000
in pre-tax earnings (a total of $10,000,000
pre-tax earnings), an additional 333,333
Series "B" shares can be converted into
1,666,665 common shares.
(3) Upon achievement of an additional $6,000,000
(a total of $16,000,000 pre-tax earnings),
an additional 333,334 Series "B" shares can
be converted into 1,666,670 common shares.
Voting rights: Holders of Series "B" preferred stock shall
be entitled to cast one (1) vote for each
share of such Series "B" preferred stock on
all matters submitted for, or required to be
submitted for, voting by holders of such
Series "B" preferred stock, as a separate
class of stock, as set forth in the
Certificate of Incorporation of the General
Corporation Law of the State of Delaware.
Redemption rights: None
Dividends: None
Series "C"
No. of shares designated: 1,000,000
49
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 2 - Preferred stock (continued)
- -----------------------------------
No. of shares issued and
outstanding: 1,000,000
Liquidation preference: $2.50 per share
Ranking: Subsequent to Series "A" and Series "B"
preferred stock.
Dividends: None
Voting rights: None
Redemption rights: None
Call provisions: None
Conversion rights: Subject to Daedalus satisfying the
conditions pertaining to its "Pre-Tax
Earnings", as described above, the shares of
Series "C" preferred stock may, at the
option of the holder thereof, be converted
into shares of common stock at $2.00 per
share upon reaching the earning plateau of
$1,000,000.
Series "D"
No. of shares designated: 375,000
No. of shares issued and
outstanding: 375,000
Liquidation preference: $2.50 per share
Ranking: Subsequent to Series "A", Series "B", and
Series "C" preferred stock.
Dividends: None
Voting rights: None
Redemption rights: None
Call provisions: None
50
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 2 - Preferred stock (continued)
Conversion rights: Subject to Daedalus satisfying the
conditions pertaining to its "Pre-Tax
Earnings", as described above, during the
following prescribed periods and subject to
the following quantity limitations, the
shares of Series "D" preferred stock may, at
the option of the holder thereof, be
converted into shares of common stock at
$2.00 per share upon reaching the following
earning plateaus on or before December 31,
2003:
(1) 125,000 Series "D" shares can be converted
into 62,500 common shares, upon achievement
of $10,000,000 in pre-tax earnings.
(2) Upon achievement of an additional
$10,000,000 in pre-tax earnings (a total of
$20,000,000 pre-tax earnings), an additional
125,000 Series "D" shares can be converted
into 62,500 common shares.
(3) Upon achievement of an additional
$10,000,000 (a total of $30,000,000 pre-tax
earnings), an additional 125,000 Series "D"
shares can be converted into 62,500 common
shares.
Note 3 - Commitments and contingencies
- --------------------------------------
Exchange of equity securities with Empiric Energy, Inc.
- -------------------------------------------------------
Daedalus entered into an agreement with Empiric Energy, Inc. (Empiric) to
exchange Empiric securities of $1,500,000 in preferred stock, convertible to
750,000 shares of common and, 750,000 Series "G" Warrants, each allowing the
purchase of one common share at $2.00 per share for three years, for Daedalus
Building Systems, Inc. securities consisting of 1,500,000 common shares and
750,000 Warrants, each allowing the purchase of one share of common stock for
$2.00 per share for three years. A Registration Statement is being prepared by
Daedalus, and, upon completion of the registration, a minimum of 1,000,000 fully
registered Daedalus Building Systems, Inc. shares will be distributed by Empiric
as a dividend to its shareholders. The agreement will be consummated on the
third business day following the date upon which the Registration Statement is
declared effective by the Securities and Exchange Commission. The fundamental
basis for the agreement is the mutual interests of the parties in the energy
aspects of community planning as defined by Daedalus' approach to community
building.
51
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 4 - Risks and uncertainties
- --------------------------------
Environmental
- -------------
Daedalus is subject to a wide range of federal, foreign, state, and local laws
and regulations relating to the pollution and protection of the environment.
Among the many environmental requirements applicable to Daedalus are laws
relating to air emissions, wastewater discharges, and the handling, disposal,
and release of solid and hazardous substances and wastes.
Daedalus does not currently anticipate any adverse effect on its operations,
financial condition, or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability is
inherent, however, in the nature of Daedalus' business, and there can be no
assurance that environmental liabilities will not arise. It is also possible
that future developments in environmental regulation could lead to material
environmental compliance or clean up costs.
Note 5 - Related party transactions
- -----------------------------------
The Daedalus Project, Inc. (Daedauls Project) (note 1) contributed $50,922 to
Daedalus to commence operations. Project received no stock for this contribution
and does not require the amount to be repaid.
Daedalus has an exclusive license agreement with Daedalus Project that conveys
the exclusive, nontransferable right and license to manufacture, use, market,
sell and otherwise commercialize the potential patents, technology, information
and process, and its improvements throughout the world for purposes of
residential housing units. Daedalus shall pay and deliver to The Daedalus
Project, Inc., royalties equivalent to five percent of gross sales of any
products in which the technology is embodied. Daedalus shall render written
statements thereof to Daedalus Project on a quarterly basis.
Note 6 - Events subsequent to October 31, 1999
- ----------------------------------------------
On November 1, 1999, Daedalus entered into a lease agreement, as lessee, for
office space. The lessor is an entity under common control and the lease expires
October 31, 2004. Daedalus has the right to extend the term of the lease for
three optional periods of five years each. The lease provides for rent increases
based on the Consumer Price Index. Minimum annual rentals for each of the next
five years are: 2000 - $82,008; 2001 - $82,008; 2002 - $82,008; 2003 - $82,008;
and, 2004 - $82,008, for a total of $410,040. Payments under this lease are
comparable to those of a similar lease with an unrelated party.
Daedalus has not signed a lease with the owner of the manufacturing facility in
Canada but rents the space on a month to month basis under a verbal agreement.
52
<PAGE>
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
(Information Pertaining to the Three Months Ended
January 31, 2000 is unaudited)
Note 6 - Events subsequent to October 31, 1999 (continued)
- ---------------------------------------------------------
On December 1, 1999 Daedalus entered into three year employment contracts with
two officers. The agreements provide for aggregate compensation payments of:
Year 1 - $355,000; Year 2 - $435,000; and, Year 3 - $515,000.
On March 3, 2000 Daedalus resolved to change its name to Daedalus Systems, Inc.
Note 7 - Income taxes
- ---------------------
At October 31, 1999 Daedalus had approximately $72,000 of Canadian net operating
losses which may be used to offset future tax liabilities arising in Canada. The
losses will expire, if unused, in 2006. A deferred tax asset of approximately
$28,000, attributable entirely to these losses, had been fully reserved at
October 31, 1999.
53
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") relates to
Daedalus Systems, Inc. (referred to herein as the "Company") which provides in
applicable part as follows:
145. Indemnification of Officers, Directors, Employees and Agents;
Insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(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 another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had any reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner, which 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 reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit 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 (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit 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 except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) 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
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made by the following:
o by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding,
o if such a quorum is not obtainable, or, even if obtainable a quorum
of disinterested directors so directs, by independent legal counsel in
a written opinion,
o by the stockholders.
54
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Company's Certificate of Incorporation limits the liability of
directors (in their capacity as directors, but not in their capacity as
officers) to the Company or its stockholders to the fullest extent permitted by
the DGCL, as amended. Specifically, no director of the Company will be
personally liable to the Company or its stockholders for monetary damages for
55
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breach of the director's fiduciary duty as a director, except as provided in
Section 102 of the DGCL for liability: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith and which involve intentional misconduct or knowing violation of law;
(iii) under Section 174 of the DGCL, which relates to unlawful payments of
dividends or unlawful stock purchases or redemptions; or (iv) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the Company's Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
action, if successful, might otherwise have benefited the Company and its
stockholders.
Under the Company's Certificate of Incorporation and in accordance with
Section 145 of the DGCL, the Company will indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than a "derivative" action by or in the right of the
Company) by reason of the fact that such person was or is a director or officer
of the Company, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such acts were unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such an action and then, where the person is adjudged to be liable to the
Company, only if and to the extent that the Court of Chancery of the State of
Delaware or the court in which such action was brought, determines that such
person is fairly and reasonably entitled to such indemnity and then only for
such expenses as the court deems proper. The Company will indemnify, pursuant to
the standard set forth in Section 145 of the DGCL, any past or present officer
or director who was or is a party, or is threatened o be made a party, to any
threatened, pending or completed derivative action by or in the right of the
Company.
The Company's Certificate of Incorporation also provides that the
Company may pay for the expenses incurred by an indemnified director or officer
in defending the proceedings specified above in advance of their final
disposition, provided that, if the DGCL so requires, such indemnified person
agrees to reimburse the Company if it is ultimately determined that such person
is not entitled to indemnification. The Company's Certificate of Incorporation
also allows the Company, in its sole discretion, to indemnify any person who is
or was one of its employees and agents to the same degree as the foregoing
indemnification of directors and officers. To the extent that a director,
officer, employee or agent of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith. In addition, the Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against and incurred by such
person in such capacity, or arising out of the person's status as such whether
or not the Company would have the power or indemnify such person against such
liability under the provisions of the DGCL.
56
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OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by Daedalus in connection with the issuance
and distribution of the securities being registered, are as follows:
SEC Registration and Filing Fee $ 170.45
Legal Fees and Expenses* 60,000.00
Accounting Fees and Expenses *. 35,000.00
Financial Printing * 1,000.00
Transfer Agent Fees * 0.00
Miscellaneous * 1,000.00
TOTAL $ 97,170.45
-----------
* Estimated
57
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RECENT SALES OF UNREGISTERED SECURITIES
On October 31, 1999, Daedalus acquired all of the stock of Daedalus
Composites, Inc., a Canadian corporation, as well as the exclusive,
nontransferable right and license to manufacture, use, market, and sell and
otherwise to commercialize the patents, potential patents, technology,
information and processes, and the improvements throughout the world, related to
residential housing units, from a company under common control, The Daedalus
Project, Inc., in exchange for a royalty of five percent of gross sales in which
the technology is embedded; and the issuance of 8,500,000 shares of common
stock, 250,000 shares of Series A preferred stock and 1,000,000 shares of Series
B preferred stock of Daedalus, to the stockholders of Daedalus Projects, Inc.,
which occurred at the time of formation of Daedalus, October 28, 1999, in
accordance with the agreements between the parties.
Daedalus relies upon Section 4(2) of the Securities Act of 1933 as its
exemption from the registration requirements of such Act in connection with this
transaction.
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EXHIBITS
The following exhibits are filed as part of this registration
statement:
Exhibit Description of Document
Number
2. Agreement between Empiric Energy, Inc. and Daedalus dated October 1,
1999
3.1 Articles of Incorporation of Daedalus Building System, Inc.
3.2 Bylaws of Daedalus Building System, Inc.
3.3 Amendment for corporate name change from Daedalus Building Systems,
Inc. to Daedalus Systems, Incorporated
4. Common stock certificate of Daedalus Building Systems, Inc.
10.1 Assignment of Contract dated October 31, 1999 between Daedalus and The
Daedalus Project, Inc.
10.2 Sales Contract dated March 27, 1999 between The Daedalus Project, Inc.
and the World Business Investors Group, S. A. as extended by letter of
agreement dated October 6, 1999
10.3 Sales Contract dated October 27, 1999 between Daedalus and the World
Business Investors Group, S. A.
10.4 Stock Transfer and License Agreement dated October 31, 1999 between
Daedalus Building Systems, Inc. and The Daedalus Project, Inc.
10.5 Employment Agreement dated December 1, 1999 between Daedalus Building
Systems, Inc. and Edward A. McCulloch
10.6 Employment Agreement dated December 1, 1999 between Daedalus Building
Systems, Inc. and David Lightbody
10.7 Lease dated November 1, 1999 between Daedalus Building Systems, Inc.
and Chesapeake Services Corporation
21. Subsidiaries of Daedalus Systems, Incorporated
23.1 Consent of Pannell Kerr Forster PC
23.2 Consent of Herbert S. Rosenblum, included in his opinion
27 Financial Data Schedule
59
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UNDERTAKINGS
To the extent that indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of Daedalus pursuant to the provision described in Item 24, or
otherwise, Daedalus has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities,
other than the payment by Daedalus of expenses incurred or paid by a director,
officer of controlling person of Daedalus in the successful defense of any
action, suit of proceeding, is asserted by such director, officer or controlling
person in connection with the shares being registered hereby, Daedalus 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 as to
whether such indemnification by Daedalus is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Alexandria, state of Virginia, on April 10, 2000.
DAEDALUS SYSTEMS, INC.
Date: April 10, 2000
By: /s/ Edward A. McCulloch
----------------------------------------------------
Edward A. McCulloch
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration was signed by the following persons in the capacities and on the
dates stated.
Date: April 10, 2000
By: /s/ Edward A. McCulloch
----------------------------------------------------
Edward A. McCulloch
President, Chief Executive Officer and Director
Date: April 10, 2000
By: /s/ David Lightbody
----------------------------------------------------
David Lightbody
Executive Vice President, Chief Financial Officer
and Director
Date: April 10, 2000
By: /s/ Patricia L. Espino-Nayar
----------------------------------------------------
Patricia L. Espino-Nayar
Controller
Date: April 10, 2000
By: /s/ James A. Lyons
----------------------------------------------------
James A. Lyons
Chairman of the Board of Directors
Date: April 10, 2000
By: /s/ Norio Sakai
----------------------------------------------------
Norio Sakai
Director
Date: April 10, 2000
By: /s/ Robert J. Salmon
----------------------------------------------------
Robert J. Salmon
Director
61
AGREEMENT
THIS AGREEMENT, (the "Agreement") made and entered into as of the first
day of October, 1999, by and between EMPIRIC ENERGY, INC., a Delaware
corporation having principal offices at 12750 Merit Drive, Suite 750, Dallas,
Texas 75251-1609 ("Empiric"), and DAEDALUS BUILDING SYSTEMS, INC., a Delaware
corporation, having principal offices at 8653 Richmond Highway, Alexandria,
Virginia 22309-4206 ("Daedalus").
WHEREAS, Empiric is a publicly held oil and gas exploration and
production company, having the authorized and presently issued and outstanding
capital structure as described and set forth in Exhibit "A" hereto; and
WHEREAS, the common stock of Empiric is registered under Section 12(b)
of the United States Securities and Exchange Act of 1934 (the "1934 Act") and is
currently traded in the Over-the-Counter Bulletin Board under the symbol "EMPE";
and
WHEREAS, Daedalus is a newly formed privately held entity which will
engage in the production, sale and assembly of manufactured dwelling units; and
WHEREAS, subject to the terms, conditions and provisions of this
Agreement, Empiric and Daedalus desire to enter into arrangements whereby, among
other things: (i) Daedalus will cause to be authorized and issued to parties
specified herein, certain of its capital stock and other securities, including
the issuance to Empiric of shares of Daedalus common stock and Daedalus Series
"A" common stock warrants; (ii) Empiric will designate, issue and deliver to
Daedalus shares of Empiric's Series "B" convertible preferred stock and certain
of Empiric's Series "F" common stock warrants; (iii) Empiric will cause a
portion of the shares of Daedalus common stock so received from Daedalus to be
distributed to the holders of Empiric's common stock; (iv) Daedalus will cause
its related company, The Daedalus Project, Inc., to issue and deliver to Empiric
certain shares of the common stock of The Daedalus Project, Inc.; and, (v) the
parties will cooperate fully in the preparation, filing and efforts to have
declared effective one or more registration statements with the United States
Securities and Exchange Commission (the "SEC") and all applicable State
securities regulatory authorities to enable the lawful issuance and distribution
of a portion of the Daedalus common stock to holders of common stock of Empiric
in compliance with the United States Securities Act of 1933 (the "1933 Act") and
applicable State regulatory authorities;
NOW THEREFORE, for and in consideration of the mutual agreements of the
parties, and upon and subject to the terms, conditions and provisions hereof,
all as herein set forth, it is agreed as follows:
1. Daedalus Corporate Action. As indicated in Exhibit "B", the capital
structure of Daedalus as set forth in its Certificate of Incorporation provides
for authorized capital stock consisting of 30,000,000 shares of common stock at
$0.01 par value per share and 3,000,000 shares of preferred stock, $1.00 par
value per share. Except for 250,000 shares of preferred stock designated as the
Series "A", and 1,000,000 shares of preferred stock designated as the Series "B"
preferred stock of Daedalus, both of which series have the terms, rights and
preferences set forth in Exhibit B, the remaining 1,750,000 shares of authorized
preferred stock of Daedalus shall be issuable in one or more other series and
shall bear the terms, rights, preferences and other features as shall be
determined and designated from time to time by the board of directors of
Daedalus.
As of October 1, 1999 and until Closing of this Agreement, Daedalus
will have issued and outstanding a total of approximately 8,500,000 shares of
common stock, 250,000 shares of its Series "A" Preferred Stock, and 1,000,000
shares of its Series "B" Preferred Stock.
<PAGE>
2. Issuance of Securities to Empiric. Daedalus shall issue and deliver
or cause to be issued and delivered, to Empiric at the "Closing", hereinafter
defined, the following Daedalus securities:
A. 1,500,000 shares of Daedalus common stock having the features
described in Exhibit "B" hereto (the "Daedalus Common Stock");
B. 750,000 Series "A" Daedalus common stock warrants having the
features set forth in Exhibit "B" hereto (the "Daedalus
Warrants").
C. 250,000 shares of common stock of THE DAEDALUS PROJECT, INC.,
no par value.
3. Issuance of Securities to Daedalus. Empiric shall issue and deliver
to Daedalus at the "Closing" the following Empiric Securities:
A. $1,500,000 principal amount of Empiric Energy, Inc.
convertible preferred securities, with a conversion price of
$2.00 per share, convertible into 750,000 Common shares,
preferences and other features described and set forth in
Exhibit C hereto (the "Empiric Series "B" Stock"); and
B. 750,000 Series "F" Warrants to purchase shares of common stock
of Empiric, such warrants having the features set forth in
Exhibit D hereto (the "Empiric Series "F" Warrants").
C. If Empiric reprices any of its previously issued warrants or
issues new warrants at a purchase price less than $2.00 per
share, then the warrants issued to Daedalus shall be repriced
based upon a formula that decreases the price of Daedalus
warrants by the greater of the following:
(1) the same percentage of the decrease in the Empiric's
warrants, or
(2) the price of the newly issued warrants.
4. Empiric's Distribution of Daedalus Common Stock. Contemporaneously
with the "Closing", Empiric shall cause a total of at least 1,000,000 shares of
the Daedalus Common Stock it receives from Daedalus to be issued to holders of
common stock of Empiric in proportion to the number of shares of common stock of
Empiric then held by each of them bears to the total number of common shares of
Empiric then issued and outstanding. The total number of such shares
outstanding, and the number of shares held by each holder shall both be
determined as of a record date on or near the date of Closing which will be
established by the Board of Directors of Empiric.
To facilitate the distribution of at least 1,000,000 shares of Daedalus
Common Stock to the holders of common stock of Empiric, Empiric shall provide to
Daedalus a listing of names, addresses, social security or federal tax
identification numbers, and number of shares of Daedalus Common Stock to be
distributed to each holder of common stock of Empiric, and Daedalus shall issue
such total of at least 1,000,000 shares to the parties and in the appropriate
amounts as set forth in such listing. Thereupon, certificates representing such
Daedalus Common Stock shall be delivered to Empiric at the Closing in the form
of the remaining shares to and in the name of Empiric, which shares shall be
retained and held by Empiric as its sole property, and the remaining 1,000,000
shares to be distributed to Empiric common stock holders in accordance with such
listing, and Empiric will, promptly following the Closing, transmit certificates
representing such shares to the proper recipients and in the proper amounts in
accordance with the above.
2
<PAGE>
5. Daedalus Series "A" Convertible Preferred Stock. As of the date of
this Agreement Daedalus has created and designated a Series "A" Convertible
Preferred Stock consisting of a total of 250,000 shares of Preferred Stock
having the terms, rights and preferences set forth in Exhibit B hereto (the
"Daedalus Series A Preferred Stock"). The Daedalus Series "A" Preferred Stock
shall be issued to the persons or parties, and in the amounts, as set forth in
Exhibit E hereto.
6. Daedalus has Series "B" Convertible Preferred Stock. As of the date
of this Agreement Daedalus has created and designated a Series "B" Convertible
Preferred Stock consisting of a total of 1,000,000 shares of Preferred Stock of
Daedalus having the terms, rights and preferences set forth in Exhibit B hereto
(the "Daedalus Series "B" Preferred Stock"). The Daedalus Series "B" Preferred
Stock has been issued to the persons or parties, and in the amounts, as set
forth in Exhibit F hereto.
7. Registration. Promptly following the execution of this Agreement
both Empiric and Daedalus will undertake, and thereafter pursue with all
diligence, and in a fully cooperative fashion all efforts and steps necessary
for the preparation and filing with the SEC, and all applicable state securities
bodies in those states where legally required, one or more registration
statements (and/or, in the case of state compliance, applications, notifications
or other appropriate action) to enable the lawful distribution of at least
1,000,000 Daedalus Common Shares to holders of Empiric common stock as herein
provided. Such efforts and steps will include, without limitation, Daedalus
promptly causing independent certified public accountants selected and engaged
by it, to perform such audit and other work necessary to provide certified
financial statements with regard to the financial condition, operations, affairs
and otherwise of Daedalus as may be necessary for inclusion in or in support of
such registration process.
Empiric shall prepare and provide all financial and other information,
statements or data concerning Empiric and its condition, properties, management,
operations or otherwise as may be reasonably required in connection with or in
furtherance of such registration process.
In addition to registration of such at least 1,000,000 shares of
Daedalus common stock to be distributed to holders of Empiric common stock, such
registration statement to be filed with the SEC will also seek to register for
subsequent sale by Daedalus (i.e., "shelf registration") of up to an additional
2,000,000 shares of common stock of Daedalus.
8. Transaction/Registration Costs. All costs and expenses relating or
attendant to the registration process outlined in Section 7 hereof, including,
without limitation, the cost of performing the audit work with respect to
Daedalus as referred to in this Agreement, all legal fees and expenses incurred
in connection with the preparation, filing, handling and processing with the SEC
of the registration statement and all amendments and exhibits thereto and the
response to all comments or question of the SEC related thereto, all costs of
printing of the registration statement and amendments and exhibits thereto, all
costs of printing preliminary and final prospectuses and stock certificates
evidencing the 1,500,000 shares of Daedalus common stock, all costs associated
with the listing of the Daedalus common stock with NASDAQ or any other exchange
upon which the parties mutually agree to apply for listing, and (except as
hereinafter provided) all other reasonable costs and expenses necessarily
incurred in connection with such registration process or the carrying out of the
terms, conditions and provisions of this Agreement shall be borne and paid by
Daedalus.
Notwithstanding the preceding paragraph Empiric shall bear and pay: (i)
all costs directly related to the providing of information or data concerning
Empiric as may be required in connection with such registration process; (ii)
one-half of the attorney's fees and expenses relating to the preparation and
execution of this Agreement, the remainder of which fees and expenses shall be
borne and paid by Daedalus; and (iii) the cost of providing the listing of
holders of Empiric common stock to whom the Daedalus common stock is to be
distributed, and the expense of mailing certificates therefore to such holders.
9. Daedalus Common Stock Listing. As soon as practicable following the
filing of the registration statement, Empiric and Daedalus shall make
application for listing and acceptance for trading of the Daedalus common stock
3
<PAGE>
with NASDAQ National Market System or next highest NASDAQ category for which
such stock qualifies for trading. Additionally, the parties shall consider, and
subject to mutual agreement shall apply for, listing of such securities on the
Boston or other regional stock exchange. Upon the filing of such listing
application(s), the parties shall each, in cooperative fashion, exert their best
efforts to obtain approval thereof.
10. Post Closing Agreements. At all times following the Closing of this
Agreement, Empiric and Daedalus each mutually covenant and agree with and for
the benefit of the other, to prepare and file on a timely basis, all
post-effective amendments, registrations and reports with the SEC and NASDAQ or
any stock exchange upon which any of the securities of such party may be listed
or traded from time to time, that may be required of such party in compliance
with applicable provisions of the 1933 Act, the 1934 Act, or any such exchange
in order to maintain the respective status of each of them and their securities
in good standing and in full compliance with such Acts and all requirements,
rules and regulations of the SEC thereunder and all rules or requirements of
such exchange(s).
11. Closing. The closing and consummation of this Agreement shall take
place at the offices of Empiric at 12750 Merit Drive, Suite 750, Dallas, Texas
75251, beginning at 10:00 am on the third (3rd) business day following the date
upon which the registration statement provided for in Section 7 is declared
effective by the SEC, and all of the other conditions of Closing provided for in
Sections 17 and 18 hereof have been fully met and satisfied (except to the
extent waived as provided for in such Sections), or at such later time or such
other location as the parties may mutually agree. At the Closing:
A. Daedalus shall deliver to Empiric duly executed:
(1) stock certificates representing the 1,500,000 shares
of Daedalus Common Stock; and
(2) certificates representing the 750,000 Daedalus Series
"A" Warrants; and
(3) stock certificates representing the 250,000 shares of
common stock of The Daedalus Project, Inc.
B. Empiric shall deliver to Daedalus duly executed:
(1) stock certificates representing the $1,500,000
principal amount of Empiric convertible preferred
securities, with a conversion price of $2.00 per
share, convertible into a total amount of 750,000
Common shares (Empiric Series "B" Stock); and
(2) certificates representing the 750,000 Empiric Series
"F" Warrants.
In addition to the foregoing, Empiric and Daedalus shall each execute and
deliver to the other, such certificates, resolutions or other written assurances
provided for in this Agreement or reasonably requested by either of the parties
to evidence and confirm the corporate authority of the other party with regard
to the due authorization, execution and delivery by the other party of the
foregoing securities or the performance by such other party of any act with
respect to the carrying out of such parties duties and responsibilities as set
forth in this Agreement.
12. Representations and Warranties of Empiric. Empiric represents and
warrants to Daedalus that:
12.1 Organization, Good Standing and Qualification. Empiric is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, its state of incorporation, has all requisite
corporate power and authority to carry on its business as now conducted, and is
4
<PAGE>
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure so to quality would have a
material adverse effect on its business or properties, considered in the
aggregate.
12.2 Capitalization. The authorized and presently issued and
outstanding capital of Empiric is as reflected in Exhibit "A" hereto, all of
which has been duly authorized and, to the extent noted and set forth in Exhibit
"A", all of such capital stock designated as having been issued and presently
outstanding, has been duly issued, is presently outstanding and is fully paid
and non-assessable.
12.3 Subsidiaries. Empiric does not presently own and control any
substantial percentage of the issued and outstanding shares of stock of any
other corporation.
12.4 Authorization. All corporate action on the part of Empiric, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of Empiric
hereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Empiric Series "B" Stock and the Empiric Series "F" Warrants to
be issued hereunder, and the Common Stock issuable upon conversion of the
Empiric Series "B" Stock and the common stock issuable upon exercise of the
Empiric Series "F" Warrants have been taken or will be taken prior to the
Closing. This Agreement constitutes the valid and legally binding obligation of
Empiric, enforceable in accordance with its terms except as such enforcement may
be limited or affected by the availability of equitable remedies such as
specific performance, and by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the enforcement of creditors'
rights, including court decisions and general equity principles relating
thereto.
12.5 Valid Issuance of Preferred and Common Stock and Warrants.
(a) The Empiric Series "B" Stock and the Empiric Series "F"
Warrants which are to be issued hereunder to Daedalus, when issued and delivered
in accordance with the terms hereof and for the consideration expressed herein,
will be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of Daedalus in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The common
stock issuable upon conversion of the Empiric Series "B" Stock and the common
stock issuable pursuant to exercise of the Empiric Series "F" Warrants has been
duly and validly reserved for issuance and, when issued in accordance with the
terms of the Certificate of Incorporation and the agreements of Empiric covering
the issuance of such securities, and, in the case of common stock issued upon
exercise of the warrants, when the applicable purchase price therefore is
received by Empiric, will be duly and validly issued, fully paid and
nonassessable.
(b) The shares of common stock and Series "A" preferred stock
of Empiric and the Series "A", Series "B", Series "C", Series "D" and Series "E"
Warrants of Empiric outstanding on the date of execution of this Agreement are
all duly and validly authorized and issued, fully paid and nonassessable, and
were issued in compliance with all applicable federal and state securities laws.
12.6 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against Empiric which questions the validity of
this Agreement or the right of Empiric to enter into it, or to consummate the
transactions contemplated hereby, or which might result, either individually or
in the aggregate, in any material adverse changes individually or in the
aggregate, in the assets, condition, affairs or prospects of Empiric, taken as a
whole, financially or otherwise, or any change in the current equity ownership
of Empiric, nor is Empiric aware that there is any basis for the foregoing.
Empiric is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
12.7 Compliance With Other Instruments. To the best knowledge of the
officers of Empiric, Empiric is not in violation or default of any provisions of
its Certificate of Incorporation or Bylaws or of any judgment, order, writ, or
decree, or any material instrument or contract to which it is a party or by
which it is bound or, to their knowledge, of any provision of federal or state
statute, rule or regulation applicable to Empiric or its assets or properties.
5
<PAGE>
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, judgment, order,
writ, or decree, or any such material instrument or contract, or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
Empiric.
12.8 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, and
except as disclosed in Empiric's Financial Statements (as defined in Section
12.10 hereof) there are no material agreements, understandings or proposed
transactions between Empiric and any of its officers, directors or affiliates.
(b) Except as disclosed in the Financial Statements (as
defined in Section 12.10 hereof), Empiric is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Certificate of Incorporation or By-laws which materially and adversely affect
its business as now conducted.
12.9 Corporate Documents. Except for amendments necessary to satisfy
Empiric's obligations pursuant to this Agreement or representations and
warranties or conditions contained herein, the Certificate of Incorporation and
By-laws of the Company are in the form previously provided to Daedalus.
12.10 Financial Statements. Empiric has delivered to Daedalus its
audited financial statements as of September 30, 1999, including limited
explanatory notes to the financial statements (collectively, the "Financial
Statements"). The Financial Statements accurately set out and describe the
financial condition and operating results of Empiric as of the dates and for the
periods indicated therein, subject to normal year-end audit adjustments. Except
as set forth in the Financial Statements, Empiric has no liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such unaudited interim financial statements;
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements; which, individually and in the
aggregate, are not material to the financial condition or operating results of
Empiric.
12.11 Changes. Since the date of such Financial Statements, except for
the transactions contemplated hereby, there has not been:
(a) any material change in the assets, liabilities, financial
condition or operating results of Empiric from those reflected in the Financial
Statements, except changes in the ordinary course of business, which have not
been, in the aggregate, materially adverse;
(b) any material damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of Empiric (as
such business is presently conducted);
(c) any waiver by Empiric of a material valuable right or debt
owed to it;
(d) any declaration, authorization or payment of any
dividend or other distribution of the assets of Empiric, or any agreement to
declare, authorize or pay any such dividend or distribution;
(e) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Empiric, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company taken as a
whole, as such business is presently conducted;
(f) any material change in any compensation arrangement or
agreement with any employee;
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(g) to Empiric's knowledge, any other event or condition of
any character which might materially adversely affect the assets, properties,
financial condition, operating results or business of Empiric taken as a whole
(as such business is presently conducted).
12.12 Employee Benefit Plans. Empiric does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
12.13 Labor Agreements and Actions. Empiric is not bound by or subject
to (and none of its respective assets or properties are bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
Empiric, has sought to represent any of the employees, representatives or agents
of Empiric. There is no strike or other labor dispute involving Empiric pending,
or to the knowledge of Empiric threatened, which could have a material diverse
effect on the assets, properties, financial condition, operating results, or
business of Empiric (as such business is presently conducted), nor is Empiric
aware of any labor organization activity involving its employees.
13. Representations and Warranties of Daedalus. Daedalus represents and
warrants to Empiric that:
13.1 License Agreement. Daedalus, as licensee, holds a license (the
"License Agreement") from The Daedalus Project, Inc., related to the use of the
Daedalus Building System(tm) for the production, manufacture, assembly, sale,
use and installation of dwelling units, utilizing any patents, techniques,
methods, technology and know-how developed by The Daedalus Project, Inc. The
specific terms, conditions and provisions of such license are set forth in a
copy the License Agreement, which has been provided to Empiric.
The License Agreement is presently, and upon Closing will be, paid
current, in full force and effect and in good standing in accordance with all
terms, conditions and provisions thereof as heretofore provided to Empiric.
13.2 Peruvian Contract. Daedalus has entered into contract to sell and
provide a minimum of 36,000 basic structural units, or other structures, of the
Daedalus Building Systems(tm), to the World Business Investors Group ("foreign
buyer"), which contract (the "Peruvian Contract") will produce gross revenues to
Daedalus of at least U.S. $67,500,000. Payments to Daedalus for its performance
in accordance with the terms of the Peruvian Contract are anticipated from the
Export-Import Bank of the United States and will be contingent upon the
financial strength of the foreign buyer, its supporting financial team, and its
supporting contracts with agencies of the Peruvian government or private sector
entities. Copies of the Peruvian Contract and related statements of funding
interest, provided to Empiric, are presently, and upon Closing will be, in full
force and in good standing in accordance with all terms, conditions and
provisions thereof as heretofore provided to Empiric.
13.3 Organizations, Good Standing and Qualifications. Daedalus is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, its state of incorporation, has all requisite
corporate power and authority to carry on its business as now conducted, and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure so to quality would have a
material adverse effect on its business or properties, considered in the
aggregate.
13.4 Capitalization. Except for an additional amount of common stock
(not to exceed 500,000 shares) which may be issued by Daedalus prior to Closing,
the authorized and presently issued and outstanding capital of Daedalus is as
reflected in Exhibit B hereto, all of which has been duly authorized and, to the
extent noted and set forth in Exhibit B, all of such capital stock designated as
having been issued and presently outstanding, has been duly issued, is presently
outstanding and is fully paid and non-assessable.
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13.5 Subsidiaries. As a result of agreement with the Daedalus Project,
Inc. Daedalus will own and control a substantial percentage of the issued and
outstanding shares of stock of subsidiaries in Canada.
13.6 Authorization. All corporate action on the part of Daedalus, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of Daedalus
hereunder and the authorization, issuance and delivery of the Daedalus Common
Stock and the Daedalus Series "A" Warrants to be issued hereunder, and the
Daedalus Common Stock issuable upon conversion of its Series "B" Convertible
Preferred Stock and the common stock issuable upon exercise of the Daedalus
Series "A" Warrants, have been taken or will be taken prior to the Closing. This
Agreement constitutes a valid and legally binding obligation of Daedalus,
enforceable in accordance with its terms except as such enforcement may be
limited or affected by the availability of equitable remedies such as specific
performance, and by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the enforcement of creditors'
rights, including court decisions and general equity principles relating
thereto.
13.7 Valid Issuance of Daedalus Common Stock and Daedalus Series "A"
Warrants.
(a) The Daedalus Common Stock and the Daedalus Series "A"
Warrants which are to be issued hereunder, when issued and delivered in
accordance with the terms hereof and for the consideration expressed herein,
will be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of Empiric in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The common
stock issuable upon exercise of the Daedalus Series "A" Warrants has been duly
and validly reserved for issuance and, when issued upon exercise of such
Warrants, and the applicable purchase price therefore is received by Daedalus,
will be duly and validly issued, fully paid and nonassessable.
(b) The approximately 8,500,000 shares of common stock of
Daedalus to be outstanding in accordance with the provisions of Section 1 (as
increased pursuant to Section 13.4) will, upon compliance with such provision
and upon the issuance thereof will all be duly and validly authorized and
issued, fully paid and nonassessable, and issued in compliance with all
applicable federal and state securities laws.
13.8 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against Daedalus which questions the validity of
this Agreement or the right of Daedalus to enter into it, or to consummate the
transactions contemplated hereby, or which might result, either individually or
in the aggregate, in any material adverse changes individually or in the
aggregate, in the assets, condition, affairs or prospects of Daedalus, taken as
a whole, financially or otherwise, or, except as otherwise provided herein, any
change in the current equity ownership of Daedalus, nor is Daedalus aware that
there is any basis for the foregoing. Daedalus is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
13.9 Compliance With Other Instruments. To the best knowledge of the
officers of Daedalus, Daedalus is not in violation or default of any provisions
of its certificate or articles of incorporation or bylaws or of any judgment,
order, writ, or decree, or any material instrument or contract to which it is a
party or by which it is bound or, to their knowledge, of any provision of
federal or state statute, rule or regulation applicable to Empiric or its assets
or properties. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, judgment,
order, writ, or decree, or any such material instrument or contract, or an event
which results in the creation of any lien, charge or encumbrance upon any assets
of Daedalus.
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13.10 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, and
except as will be disclosed in the Financial Statements of Daedalus (as defined
in Section 13.12 hereof) there are no material agreements, understandings or
proposed transactions between Daedalus and any of its officers, directors or
affiliates.
(b) Except as disclosed in writing to Empiric, Daedalus is not
a party to and is not bound by any contract, agreement or instrument, or subject
to any restriction under its certificate of incorporation or bylaws which
materially and adversely affects its business as now conducted.
13.11 Corporate Documents. The certificate of incorporation and By-laws
of Daedalus are in the form previously provided to Empiric.
13.12 Financial Statements. As stated in Section 7, Daedalus shall,
promptly upon the execution of this Agreement, engage a firm of independent
certified public accountants to perform an audit of the balance sheet and
financial condition and affairs of Daedalus as agreed upon by the parties and
required for inclusion in or in support of the registration with the SEC
referred to in such Section 7. Daedalus shall keep Empiric apprised of the
progress of such audit work and shall provide Empiric with copies of all
preliminary or draft statements or reports prepared by such accountants as they
are made available to Daedalus. In any event, upon completion of their audit
work and the delivery by such accountants to Daedalus of the audited financial
statements and opinion thereon, copies of such audited statements and opinion
(the "Daedalus Financial Statements") shall be promptly provided to Empiric. The
opinion of the accountants contained in such Daedalus Financial Statements shall
be unqualified.
13.13 Changes. Since the date of such Daedalus Financial Statements to
the date of Closing, except for the transactions contemplated hereby, there
shall not have been:
(a) any material change in the assets, liabilities, financial
condition or operating results of Daedalus from those reflected in the Daedalus
Financial Statements, except changes in the ordinary course of business, which
have not been, in the aggregate, materially adverse;
(b) any material damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of Daedalus (as
such business is presently conducted);
(c)any waiver by Daedalus of a material valuable right or debt
owed to it;
(d) any declaration, authorization or payment of any dividend
or other distribution of the assets of Daedalus, or any agreement to declare,
authorize or pay any such dividend or distribution;
(e) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Daedalus, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of Daedalus taken as a whole,
as such business is presently conducted;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) to the knowledge of Daedalus, any other event or condition
of any character which might materially adversely affect the assets, properties,
financial condition, operating results or business of Daedalus taken as a whole
(as such business is presently conducted).
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13.14 Employee Benefit Plans. Daedalus does not have any Employee
Benefit Plans as defined in the Employee Retirement Income Security Act of 1974
other than a group medical and hospital service agreement under Kaiser
Permanente.
13.15 Labor Agreements and Actions. Daedalus is not bound by or subject
to (and none of its respective assets or properties are bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
Daedalus, has sought to represent any of the employees, representatives or
agents of Daedalus. There is no strike or other labor dispute involving Daedalus
pending, or to the knowledge of Daedalus threatened, which could have a material
diverse effect on the assets, properties, financial condition, operating
results, or business of Daedalus (as such business is presently conducted), nor
is Daedalus aware of any labor organization activity involving its employees.
14. Daedalus Private Placement. Prior to the Closing of this Agreement,
Daedalus intends to undertake efforts to obtain financing through the private
placement and sale to a limited number of qualified and accredited investors of
debt and/or equity securities of Daedalus. The precise nature, amount and other
features of such private placement and securities to be offered thereby shall be
subject to the mutual agreement of Empiric and Daedalus. Upon reaching agreement
concerning such matters, the parties agree to cooperate fully in efforts to
successfully conclude such placement contemporaneously with the Closing of this
Agreement, or as soon thereafter as is practicable. To accomplish that end, it
is presently intended that subscribers to such private placement would deposit
funds for their purchase of such Daedalus securities in escrow pending the
Closing of this Agreement. Notwithstanding any other provision of this
Agreement, provided all minimum or other conditions to the closing of such
private placement have been met on the date of Closing of this Agreement, the
net proceeds of such private placement relating to the sale of Daedalus equity
securities which have been so deposited in escrow or otherwise irrevocably
committed to the satisfaction of Empiric at the time of Closing of this
Agreement shall be counted in determining the amount of shareholders' equity of
Daedalus for the purposes of Section 17. All costs, expenses and commissions
relating to such private placement shall be borne and paid by Daedalus. The
Daedalus securities issued as a result of such private placement, or other
activity agreed upon by the parties, shall be added to those represented by
Daedalus as issued and outstanding, or to be issued and outstanding on the date
of Closing, as set forth elsewhere in this Agreement.
15. Registration of Empiric Common Stock of Daedalus. In the event that
following the Closing, Daedalus converts the Empiric Series "B" Stock and/or
exercises the Empiric Series "F" Warrants so that Daedalus thereby becomes the
holder of a substantial number of shares of Empiric common stock, then subject
to the conditions of this Section 15, Daedalus shall have the right and option,
exercisable on only one occasion, to cause Empiric to prepare and file with the
SEC a registration statement for the immediate sale by Daedalus (or for the
shelf registration for subsequent sale by Daedalus) of all, (or, if less than
all, such portion as may be mutually acceptable to Empiric and Daedalus) of such
shares of Empiric common stock then held by Daedalus. Empiric and Daedalus shall
each provide all certified and unaudited interim financial statements, and all
other information and data concerning their respective financial condition,
results of operations, properties, management, affairs and other material
required by or with respect to them as may be required in support of or in
connection with such registration. Upon filing of such registration statement,
Empiric, with the cooperation and assistance of Daedalus. Shall exert all
reasonable efforts to have such registration declared effective by the SEC at
the earliest practicable date.
The cost and expense of preparation, filing, amendment, response to
comments and other efforts of Empiric and securities counsel toward the
successful conclusion of such registration shall be borne by Empiric; provided,
however, Daedalus shall bear and pay all costs and expenses of: (i) providing
all financial and other statements, data and information pertaining to the
condition and affairs of Daedalus required in connection with such registration;
(ii) printing preliminary and final prospectuses; (iii) all filing fees and
legal expense connected with registration or approval of state securities
regulatory bodies; and (iv) all commissions, underwriting fees and other selling
expenses relating to the sale of such stock.
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Notwithstanding the foregoing provisions of this Section 15, Empiric
shall not be obligated to file for or otherwise conduct or pursue such
registration at any time during which: (i) certified financial statements of
Empiric required in support of the registration are not sufficiently current; or
(ii) Empiric is in the process of filing or preparing for and/or pursuing the
registration of its own offering of its securities and its proposed managing
underwriter or independent financial advisor determines that such demand
registration of Daedalus will likely be substantially detrimental to the success
of Empiric's own proposed offering.
16. Restricted Securities. Both Empiric and Daedalus understand that
the (i) shares of Daedalus Common Stock to be received by Empiric and not
distributed to its holders of common stock; (ii) the 750,000 Series "A" Daedalus
Warrants to be issued by Daedalus to Empiric; (iii) the 250,000 shares of common
stock of The Daedalus Project, Inc., to be issued to Empiric; (iv) the
$1,500,000 principal amount of Empiric Energy, Inc. convertible preferred
securities, with a conversion price of $2.00 per share, convertible into a total
of 750,000 Common shares (Empiric Series "B" Stock) to be issued by Empiric to
Daedalus; (v) the 750,000 Empiric Series "F" Warrants to be issued to Daedalus;
and (vi) all shares of common stock of either Empiric or Daedalus issuable upon
the conversion of any of such convertible preferred stock or upon the exercise
of any such warrants; are all characterized (and hereinafter collectively
referred to herein) as "Restricted Securities" under the securities laws of the
United States inasmuch as they are being, or will be, acquired from the issuer
in a transaction not involving a public offering. Accordingly, such Restricted
Securities may be resold without registration under the 1933 Act only in certain
limited circumstances.
In addition to the warranties, representations and agreements of the
parties contained in other Sections of this Agreement, with regard to such
Restricted Securities, Empiric and Daedalus each mutually and specifically,
warrant, represent, acknowledge and agree as follows:
16.1 Purchase for Own Account. The Restricted Securities will be
acquired for investment for the respective recipient's own account or as a
nominee or agent for any related entities, and not with a view to the resale or
distribution of any part thereof. The recipient has, or upon issuance will have,
no present intention of selling, granting any participation in, or otherwise
distributing any of the Restricted Securities to be issued to it. The recipient
does not have, nor upon issuance will it have, any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to any third person, with respect to any of the Restricted
Securities.
16.2 Disclosure of Information. Each recipient believes it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Restricted Securities and has had an opportunity to ask questions
and receive answers from the issuer regarding the terms and conditions of the
offering of the Restricted Securities to be issued to it.
16.3 Investment Experience. Both Empiric and Daedalus are, among other
things, investors in securities of privately held companies and acknowledge that
each is able to fend for itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of acquiring the Restricted
Securities to be issued to it.
16.4 Empiric and Daedalus each understand that no market exists or is
likely to develop in the foreseeable future with respect to the Restricted
Securities. Each certificate representing the Restricted Securities shall be
inscribed with a legend substantially in the following form:
"The [description of security] represented by this certificate may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Securities Act of 1933 (the "Act")
and applicable state law or pursuant to an exemption from registration under the
Act and applicable state law, the availability of which is to be established to
the satisfaction of the Company."
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Additionally, with regard to the Restricted Securities and all common
stock issued pursuant to conversion of the preferred stock and/or exercise of
the warrants comprising the Restricted Securities, the issuer thereof shall
cause its transfer agent to place a "stop order" thereon precluding any transfer
thereof.
17. Conditions of Empiric's Obligations at Closing. The obligations of
Empiric under this Agreement are subject to the fulfillment on or before the
Closing of each of the following conditions, the waiver of which shall not be
effective against Empiric unless it consents in writing thereto:
17.1 Representations and Warranties. The representations and warranties
of Daedalus contained in this Agreement shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on as of the date of such Closing.
17.2 Performance. Daedalus shall have performed and complied with all
terms, agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
17.3 Registration Statement. The registration statement pertaining to
the issuance and distribution of the 1,000,000 shares of Daedalus Common Stock
to holders of Empiric common stock as provided for herein shall have been
declared effective by the SEC.
17.4 Qualifications. All registrations, qualifications, permits and
approvals required to be obtained by Daedalus and/or Empiric under applicable
state securities laws shall have been obtained for the issuance and delivery of
the 1,000,000 shares of Daedalus Common Stock to holders of Empiric common
stock, all upon terms satisfactory to Empiric.
17.5 Proceedings and Documents. All corporate and other proceedings of
Daedalus in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Empiric, and Empiric shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request, including, without limitation, the following:
(a) certified copies of the resolutions adopted by
Daedalus's Board of Directors authorizing the
execution, delivery and performance of this
Agreement; and
(b) certified copies of the Certificate of Incorporation
and Bylaws of Daedalus, as amended through the date
of Closing.
17.6 Daedalus Shareholders' Equity. The shareholders' equity of
Daedalus, as stated in the Daedalus Financial Statements of Daedalus referred to
in Section 13.12, as adjusted on a pro-forma basis to give effect to increases
resulting from the Closing of this Agreement and any increases pursuant to
Section 14, shall be at least $4,000,000.
17.7 Peruvian Contract. Empiric shall have satisfied itself, at its
sole discretion, that the Peruvian Contract, and all representations provided by
Daedalus relating thereto (are fully committed, in place)-are as represented and
in good standing as of the date of Closing.
17.8 Trading of Daedalus Stock. The 1,000,000 or more shares of
Daedalus Common Stock to be issued to holders of Empiric common stock shall have
been approved for trading on NASDAQ on either the National Market System or at
another level acceptable to Empiric, or approved for listing on a regional stock
exchange approved by Empiric, all upon terms and conditions satisfactory to
Empiric.
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18. Conditions of Daedalus's Obligations at Closing. The obligations of
Daedalus under this Agreement are subject to the fulfillment on or before the
Closing of each of the following conditions, the waiver of which shall not be
effective against Daedalus unless it consents in writing thereto:
18.1 Representations and Warranties. The representations and warranties
of Empiric contained in this Agreement shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on as of the date of such Closing.
18.2 Performance. Empiric shall have performed and complied with all
terms, agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
18.3 Registration Statement. The registration statement pertaining to
the issuance and distribution of at least 1,000,000 shares of Daedalus Common
Stock to holders of Empiric common stock as provided for herein shall have been
declared effective by the SEC.
18.4 Qualifications. All registrations, qualifications, permits and
approvals required to be obtained by Daedalus and/or Empiric under applicable
state securities laws of all states in which such securities shall be
distributed shall have been obtained for the issuance and delivery of at least
1,000,000 shares of Daedalus Common Stock to holders of Empiric common stock,
all upon terms satisfactory to Daedalus.
18.5 Proceedings and Documents. All corporate and other proceedings of
Empiric in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Daedalus, and Daedalus shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request, including, without limitation, the following:
(a) certified copies of the resolutions adopted by Empiric's
Board of Directors authorizing the execution, delivery and
performance of this Agreement; and
(b) certified copies of the Articles or Certificate of
Incorporation and Bylaws of Empiric, as amended through the
date of Closing.
18.6 Trading of Daedalus Stock. The 1,000,000 or more shares of
Daedalus Common Stock to be issued to holders of Empiric common stock shall have
been approved for trading on NASDAQ on either the National Market System or at
another level acceptable to Empiric, or approved for listing on a regional stock
exchange approved by Daedalus, all upon terms and conditions satisfactory to
Daedalus.
19. Miscellaneous.
19.1 Survival of Warranties. The warranties, representations and
covenants of the respective parties hereto contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
19.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
19.3 Governing Law. This agreement shall be governed by and construed
under the laws of the State of Delaware. Each party hereto agrees that any and
all actions brought between them shall be brought in the appropriate courts in
the State of Delaware.
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19.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19.5 Titles, Subtitles and Exhibits. The titles, subtitles and other
headings used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. All Exhibits referred
to herein are expressly incorporated by reference as a part of this Agreement as
though fully reproduced as a part of the text hereof.
19.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or five
days after deposit with the United States mail, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
19.7 Expenses. Irrespective of whether the Closing is effectuated,
except as provided in Section 8, each party shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement.
19.8 Finder's Fee. Empiric agrees to indemnify and to hold harmless
Daedalus from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which Empiric or any of its officers, partners,
employees, or representatives is responsible. Daedalus agrees to indemnify and
hold harmless Empiric from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which Daedalus or any of its officers,
employees or representatives is responsible.
19.9 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Empiric and Daedalus.
19.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
19.11 Contents of Agreement. This Agreement together with the Exhibits
hereto and the documents referred to herein, sets forth the entire understanding
of the parties hereto with respect to the transaction contemplated hereby, and
any previous agreements or understandings between the parties regarding the
subject matter hereof are merged into and superseded by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMPIRIC ENERGY, INC. DAEDALUS BUILDING SYSTEMS, INC.
By: /s/ James J. Ling By: /s/ Edward A. McCulloch
------------------------------ ---------------------------
James J. Ling Edward A. McCulloch
Chief Executive Officer President
Address: 12750 Merit Drive Address: 8653 Richmond Highway
Suite 750 Alexandria, Virginia
Dallas, Texas 75251-1609 22309
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EXHIBIT A
EMPIRIC ENERGY, INC. (the "Company")
Present Capital Structure
Common Stock
Authorized: 20,000,000 shares, $0.01 par value per share
Issued and Outstanding: 8,669,027 shares - as of September 30, 1999
Preferred Stock
Authorized: 2,000,000 shares, $0.05 par value each,
issuable in series, as determined and
designated from time to time by the board of
directors. Each series shall consist of the
number of shares so designated for such
series and shares of that series shall have
the rights, preferences and other features
as so determined and designated.
Designated, Issued and Outstanding
Series "A" Preferred Stock
No. of Shares Designated: 57,500
No. Shares Issued & Outstanding: 57,500
Liquidation Preference: $10.00 per share
Ranking: Senior to all other series of preferred
stock of the Company.
Conversion Rights: Each share is convertible into three (3)
shares of common stock of the Company.
Voting Rights: None, except as otherwise provided in the
Certificate of Incorporation of the Company
or pursuant to the General Corporation Law
of the State of Delaware.
Dividends: None
Redemption Rights: Holders have no rights to require redemption
by the Company
Call Provisions: The Company may at its option and on at
least thirty (30) days' notice call all or
any part of the Series A Preferred Stock
then outstanding for mandatory redemption,
if and when the "Average Market Price"
(meaning, for the purpose of this Exhibit
"A", the mean between the bid and asked
price at closing) of the Company's common
stock is at least $4.165 per share for any
period of ten (10) consecutive market days.
If less than all shares are called for
redemption, shares shall be redeemed on a
pro-rata basis from all holders of Series
"A" Preferred Stock then outstanding.
Series "B" Convertible Preferred Stock
No. of Shares Designated: 750,000
No. To Be Issued & Outstanding at Closing:
750,000
Liquidation Preference: $2.00 per share
15
<PAGE>
Ranking: Inferior to the Series "A" convertible
preferred stock, but senior to of preferred
stock of the Company thereafter designated
after the Closing.
Conversion Rights: Each share is convertible into one (1) share
of common stock of the Company.
Voting Rights: None, except as otherwise provided in the
Certificate of Incorporation of the Company
or pursuant to the General Corporation Law
of the State of Delaware.
Dividends: None
Redemption Rights: Holders have no rights to require redemption
by the Company.
Call Provisions: May be called at any time. The Company shall
have the right to call for conversion all
series "B" Convertible Preferred Stock then
outstanding if and when the Average Market
Price (meaning for the purpose of this
Exhibit "C", the mean between the bid and
asked price at Closing) of the Company's
common stock is at least $3.00 per share for
a period of ten (10) consecutive market
days.
Par Value: $0.05 per share
Term: Ten years. If not converted by the end of
10th year following Closing, Series "B"
Preferred will convert to common.
Common Stock Warrants
Series "A" Warrants - No longer outstanding
Series "B" Warrants
Number Authorized: 327,400
Number Issued & Outstanding: 327,400
Expiration Date: May 13, 2001
Rights (General): The holder of each Series "B" Warrant has
the right to purchase one (1) share of
common stock of the Company at a price of
$2.50 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "B" Warrants then
outstanding if and when the Average Market
Price of the Company's common stock is at
least $3.125 per share for a period of ten
(10) consecutive market days. The redemption
price is $0.25 per warrant.
Series "C" Warrants
Number Authorized: 215,000
Number Issued & Outstanding: 215,000
Expiration Date: May 13, 2001
16
<PAGE>
Rights (General): The holder of each Series "C" Warrant has
the right to purchase one (1) share of
common stock of the Company at a price of
$3.00 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "C" Warrants then
outstanding if and when the Average Market
Price of the Company's common stock is at
least $3.125 per share for a period of ten
(10) consecutive market days. The redemption
price is $0.25 per warrant.
* Series "D" Warrants
Number Authorized: 299,990
Number Issued & Outstanding: 299,990
Expiration Date: May 13, 2001
Rights (General): The holder of each Series "D" Warrants has
the right to purchase one (1) share of
common stock of the Company at a price of
$1.50 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "D" Warrants then
outstanding if and when the Average Market
Price of the Company's common stock is at
least $1.875 per share for a period of ten
(10) consecutive market days. The redemption
price is $0.10 per warrant.
* Series "E" Warrants
Number Authorized: 200,000
Number Issued & Outstanding: 200,000
Expiration Date: May 13, 2002
Rights (General): The holder of each Series "E" Warrant has
the right to purchase one (1) share of
common stock of the Company at a price of
$2.00 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "E" Warrants then
outstanding if and when the Average Market
Price of the Company's common stock is at
least $2.50 per share for a period of ten
(10) consecutive market days. The redemption
price is $0.15 per warrant.
17
<PAGE>
EXHIBIT B
DAEDALUS BUILDING SYSTEMS, INC. ("DAEDALUS")
Capital Structure
Common Stock
Authorized: 30,000,000 shares, $0.01 par value per share
Issued and Outstanding: Approximately 8,500,000 shares - as of date
to be established by the parties, 1,500,000
shares to be issued to Empiric Energy, Inc.
("Empiric") at Closing of this Agreement in
addition to any shares and or warrants
issued in connection with planned private
placement memoranda.
Preferred Stock
Authorized: 3,000,000 shares, $1.00 par value per share,
issuable in series, with the 250,000 shares
Series "A" and 1,000,000 shares of Series
"B" preferred stock having the general terms
as hereinafter set forth, and the remaining
1,750,000 shares of authorized preferred
stock being issuable in one or more series,
as designated and determined from time to
time by the board of directors of Daedalus.
Except for the above mentioned Series "A"
and "B" preferred stock, each subsequently
designated series of preferred stock shall
consist of the number of shares so
designated for such series, and shares of
that series shall have the rights,
preferences and other features as so
determined and designated.
Designated, Issued and Outstanding:
Series "A"
No. of Shares Designated: 250,000
No. of Shares Issued and Outstanding:
250,000
Liquidation Preference: $1.00 per share
Ranking: Pari passu with the Series "B" preferred
stock of Daedalus, and senior to all other
series of preferred stock of Daedalus
designated at any time subsequent to Closing
of this Agreement.
Conversion Rights: Each share of Series "A" preferred
stock may, at the option of the holder, be
converted into one (1) share of common stock
of Daedalus at any time within twenty (20)
years following the Closing of this
Agreement.
Voting Rights: Each share of Series "A" preferred stock
shall have and be entitled to cast thirty
(30) votes, in common with the votes to
which holders of common stock of Daedalus
then outstanding shall be entitled to cast
(one vote per share) on all matters
submitted for, or required to be submitted
for action by the stockholders, as set forth
18
<PAGE>
in the Certificate of Incorporation of
Daedalus or applicable provisions of the
General Corporation Law of Delaware.
Additionally, holders of Series "A"
preferred stock shall be entitled to cast
one (1) vote for each share of such Series
"A" preferred stock on all matters submitted
for, or required to be submitted for, voting
by holders of such Series "A" preferred
stock, as a separate class of stock, as set
forth in the certificate of incorporation or
the General Corporation Law of the State of
Delaware.
Dividends: None
Redemption Rights: Provided funds are legally available
therefore, each share of Series "A"
preferred stock then outstanding shall be
mandatorily redeemed by Daedalus at the
option of the holder thereof, at any time
upon demand of such holder, at a price of
$1.00 per share.
Call Provisions: Provided funds are legally available
therefore, all shares of Series "A"
preferred stock outstanding on the twentieth
(20th) anniversary of the Closing of this
Agreement shall be mandatorily called and
redeemed by Daedalus at a price of $1.00 per
share.
Series "B"
No. of Shares Designated: 1,000,000
No. of Share Issued & Outstanding: 1,000,000
Liquidation Preference: $2.50 per share
Ranking: Pari passu with the Series "A" preferred
stock, and senior to all other series of
preferred stock of Daedalus designated at
any time subsequent to Closing of this
Agreement.
Conversion Rights: Subject to Daedalus's satisfying the
conditions pertaining to its "Pre-Tax
Earnings" (hereinafter defined) as
hereinafter set forth, during the following
prescribed periods and subject to the
following quantity limitations, the shares
of Series "B" Preferred Stock may, at the
option of the holder thereof, be converted
into shares of common stock of Daedalus upon
reaching the following earning plateaus on
or before December 31, 2003:
(1) 333,333 Series "B" shares can be
converted into 1,666,665 Daedalus
common shares, upon record of
$5,000,000 pre-tax earnings.
(2) Upon record of an additional
$5,000,000 in pre-tax earnings (a
total of $10,000,000 pre-tax
earnings), an additional 333,333
Series "B" shares can be converted
into 1,666,665 Daedalus common
shares.
(3) Upon the record of an additional
$6,000,000 (a total of $16,000,000
pre-tax earnings), and additional
333,334 Series "B" shares can be
converted into 1,666,670 Daedalus
common shares.
19
<PAGE>
Notes:
o The pre-tax earnings are cumulative and pro-rata for common share
conversion. To the extent that the earnings plateau are not met, E. A.
McCulloch may convert at $1.00 per share into one common share of
Daedalus
o An interim audit may be requested at any time.
o Credit will be given for performance of the company or that of any
affiliate acquired by the company, the performance of which will be
measured from the date of acquisition to the end of the term of these
Provisions.
o In the event control of the company passes to a non-related entity, the
earn-out provisions are waved and the rights to convert vest
immediately notwithstanding any earnings.
Warrants
Daedalus Series "A" Common Stock Warrants
Number To Be Authorized: 750,000
Number To Be Issued & Outstanding: 750,000
Expiration Date: Three (3) years following
Closing
Rights (General): The holder of each Series "F" Warrant has
the right to purchase one (1) share of
common stock of the Company at a price of
$2.00 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "F" Warrants then
outstanding if and when the Average Market
Price (meaning for the purpose of this
Exhibit, the mean between the bid and asked
price at Closing) of the Company's common
stock is at least $3.00 per share for a
period of ten (10) consecutive market days.
The redemption price is $0.10 per warrant.
20
<PAGE>
EXHIBIT C
EMPIRIC ENERGY INC., (the "Company")
Series "B" Convertible Preferred Stock
No. of Shares Designated: 750,000
No. Shares To Be Issued & Outstanding at Closing: 750,000
Liquidation Preference: $2.00 per share
Ranking: Inferior to the Series "A" convertible
preferred stock, but senior to all other
series of preferred stock of the Company
thereafter designated after the Closing.
Conversion Rights: Each share is convertible into one (1) share
of common stock of the Company.
Voting Rights: None, except as otherwise provided in the
Certificate of Incorporation of the Company
or pursuant to the General Corporation Law
of the State of Delaware.
Dividends: None
Redemption Rights: Holders have no rights to require redemption
by the Company.
Call Provisions: May be called at any time. The Company shall
have the right to call for conversion all
series "B" Convertible Preferred Stock then
outstanding if and when the Average Market
Price (meaning for the purpose of this
Exhibit "C", the mean between the bid and
asked price at Closing) of the Company's
common stock is at least $3.00 per share for
a period of ten (10) consecutive market
days.
Term: Ten years. If not converted by the end of
10th year following Closing, Series "B"
Preferred will convert to common.
Par Value: $0.05 per share
21
<PAGE>
EXHIBIT D
EMPIRIC ENERGY,INC., (the "Company")
Series "F" Warrants
Number To Be Authorized: 750,000
Number To Be Issued & Outstanding: 750,000
Expiration Date: Three (3) years following Closing
Rights (General): The holder of each Series "F" Warrant has
the right to purchase one (1) share of
common stock of the Company at a price of
$2.00 per share.
Call Provisions: The Company shall have the right to call for
redemption all Series "F" Warrants then
outstanding if and when the Average Market
Price (meaning for the purpose of this
Exhibit, the mean between the bid and asked
price at Closing) of the Company's common
stock is at least $3.00 per share for a
period of ten (10) consecutive market days.
The redemption price is $0.10 per warrant.
22
<PAGE>
EXHIBIT E
DAEDALUS BUILDING SYSTEMS, INC.
SERIES "A" PREFERRED STOCK
Issued To Shares Issued
--------- -------------
Edward A. McCulloch 250,000
7514 Ridgecrest Drive
Alexandria, Virginia 22309
23
<PAGE>
EXHIBIT F
DAEDALUS BUILDING SYSTEMS, INC.
SERIES "B" PREFERRED STOCK
Issued To Shares Issued
--------- -------------
Edward A. McCulloch 1,000,000
7514 Ridgecrest Drive
Alexandria, Virginia 22309
24
CERTIFICATE OF INCORPORATION
OF
DAEDALUS BUILDING SYSTEMS, INC.
1. The name of the corporation is DAEDALUS BUILDING SYSTEMS, INC.
2. The address of its registered office in the State of Delaware is Three Mill
Road, Suite 104, in the City of Wilmington 19806, County of New Castle,
Delaware. The name of its registered agent at such address is The Incorporators
Ltd.
3. The nature of the business or purposes to be conducted or promoted is: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is Thirty-Three Million (33,000,000) of which stock, Thirty
Million (30,000,000) shares of the par value of One Cent ($0.01) each, amounting
in the aggregate to Three Hundred Thousand Dollars ($300,000.00) shall be Common
Stock, and of which Three Million (3,000,000) shares of the par value of One
Dollar ($1.00) each, amounting in the aggregate to Three Million Dollars
($3,000,000.00) shall be Preferred Stock.
The Board of Directors is authorized, subject to the provisions of this
Article 4 and limitations prescribed by law, to provide for the issuance of
shares of Preferred stock in series, to determine the number of shares to be
included in each series and to fix and determine separately for the shares of
each series their relative rights and preferences, including, but not limited
to, any one or more of the following:
(1) The rate of dividends, whether dividends shall be cumulative or
non-cumulative, the times at and the terms and conditions on which dividends
shall be paid directly and any relative rights of priority of payment of
dividends on the shares in relation to dividends payable to any other class or
series of stock of the corporation;
(2) The terms and conditions for any redemption of the shares,
including the price at, and the date or dates after which, the shares may be
redeemed and relative rights of priority of redemption of such shares in
relation to redemption of any other class or series of stock of the corporation;
(3) The rights of the shares to any sinking fund or purchase fund for
the redemption or purchase of such shares, including the amount and the terms
and conditions of such sinking or purchase fund;
(4) Any rights of the shares in the event of voluntary or involuntary
liquidation, dissolution or winding up of the corporation, including the amount
payable upon the shares in such event, the terms and conditions of such payment
and the relative rights of priority of payment of such shares in relation to
payment of any other class or series of stock of the corporation;
(5) Any conversion privileges of the shares, including the price at,
and the terms and conditions on which, the shares may be converted into shares
of any other class or series of stock of the corporation and the relative rights
of priority of conversion of such shares in relation to conversion of any other
class or series of stock of the corporation;
(6) Any voting rights of the shares, including the number of votes per
share, the matters on which the shares can vote and the contingencies which make
the voting rights effective; and
(7) Any other relative rights and preferences.
All shares of Common stock shall have identical rights and privileges
in every respect. Shares of any series of Preferred stock which have been
redeemed (whether through the operation of a sinking or purchase fund or
otherwise) or purchased by the corporation, or which, if convertible of
exchangeable, have been converted into or exchanged for shares of stock of any
other class or classes shall have the status of authorized and unissued shares
of Preferred stock and may be reissued as a part of the series of which they
were originally a part or may be reclassified and reissued as part of a new
series of Preferred stock to be created by resolution or resolutions of the
Board of Directors, or as part of any other series of Preferred stock, subject
to the conditions or restrictions on issuance set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issue of any
series of Preferred stock and to any filing required by law.
<PAGE>
5a. The name and mailing address of its incorporator is as follows:
Herbert S. Rosenblum
526 King Street, Suite 211
Post Office Box 58
Alexandria, Virginia 22313
5b. The name and mailing address of each person who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:
Edward A. McCulloch
8653 Richmond Highway
Alexandria, Virginia 22309
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal By-Laws of the corporation.
8. Elections of directors need not be by written ballot unless the
By-Laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the corporation.
9. The corporation reserves the right to amend, alter change or repeal
any provision in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. No director shall be personally liable to the corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or successor provision thereto or
shall be liable by reason that, in addition to any and all other requirements
for such liability, he: (i) shall have breached his duty of loyalty to the
corporation or its stockholders, (ii) shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law, or (iv) shall have derived
an improper personal benefit. Neither the amendment nor repeal of this Article
10, nor the adoption of any provision of the certificate of incorporation
inconsistent with this Article 10, shall eliminate or reduce the effect of this
Article 10 in respect of any matter occurring, or any course of action, suit or
claim that, but for this Article 10 would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
this is my act and deed and the facts herein stated are true, and accordingly,
have hereunto set my hand this 28th day of October, 1999.
/s/ Herbert S. Rosenblu
-----------------------------
Herbert S. Rosenblum, Esquire
526 King Street, Suite 211
Post Office Box 58
Alexandria, Virginia 22313
BYLAWS OF
DAEDALUS BUILDING SYSTEMS, INC.
SECTION 1. OFFICES
The principal office shall be in the County of Fairfax, State of
Virginia. The corporation may have offices and places of business at such other
places within and without the State of Virginia as shall be determined by the
directors.
SECTION 2. ANNUAL MEETING
The annual meeting of the corporation shall be held in the principal
office of the corporation at 8653 Richmond Highway, Alexandria, VA 22309 on the
3rd Friday of each year or at such other place as the officers and directors
designate by proper notice to the stockholders.
SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders for any purpose or purposes may be
called by the President, and must be called by the him or her on receipt of a
written request from the holders of twenty-five percent of the shares then
outstanding and entitled to vote.
SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS
Notice of the annual meeting or of a special meeting, state the time,
place and purpose or purposes thereof shall be given to each shareholder not
less than ten nor more than forty days prior to the meeting, but such notice may
be waived in writing at any time.
SECTION 5. QUORUM
At any meeting of the shareholders the holders of a majority of the
shares entitled to vote then issued and not outstanding shall constitute a
quorum, except as otherwise provided by law.
SECTION 6. VOTING
At each meeting of the shareholders every holder of a majority of
shares then entitled to vote may vote in person or by proxy, and shall have one
vote for each share registered in his or her name. However, it is understood
that certain preferred shares may have greater voting rights and those shares
shall and can be voted accordingly.
SECTION 7. NUMBER OF DIRECTORS, TENURE, VACANCIES
The business and affairs of the corporation shall be managed and
controlled by a Board of Directors of not more than eleven directors, who shall
be elected annually by the shareholders at the annual meeting. Each director
shall hold office until the election of his or her successor.
Any director may resign at any time. Vacancies occurring among the directors may
be filled by the directors.
SECTION 8. REGULAR MEETING OF THE BOARD
Immediately after each annual election of directors, the newly elected
directors may meet forthwith at the principal office of the corporations for the
purpose of organization and the transaction of other business; if a quorum of
the directors be then present no prior notice of such meeting shall be required.
Other regular meetings of the board may be held without notice at such times and
places as the directors may determine.
SECTION 9. SPECIAL MEETINGS
Special meetings of the directors may be called by the President and
must be called at the written request of two members of a majority of the
members of the Board.
<PAGE>
SECTION 10. NOTICE OF SPECIAL MEETINGS
Notice of a special meeting shall be given to each director at least
five days prior to meeting, but such notice may be waived in writing at any
time.
SECTION 11. QUORUM
A majority of the Board of Directors shall constitute a quorum at all
meetings of the Board.
SECTION 12. OFFICERS
The officers of the corporation shall be a President, a Vice President,
a Secretary, and a Treasurer, who shall be elected annually by the directors and
who shall hold office during the pleasure of the directors, and any other
assistants of the Board of Directors may determine to elect at any time. The
positions of (1) President and Treasurer, (2) Vice President and Treasurer, and
(3) Secretary and Treasurer may be united in one person. All vacancies occurring
among any of the above officers shall be filled by the directors. Any officer
may be removed at any time by the affirmative vote of a majority of the
stockholders at a special meeting of the stockholders called for the purpose.
SECTION 13. SUBORDINATE OFFICERS
The board may appoint such other officers and agents with such powers
and duties as it shall deem necessary.
SECTION 14. THE PRESIDENT
The President shall preside at all meetings of the shareholders and
directors. He or she shall have general management and control of the business
and affairs of the corporation.
SECTION 15. THE VICE PRESIDENT
The Vice President shall, in the absence or disability of the
President, exercise the powers and perform the duties of the President. He or
she shall also generally assist the President and exercise such other powers and
perform such other duties as shall be prescribed by the directors.
SECTION 16. THE TREASURER
The Treasurer shall the custody of all funds, securities, evidences of
indebtedness and other personal property of the corporation and shall deposit
the same in such bank or trust company as shall be designated by the directors
of the corporation or the President. He shall receive and give receipts and
acquittances for monies paid in on account of the corporation and shall pay out
of the funds on hand all bills, payrolls and other just debts of the corporation
of whatever nature upon maturity of the same; he or she shall enter regularly in
books of the corporation to be kept by him or her for that purpose full and
accurate accounts of all monies received and paid out by him or her on account
of the corporation; and he or she shall perform all other duties incident to the
office of the Treasurer.
SECTION 17. THE SECRETARY
The Secretary shall keep the minutes of all proceedings of the
directors and the shareholders, he or she shall attend to the giving and serving
of all notices to the shareholders; or other notices required by law or these
By-Laws; he or she shall affix the seal of the corporation to deeds, contracts
and other instruments in writing requiring a seal, when duly signed; he or she
shall have charge of the certificate books and stockbooks and such other books
and papers as the Board may direct, and he or she shall perform all other duties
incident to the office of Secretary.
<PAGE>
SECTION 18. SALARIES
The salaries of all officers shall be fixed by the Board of Directors.
SECTION 19. CERTIFICATES OF STOCK
Certificates of stock shall be issued in numerical order from the stock
certificate book; they shall be signed by the President and by the Secretary of
the corporation and the corporate seal shall be affixed thereto. A record of
each certificate shall be kept on the stub thereof.
SECTION 20. TRANSFER OF SHARES
Shares may be transferred on the books of the corporation by the holder
in person or by his attorney upon the surrender and cancellation of certificates
for a like number of shares.
SECTION 21. BOARD TO DECLARE DIVIDENDS
The directors may from time to time, as they shall see fit, declare
dividends upon the capital surplus.
SECTION 22. SEAL
The directors shall provide a suitable corporate seal which shall be in
charge of the Secretary and shall be used as authorized by the directors.
SECTION 23. DEPOSITORIES
The funds of the corporation shall be deposited in such bank or trust
company, and checks drawn against such funds shall be signed in such manner, as
may be determined from time to time by the directors.
SECTION 24. NOTICE AND WAIVER OF NOTICE
Any notice required to be given by these Bylaws may be given by mailing
or telegraphing the same to the person entitled thereto at his or her address as
shown on the corporation's books and such notice shall be deemed to have been
given at the time of such mailing or telegraphing. Any notice required by these
Bylaws to be given may be waived by the person entitled to such notice.
SECTION 25. POWERS OF DIRECTORS TO AMEND, ETC.
The Board of Directors shall have power to make, amend and repeal the
Bylaws of the corporation at any annual meeting or at a special meeting called
for the purpose and all Bylaws made by the directors may be altered or repealed
by the shareholders.
Adopted at the organizational meeting of the
Board of Directors of Daedalus Building
Systems, Inc. held on October 28, 1999
/s/
----------------------------------------
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED O9:00AM 03/17/2000
001138491 - 3117633
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
DAEDALUS BUILDING SYSTEMS, INC.
- --------------------------------------------------------------------------------
A corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware. DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Daedalus Building Systems,
Inc. Resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to Be
advisable and calling a meeting of the stockholders of said corporation for
Consideration thereof. The resolutions setting forth the proposed amendment is
as follows: RESOLVED, that the certificate of Incorporation of this corporation
be amended By changing the Article thereof numbered "one" so that, as Amended
said Article shall be and read as follows:
Amendment: The name of the corporation be changed to Daedalus Systems, Inc.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
Special meeting of the stockholders of said corporation was duly called and held
Upon notice in accordance with Section 222 of the General Corporation Law of The
state of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That saidamendment was duly adopted in accordance with the Provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
Reason of said amendment.
IN WITNESS WHEREOF, said Edward A. McCulloch Has caused this certificate to be
signed by E.A. McCulloch, an Authorized Officer, This Third day of March 2000
By: /s/ E.A. McCulloch
----------------------------
Authorized Officer
Title: Director and President
---------------------------
Name: E.A. McCulloch
---------------------------
Print or Type
The following abbreviations, when used in the inscription on the face of the
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JN TEN- as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT - ...............Custodian................
(Cust) (Minor)
under Uniform Gifts to Minors Act ..............................
(State)
For value received hereby sell, assign and transfer unto
-----
-------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSSIGNEE
Shares
- ---------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated 19
------- ----
In presence of
- -----------------------------
- -----------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
ASSIGNMENT OF CONTRACT
THIS ASSIGNMENT OF CONTRACT, made and entered into this 31st day of
October, 1999, by and among THE DAEDALUS PROJECT, INCORPORATED, a Virginia
Corporation, hereinafter referred to as "Assignor," and DAEDALUS BUILDING
SYSTEMS, INC., a Delaware Corporation, hereinafter referred to as "Assignee."
W I T N E S S E T H:
WHEREAS, Assignor desires to assign and convey the Contract by and
between The Daedalus Project, Incorporated and World Business Investors Group to
Assignee and Assignee desires to accept such assignment and conveyance.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00), receipt of which is hereby acknowledged, and other valuable
consideration, the parties hereto agree as follows:
1. Assignor does hereby assign, transfer, and convey to Assignee all
the right, title, and interest under the aforesaid Contract Agreement, to have
and to hold the same unto Assignee, its successors, executors, and assigns, for
and during the remainder of the term of the aforesaid Contract Agreement and any
renewals or extensions therein provided or subsequently provided by in writing,
subject to the terms, covenants, conditions, and agreements contained therein
and subsequently agreed.
2. Assignee does hereby accept this Assignment of Contract and agrees
to assume all of the duties which the Assignor was obligated to perform under
the said Contract Agreements, for the balance of the term thereof and aforesaid
renewals or extensions.
3. The World Business Investors Group hereby acknowledges that the
aforesaid Contract Agreement is in full force and effect and no breaches or
defaults exist as of the date first above written, and consents to this
Assignment of Contract by the Assignor to the Assignee, but upon the express
condition that such consent from the Assignee shall not be deemed a waiver or
relinquishment of the future covenant against assignment, nor shall the
acceptance of the Assignee to the said contract be construed as releasing the
Assignor from the full performance of the provisions of said Contract Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment of Contract on the day and year first above written.
ASSIGNOR:
THE DAEDALUS PROJECT, INCORPORATED,
a Virginia Corporation
---------------------------------------
By: Edward A. McCulloch, President
ASSIGNEE:
DAEDALUS BUILDING SYSTEMS, INC.,
a Delaware Corporation
/s/
----------------------------------
By: Edward A. McCulloch, President
WORLD BUSINESS INVESTOR GROUP
/s/
----------------------------------
By: Edgar Espinoza Chacon, President
Sales Contract
THIS SALES CONTRACT (the "Contract") is made and entered into as of the
27th day of October, 1999, by and between World Business Investors Group (the
"Buyer"), an entity of legal status organized and existing to engage in commerce
under the laws of the country of Peru, and Daedalus Building Systems,
Incorporated (the "Seller"), a corporation organized and existing under the laws
of Delaware, United States of America. This Contract shall be designated
Contract Number 46-045-99.
WHEREAS, the Seller offered to sell and the Buyer has agreed to buy certain
structural units, components, finishings, and other items related to Daedalus
Building Systems(TM).
NOW THEREFORE, in consideration of the mutual covenants contained herein
and subject to the terms and conditions described herein, the Parties to this
Contract agree as follows:
1. Definitions. For the purpose of this Contract, the following terms shall have
the following meanings, unless otherwise defined; all other terms shall have the
usual and customary meaning ascribed to them.
a. "Dollars" or "$" shall mean the currency of the United States of
America.
b. "Incoterms 1990" means the definition for the referenced term as
adopted by the International Chamber of Commerce in Paris in 1990 or
subsequent adoptions.
c. "Components" shall mean such items as panels of the Daedalus Building
Systems(TM) and related fasteners that are required for assembly of a
structural unit, which does not include tools required to complete
assembly.
d. "Finishings" shall mean those materials used to finish the interior
surfaces of the structures and other items, such as sinks, showers, and
toilets.
2. Unit Pricing. Unit pricing, as specified in Annex "B," attached hereto and
made a part hereof, shall be fixed for the term of the Contract. Pricing is
valid for all units ordered and shipped within the effective period of the
Contract. Prices may be adjusted if delivery extends beyond the period specified
in Paragraph 6.
3. Purchase. The minimum amount of purchase provided under the Contract Value
will be 22,000,000 square feet (2,043,800 square meters) of panels of the
Daedalus Building Systems (Metal), pursuant to Annex A.
4. Contract Value. The Contract Value shall be in dollars and is based upon the
sales price as specified in Annex "A" which shall form an integral part of this
contract. The minimum contract value is one hundred twenty million and 00/100
Dollars ($120,000,000.00) and represents the purchase of a minimum of 22,000,000
square feet (2,043,800 square meters) of panels of the Daedalus Building Systems
(Metal), pursuant to Annex A, over three years, commencing at the date of this
contract.
<PAGE>
a. Freight. Freight will be arranged by the seller and added to
the account of, and paid by, the buyer. Freight is not
considered as a part of the contract value.
b. Insurance. Estimated insurance will be paid by the Seller and
added to the account of, and paid by, the buyer. Insurance is
not considered as a part of the contract value.
c. Additional Costs. All additional costs for freight, insurance,
forwarding fees, and any other expenses that are pre-advised,
incurred by the seller and added to the account of the buyer,
or billed by the seller, are due and payable by the buyer
within 30 days of payment or billing by the seller. Additional
Costs are not considered as a part of the contract value.
5. Individual Purchase Orders. Execution of the Contract shall be through
issuance and use of Individual Purchase Orders, each Individual
Purchase Order issued for a minimum of ________ of panels, pursuant to
Annex A.
6. Effective Date. This Contract will enter into full force and effect on
the date written above.
7. Duration. The duration of this Contract will be from the effective date
and extend 36 months from the issuance of the first Individual Purchase
Order under the Contract.
8. Termination Date. The Contract shall terminate and be of no further
force and effect on the earlier of: (i) the Contract Value being paid
in full; or (ii) pursuant to the provision of Paragraph 12 below; or
(iii) in accordance with the provided Duration.
9. Payment Terms. Payment of the Contract Value hereunder shall be made as
set forth below:
a. Medium Term Financing. The Seller will assist the Buyer in
obtaining Medium Term Financing. However, it is understood and
agreed by the Parties that no assurances of success in
obtaining such Financing are made or offered by the Seller.
Payment of 85% of the value of the Individual Purchase Orders,
under Medium Term Financing, shall be financed under the
Guarantee Program of the Export-Import of the United States
("Ex-Im Bank") through a lending bank acceptable to the
Parties ("Lending Bank"). The term of the Medium Term
Financing shall be five years.
The Buyer shall be responsible for obtaining the remaining 15%
non-Ex-Im Bank financing portion of the Individual Purchase
Orders. The 15% non-Ex-Im Bank financing portion shall be the
down payment portions of the Individual Purchase Orders not
covered by the Ex-Im Bank Medium Term Financing. The down
payments shall be paid coincident with issuance of the
Individual Purchase Orders.
b. Payment. Payment of 85% of the Contract Value under Medium
Term Financing is as follows. This 85% payment shall be
divided into: (i) a 70% letter of credit; and (ii) a 15%
advance payment:
i. Seventy percent (70%) of the value of the Individual
Purchase Orders is to be paid under a confirmed Irrevocable
Letter of Credit subject to the Uniform Customs and Practice
for Documentary Credits, Publication 500, as published and
Page 2 of 10
<PAGE>
updated from time to time by the International Chamber of
Commerce. The Letter of Credit shall be confirmed by a
financial institution acceptable to the Seller. The amount of
the Letter of Credit shall be equal to seventy percent (70%)
of the value of the Individual Purchase Orders and shall be
available for three hundred sixty (360) days. Any Letter of
Credit and amounts due thereunder are payable in U.S dollars.
The Beneficiary under all Letters of Credit shall be Daedalus
Building Systems, Incorporated, 8653 Richmond Highway,
Alexandria, Virginia 22309-4206, USA.
A. The Letter of Credit shall be advised to the Beneficiary and
confirmed by a commercial bank acceptable to the Seller.
B. The Letter of Credit shall be negotiated by the Beneficiary
through the confirming bank.
C. All fees with respect to the services rendered by the paying
and confirming bank in advising, confirming and negotiating
the Letter of Credit and the documents thereunder shall be for
the account of the Seller.
D. Partial drawing is to be permitted.
E. Documents to be presented for payment:
I. Commercial Invoice
II. Certificate of Origin
III. On Board Bill of Lading
IV. Sight Draft Drawn on the Buyer
ii. All amounts paid under the Letter of Credit in respect of
Section 9. a.(i) above will be financed by the Lending Bank as
follows:
A. All amounts paid under the Letter of Credit shall be evidenced
by a promissory note payable to the Lending Bank, in form and
substance acceptable to the Lending Bank, issued by the Buyer.
Such promissory note shall provide for principal repayment
over a period of five years.
B. Equal payments of principal, with concurrent payments of
interest thereon, at an interest rate of ______ percent (%)
per annum (to be established by the Lending Bank), shall be
payable no less frequently than semiannually commencing no
later than one hundred eighty (180) days from the date of the
On Board Bill of Lading, evidencing the shipment of goods
covered by the Contract Value.
iii. The promissory note, as described in Paragraph
8(b)(ii)(A) shall be delivered by the Buyer to the Seller at
the time of the Buyer's presentation of an Individual Purchase
Order as provided in Paragraph 11.b hereof. Such promissory
note is to be executed but is not to be dated with respect to
either the execution date or the first repayment date. Upon
the issuance of an On Board Bill of Lading, the Seller and/or
Lending Bank will complete the promissory note by inserting
the date of the On Board Bill of Lading as the execution date
and one hundred eighty (180) days from the On Board Bill of
Lading date as the date of first repayment. The buyer will
sign any and all documents required to effect the foregoing
and will designate the seller and/or the lending bank the
necessary authority to complete and deliver the note.
iv. Advance Payment. Payment of fifteen percent (15%) of the
value of the Individual Purchase Orders will be made by the
Buyer to the Seller, in cash and in a form satisfactory to the
Seller, evidencing an advance payment on the Contract. The
advance payment shall be due and payable at the time of
closing of the Medium Term Financing.
Page 3 of 10
<PAGE>
10. Terms of Sale. The sale of the Units shall be on Incoterms 1990, FOB
Ontario, Canada.
a. The Buyer will arrange for and prepay, as may be required,
transportation, insurance, and freight forwarding charges,
which will be added to the account of, and paid by, the buyer,
as provided in Paragraph 4. The Buyer shall be responsible for
obtaining insurance in such amounts and types as required by
the Lending Bank.
b. The Seller will assist the Buyer in providing all available
documentation necessary to clear the goods from customs as
soon as possible.
11. Procedures. In addition to the operational and logistical procedures
described in other sections of this Contract, the Parties also agree as
follows:
a. The Buyer agrees to obtain any and all necessary import
permits and to provide a copy of such permits to the Seller
immediately upon receipt of such Permits by the Buyer.
b. The Buyer agrees to submit an Individual Purchase Order to the
Seller to initiate each order under the Contract. The
Individual Purchase Order is required to be in the form of
Annex C, attached hereto.
c. The Buyer agrees to timely consummate and enter into force all
Medium Term Financing for the first Individual Purchase Order,
as provided for in Paragraph 9.a, above, no later than one
hundred twenty (120) days from the Effective Date. Failure by
the Buyer to fully consummate the Medium Term Financing and
pay the advance payment as provided for herein, including the
execution and entry into force of all applicable
documentation, shall cause this Contract to terminate
immediately and become null and void without notice to either
the Buyer or Seller as of the expiry date of such time period.
Such termination will be deemed to be a breach of contract and
will not afford either the Buyer or the Seller any claim for
any damages whatsoever.
d. The Buyer agrees to submit an Individual Purchase Order for a
minimum of _______ unfinished, basic structural units,
pursuant to Annex A, or structural equivalents, and agrees to
accept partial shipments.
e. The first container shipped in accordance with the initial
Individual Purchase Order of the Contract will contain
articles designated for "inspection and acceptance" in
accordance with specifications agreed upon by the Parties.
Further shipments under the initial Individual Purchase Order
will commence upon completion of inspection and acceptance of
assembled structures, which both parties agree to assemble as
soon and as rapidly as possible.
f. Subject to the terms hereof and the availability of an ocean
vessel, the Seller agrees to ship a completed order within
three hundred sixty (360) days of receipt and acceptance by
the Seller of a Individual Purchase Order.
12. Cancellation and Termination. Other than by breach by the Parties
hereto, except as provided in Section 11.c. hereof, either party may
cancel this Contract after three hundred sixty (360) days from the
Effective Date. Such intent to cancel must be conveyed to the other
Party in writing, as provided herein, sixty (60) days prior to the date
of cancellation.
Page 4 of 10
<PAGE>
13. Penalties. Material breach of this Contract by either Party shall give
rise to a claim by the damaged Party. Such claim shall be limited to
the actual cost of damages and expenses associated with the claim, but
in no event shall such claim exceed ten percent (10%) of the value of
any Individual Purchase Order hereunder. The Seller's obligation to
repair or replace existing housing units or components thereof shall be
the Buyer's sole and exclusive remedy under the Contract.
14. Force Majeure. In the event of a Force Majeure, which affects the
performance of either Party hereunder, the Contract shall be
temporarily suspended and automatically extended for the period of
suspension. Force Majeure shall only include war, natural catastrophes,
and other occurrences, including new legislation, which forecloses or
prevents the possibility of further performance under the Contract.
Force Majeure shall not include labor disputes, civil commotion or poll
congestion.
15. Disputes. All disputes arising in connection with this contract shall
be finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by one or more arbitrators
appointed in accordance with the Rules. The Parties hereto agree that
all rulings under the Rules shall be binding and enforceable with no
further appeal whatsoever and any right of judicial action on any
matter subject to arbitration hereunder is hereby waived. However, any
judicial court may enforce the resolution of the arbitrator(s) and any
Party shall have the right to sue in court to enforce an arbitration
award. Notwithstanding any possible issue submitted for Arbitration, in
all cases the location of arbitration shall be in Northern Virginia.
This paragraph shall survive any termination of this Contract.
16. Notices. All notices to each Party under this Contract shall be in
writing, in the English language, and delivered to the address
designated in the signature block of this Contract. Notices shall be
deemed given when sent by registered mail or by telefax communications,
which are electronically acknowledged as received.
17. Warranty. All units sold under this Contract are warranted to be free
from defects in material and workmanship and shall conform to
applicable U.S. Standards. The warranty of the Seller does not apply to
defects not caused by the Seller, including but not limited to acts of
God, abuse, improper assembly or installation. All notices for claims
of defects, under this warranty, must be made to the Seller in writing
within thirty (30) days of the discovery of the defect by the Buyer.
The sole responsibility of the Seller shall be, at its option, to
replace or repair the defective housing unit and auxiliary buildings.
This warranty shall commence from the date of transfer of title to the
Buyer and shall last for a period of one (1) year. All housing units
and auxiliary buildings and components thereof shall be deemed to be
irrevocably accepted by the Buyer, thirty (30) days after the date of
installation at the site or sites. With the exception of title, no
other warranties, expressed or implied, whether of merchantability or
fitness for a particular purpose, other than those set forth above,
shall apply to the units or components thereof' sold hereunder, and no
alteration or modification of the foregoing shall be binding against
the Seller unless signed by an executive officer of the Seller.
18. Law. This contract shall he governed by and construed in accordance
with the laws of the Commonwealth of Virginia, U.S.A.
Page 5 of 10
<PAGE>
19. Assignment. This Contract is assignable by either Party upon receipt by
the assigning Party of an acceptance from the other Party of a written
notice of assignment from the assigning Party to the Party being
notified. Such notice of acceptance shall not unreasonably be withheld.
20. Authority. Each Party warrants and covenants to the other that it has
full power, authority, and legal right and has taken all other legal
action necessary to authorize the execution of this Contract and
perform the undertakings hereunder.
21. Amendment. Amendments to this Contract must be in writing and signed by
an executive officer of the Seller and the Buyer. No other actions or
approvals shall constitute amendments to this Contract.
22. Conflicts. This Contract, including the Annex attached hereto, and all
amendments hereto, may be executed in both English and _______ language
versions. In the event of conflict between the versions, the English
version shall control. In the event of conflict between this Contract,
including the Annexes attached hereto, and any working drawings, plans,
product descriptions, publications or other representations, the
Contract and Annex will control.
23. Entire Contract. This document represents the entire Contract between
the Parties. The Parties agree to enter into all other contracts,
conform to all local laws and requirements, and perform other actions,
which are necessary to fulfill their obligations under this Contract.
IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date first written above.
For the Seller: /s/ For the Buyer: /s/
------------------- -------------------
The Daedalus Project, Incorporated World Business Investors Group
Edward A. McCulloch Ing. Edgar Espinoza Chacon
President Presidente del Directorio
8653 Richmond Highway Alamanda 199 Surco
Alexandria, Virginia 22309 USA Lima, Peru
Page 6 of 10
<PAGE>
ANNEX A
General Specifications--Daedalus Building Systems (Metal)
1. Daedalus Building Systems (Metal). The Daedalus Building Systems
(Metal) consists of panels , consisting of structural units assembled
from panels, which are fabricated from recycled composites.
2. Basic structural unit. The basic structural unit of the Daedalus
Building Systems (Metal) is an unfinished structure, consisting of
metal panels with polyurethane.
3. Structural Panel. The standard structural panel of the Daedalus
Building Systems (Metal) is a composite panel that is approximately
1.25 X 1.25 X .10 meters, weighing approximately 10 kilograms.
4. Structural equivalent. A structural equivalent of the "basic structural
unit" is any structure that:
a. is combination or configuration of structures that would utilize the
same, or greater number of full size panels of the Daedalus Building
Systems (Metal), i.e., 60 panels
b. sixty or more full size panels of the Daedalus Building Systems
(Metal)
Page 7 of 10
<PAGE>
<TABLE>
<CAPTION>
ANNEX B
Pricing
Type Dimensions Area Area Price Price Price Price Price Price
Unit in feet sq. sq. (USD) per (USD) (USD) (USD) Per (USD) per
Meters feet unfinished square per finished square square
structures meter square structures meter foot
foot
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic 12.38x12.38 14 153.1 $1875.00 $133.93 $12.24 $2,300.00 $164.29 $15.02
Structural
Unit,
single
Unit
Hybrid 16.51x12.38 18.75 201.7 $2,000.00 $106.67 $9.91 $2,500.00 $133.33 $12.39
Single
Unit
Enlarged 20.63x12.38 23.44 252.2 $2300.00 $98.12 $9.12 $2,900.00 $123.72 $11.50
Single
Unit
Double 24.75x12.38 28.12 302.5 $2,750.00 $97.80 $9.09 $3,450.00 $122.69 $11.40
Unit
Triple 37.12x12.38 42.19 453.9 $3,900.00 $92.44 $.59 $4,900.00 $116.14 $10.80
Unit
Peruvian 37.12x12.38 51.56 554.7 $4,750.00 $92.12 $8.56 %5950.00 $115.39 $10.73
Special
Unit I
Peruvian 37.12x12.38 56.25 605.2 $5,150.00 $91.54 $8.51 $6,450.00 $114.67 $10.66
Special
Unit II
</TABLE>
Page 8 of 10
<PAGE>
Annex C
Individual Purchase Order
Name
Individual Purchase Order No.:
Address Date:
Country
Telephone: 011-51-1- Facsimile: 011-51-1
================================================================================
To: The Daedalus Project, Inc.
8653 Richmond Highway Contract Reference: 00000000
Alexandria, Virginia 22309 USA Daedalus Reference: Pro forma No.
Point of Contact:
- --------------------------------------------------------------------------------
Item Quantity Model No. Description Unit Price Extension
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total FOB Ontario, Canada : Export packed in 40 ft. container: $
Export processing, packaging, prepaid inland/ocean freight
to ____________ & forwarder's handling charges ex-works: $
Freight and insurance $
Estimated total costs: $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Estimated gross weight: Estimated cube: 2,560 cubic feet/73
4575kg./10100 lbs. cubic meters
- --------------------------------------------------------------------------------
Banking Information
First Virginia Bank
International Department
6400 Arlington Blvd.
Falls Church, Virginia 22046
USA
Fax: 703-241-3464
ABA#:
Account #:
The Daedalus Project, Inc.
Page 9 of 10
Sales Contract
THIS SALES CONTRACT (the "Contract") is made and entered into as of the
27th day of October, 1999, by and between World Business Investors Group (the
"Buyer"), an entity of legal status organized and existing to engage in commerce
under the laws of the country of Peru, and Daedalus Building Systems,
Incorporated (the "Seller"), a corporation organized and existing under the laws
of Delaware, United States of America. This Contract shall be designated
Contract Number 46-045-99.
WHEREAS, the Seller offered to sell and the Buyer has agreed to buy certain
structural units, components, finishings, and other items related to Daedalus
Building Systems(TM).
NOW THEREFORE, in consideration of the mutual covenants contained herein
and subject to the terms and conditions described herein, the Parties to this
Contract agree as follows:
1. Definitions. For the purpose of this Contract, the following terms shall
have the following meanings, unless otherwise defined; all other terms
shall have the usual and customary meaning ascribed to them.
a. "Dollars" or "$" shall mean the currency of the United States of
America.
b. "Incoterms 1990" means the definition for the referenced term as
adopted by the International Chamber of Commerce in Paris in 1990 or
subsequent adoptions.
c. "Components" shall mean such items as panels of the Daedalus Building
Systems(TM) and related fasteners that are required for assembly of a
structural unit, which does not include tools required to complete
assembly.
d. "Finishings" shall mean those materials used to finish the interior
surfaces of the structures and other items, such as sinks, showers, and
toilets.
2. Unit Pricing. Unit pricing, as specified in Annex "B," attached hereto and
made a part hereof, shall be fixed for the term of the Contract. Pricing is
valid for all units ordered and shipped within the effective period of the
Contract. Prices may be adjusted if delivery extends beyond the period
specified in Paragraph 6.
3. Purchase. The minimum amount of purchase provided under the Contract Value
will be 22,000,000 square feet (2,043,800 square meters) of panels of the
Daedalus Building Systems (Metal), pursuant to Annex A.
4. Contract Value. The Contract Value shall be in dollars and is based upon
the sales price as specified in Annex "A" which shall form an integral part
of this contract. The minimum contract value is one hundred twenty million
and 00/100 Dollars ($120,000,000.00) and represents the purchase of a
minimum of 22,000,000 square feet (2,043,800 square meters) of panels of
the Daedalus Building Systems (Metal), pursuant to Annex A, over three
years, commencing at the date of this contract.
a. Freight. Freight will be arranged by the seller and added to the
account of, and paid by, the buyer. Freight is not considered as a
part of the contract value.
<PAGE>
b. Insurance. Estimated insurance will be paid by the Seller and added to
the account of, and paid by, the buyer. Insurance is not considered as
a part of the contract value.
c. Additional Costs. All additional costs for freight, insurance,
forwarding fees, and any other expenses that are pre-advised, incurred
by the seller and added to the account of the buyer, or billed by the
seller, are due and payable by the buyer within 30 days of payment or
billing by the seller. Additional Costs are not considered as a part of
the contract value.
5. Individual Purchase Orders. Execution of the Contract shall be through
issuance and use of Individual Purchase Orders, each Individual Purchase
Order issued for a minimum of ________ of panels, pursuant to Annex A.
6. Effective Date. This Contract will enter into full force and effect on the
date written above.
7. Duration. The duration of this Contract will be from the effective date and
extend 36 months from the issuance of the first Individual Purchase Order
under the Contract.
8. Termination Date. The Contract shall terminate and be of no further force
and effect on the earlier of: (i) the Contract Value being paid in full; or
(ii) pursuant to the provision of Paragraph 12 below; or (iii) in
accordance with the provided Duration.
9. Payment Terms. Payment of the Contract Value hereunder shall be made as set
forth below:
a. Medium Term Financing. The Seller will assist the Buyer in obtaining
Medium Term Financing. However, it is understood and agreed by the
Parties that no assurances of success in obtaining such Financing are
made or offered by the Seller. Payment of 85% of the value of the
Individual Purchase Orders, under Medium Term Financing, shall be
financed under the Guarantee Program of the Export-Import of the
United States ("Ex-Im Bank") through a lending bank acceptable to the
Parties ("Lending Bank"). The term of the Medium Term Financing shall
be five years.
The Buyer shall be responsible for obtaining the remaining 15%
non-Ex-Im Bank financing portion of the Individual Purchase Orders.
The 15% non-Ex-Im Bank financing portion shall be the down payment
portions of the Individual Purchase Orders not covered by the Ex-Im
Bank Medium Term Financing. The down payments shall be paid coincident
with issuance of the Individual Purchase Orders.
b. Payment. Payment of 85% of the Contract Value under Medium Term
Financing is as follows. This 85% payment shall be divided into: (i) a
70% letter of credit; and (ii) a 15% advance payment:
i. Seventy percent (70%) of the value of the Individual Purchase
Orders is to be paid under a confirmed Irrevocable Letter of
Credit subject to the Uniform Customs and Practice for
Documentary Credits, Publication 500, as published and updated
from time to time by the International Chamber of Commerce. The
Letter of Credit shall be confirmed by a financial institution
acceptable to the Seller. The amount of the Letter of Credit
Page 2 of 9
<PAGE>
shall be equal to seventy percent (70%) of the value of the
Individual Purchase Orders and shall be available for three
hundred sixty (360) days. Any Letter of Credit and amounts due
thereunder are payable in U.S dollars. The Beneficiary under all
Letters of Credit shall be Daedalus Building Systems,
Incorporated, 8653 Richmond Highway, Alexandria, Virginia
22309-4206, USA.
A. The Letter of Credit shall be advised to the Beneficiary and
confirmed by a commercial bank acceptable to the Seller.
B. The Letter of Credit shall be negotiated by the Beneficiary
through the confirming bank.
C. All fees with respect to the services rendered by the paying
and confirming bank in advising, confirming and negotiating
the Letter of Credit and the documents thereunder shall be
for the account of the Seller.
D. Partial drawing is to be permitted.
E. Documents to be presented for payment: I. Commercial Invoice
II. Certificate of Origin
III. On Board Bill of Lading
IV. Sight Draft Drawn on the Buyer
ii. All amounts paid under the Letter of Credit in respect of Section
9. a.(i) above will be financed by the Lending Bank as follows:
A. All amounts paid under the Letter of Credit shall be
evidenced by a promissory note payable to the Lending Bank,
in form and substance acceptable to the Lending Bank, issued
by the Buyer. Such promissory note shall provide for
principal repayment over a period of five years.
B. Equal payments of principal, with concurrent payments of
interest thereon, at an interest rate of ______ percent (%)
per annum (to be established by the Lending Bank), shall be
payable no less frequently than semiannually commencing no
later than one hundred eighty (180) days from the date of
the On Board Bill of Lading, evidencing the shipment of
goods covered by the Contract Value.
iii. The promissory note, as described in Paragraph 8(b)(ii)(A) shall
be delivered by the Buyer to the Seller at the time of the
Buyer's presentation of an Individual Purchase Order as provided
in Paragraph 11.b hereof. Such promissory note is to be executed
but is not to be dated with respect to either the execution date
or the first repayment date. Upon the issuance of an On Board
Bill of Lading, the Seller and/or Lending Bank will complete the
promissory note by inserting the date of the On Board Bill of
Lading as the execution date and one hundred eighty (180) days
from the On Board Bill of Lading date as the date of first
repayment. The buyer will sign any and all documents required to
effect the foregoing and will designate the seller and/or the
lending bank the necessary authority to complete and deliver the
note.
iv. Advance Payment. Payment of fifteen percent (15%) of the value of
the Individual Purchase Orders will be made by the Buyer to the
Seller, in cash and in a form satisfactory to the Seller,
evidencing an advance payment on the Contract. The advance
payment shall be due and payable at the time of closing of the
Medium Term Financing.
Page 3 of 9
<PAGE>
10. Terms of Sale. The sale of the Units shall be on Incoterms 1990, FOB
Ontario, Canada.
a. The Buyer will arrange for and prepay, as may be required,
transportation, insurance, and freight forwarding charges, which will
be added to the account of, and paid by, the buyer, as provided in
Paragraph 4. The Buyer shall be responsible for obtaining insurance in
such amounts and types as required by the Lending Bank.
b. The Seller will assist the Buyer in providing all available
documentation necessary to clear the goods from customs as soon as
possible.
11. Procedures. In addition to the operational and logistical procedures
described in other sections of this Contract, the Parties also agree as
follows:
a. The Buyer agrees to obtain any and all necessary import permits and to
provide a copy of such permits to the Seller immediately upon receipt
of such Permits by the Buyer.
b. The Buyer agrees to submit an Individual Purchase Order to the Seller
to initiate each order under the Contract. The Individual Purchase
Order is required to be in the form of Annex C, attached hereto.
c. The Buyer agrees to timely consummate and enter into force all Medium
Term Financing for the first Individual Purchase Order, as provided for
in Paragraph 9.a, above, no later than one hundred twenty (120) days
from the Effective Date. Failure by the Buyer to fully consummate the
Medium Term Financing and pay the advance payment as provided for
herein, including the execution and entry into force of all applicable
documentation, shall cause this Contract to terminate immediately and
become null and void without notice to either the Buyer or Seller as of
the expiry date of such time period. Such termination will be deemed to
be a breach of contract and will not afford either the Buyer or the
Seller any claim for any damages whatsoever.
d. The Buyer agrees to submit an Individual Purchase Order for a minimum
of _______ unfinished, basic structural units, pursuant to Annex A, or
structural equivalents, and agrees to accept partial shipments.
e. The first container shipped in accordance with the initial Individual
Purchase Order of the Contract will contain articles designated for
"inspection and acceptance" in accordance with specifications agreed
upon by the Parties. Further shipments under the initial Individual
Purchase Order will commence upon completion of inspection and
acceptance of assembled structures, which both parties agree to
assemble as soon and as rapidly as possible.
f. Subject to the terms hereof and the availability of an ocean vessel,
the Seller agrees to ship a completed order within three hundred sixty
(360) days of receipt and acceptance by the Seller of a Individual
Purchase Order.
12. Cancellation and Termination. Other than by breach by the Parties hereto,
except as provided in Section 11.c. hereof, either party may cancel this
Contract after three hundred sixty (360) days from the Effective Date. Such
intent to cancel must be conveyed to the other Party in writing, as
provided herein, sixty (60) days prior to the date of cancellation.
Page 4 of 9
<PAGE>
13. Penalties. Material breach of this Contract by either Party shall give rise
to a claim by the damaged Party. Such claim shall be limited to the actual
cost of damages and expenses associated with the claim, but in no event
shall such claim exceed ten percent (10%) of the value of any Individual
Purchase Order hereunder. The Seller's obligation to repair or replace
existing housing units or components thereof shall be the Buyer's sole and
exclusive remedy under the Contract.
14. Force Majeure. In the event of a Force Majeure, which affects the
performance of either Party hereunder, the Contract shall be temporarily
suspended and automatically extended for the period of suspension. Force
Majeure shall only include war, natural catastrophes, and other
occurrences, including new legislation, which forecloses or prevents the
possibility of further performance under the Contract. Force Majeure shall
not include labor disputes, civil commotion or poll congestion.
15. Disputes. All disputes arising in connection with this contract shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the Rules. The Parties hereto agree that all rulings under
the Rules shall be binding and enforceable with no further appeal
whatsoever and any right of judicial action on any matter subject to
arbitration hereunder is hereby waived. However, any judicial court may
enforce the resolution of the arbitrator(s) and any Party shall have the
right to sue in court to enforce an arbitration award. Notwithstanding any
possible issue submitted for Arbitration, in all cases the location of
arbitration shall be in Northern Virginia. This paragraph shall survive any
termination of this Contract.
16. Notices. All notices to each Party under this Contract shall be in writing,
in the English language, and delivered to the address designated in the
signature block of this Contract. Notices shall be deemed given when sent
by registered mail or by telefax communications, which are electronically
acknowledged as received.
17. Warranty. All units sold under this Contract are warranted to be free from
defects in material and workmanship and shall conform to applicable U.S.
Standards. The warranty of the Seller does not apply to defects not caused
by the Seller, including but not limited to acts of God, abuse, improper
assembly or installation. All notices for claims of defects, under this
warranty, must be made to the Seller in writing within thirty (30) days of
the discovery of the defect by the Buyer. The sole responsibility of the
Seller shall be, at its option, to replace or repair the defective housing
unit and auxiliary buildings. This warranty shall commence from the date of
transfer of title to the Buyer and shall last for a period of one (1) year.
All housing units and auxiliary buildings and components thereof shall be
deemed to be irrevocably accepted by the Buyer, thirty (30) days after the
date of installation at the site or sites. With the exception of title, no
other warranties, expressed or implied, whether of merchantability or
fitness for a particular purpose, other than those set forth above, shall
apply to the units or components thereof' sold hereunder, and no alteration
or modification of the foregoing shall be binding against the Seller unless
signed by an executive officer of the Seller.
18. Law. This contract shall he governed by and construed in accordance with
the laws of the Commonwealth of Virginia, U.S.A.
Page 5 of 9
<PAGE>
19. Assignment. This Contract is assignable by either Party upon receipt by the
assigning Party of an acceptance from the other Party of a written notice
of assignment from the assigning Party to the Party being notified. Such
notice of acceptance shall not unreasonably be withheld.
20. Authority. Each Party warrants and covenants to the other that it has full
power, authority, and legal right and has taken all other legal action
necessary to authorize the execution of this Contract and perform the
undertakings hereunder.
21. Amendment. Amendments to this Contract must be in writing and signed by an
executive officer of the Seller and the Buyer. No other actions or
approvals shall constitute amendments to this Contract.
22. Conflicts. This Contract, including the Annex attached hereto, and all
amendments hereto, may be executed in both English and _______ language
versions. In the event of conflict between the versions, the English
version shall control. In the event of conflict between this Contract,
including the Annexes attached hereto, and any working drawings, plans,
product descriptions, publications or other representations, the Contract
and Annex will control.
23. Entire Contract. This document represents the entire Contract between the
Parties. The Parties agree to enter into all other contracts, conform to
all local laws and requirements, and perform other actions, which are
necessary to fulfill their obligations under this Contract.
IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date first written above.
For the Seller: /s/ For the Buyer: /s/
------------------ ------------------
The Daedalus Project, Incorporated World Business Investors Group
Edward A. McCulloch Ing. Edgar Espinoza Chacon
President Presidente del Directorio
8653 Richmond Highway Alamanda 199 Surco
Alexandria, Virginia 22309 USA Lima, Peru
Page 6 of 9
<PAGE>
ANNEX A
General Specifications--Daedalus Building Systems (Metal)
1. Daedalus Building Systems (Metal). The Daedalus Building Systems (Metal)
consists of panels, consisting of structural units assembled from panels,
which are fabricated from recycled composites.
2. Basic structural unit. The basic structural unit of the Daedalus Building
Systems (Metal) is an unfinished structure, consisting of metal panels with
polyurethane.
3. Structural Panel. The standard structural panel of the Daedalus Building
Systems (Metal) is a composite panel that is approximately 1.25 X 1.25 X
.10 meters, weighing approximately 10 kilograms.
4. Structural equivalent. A structural equivalent of the "basic structural
unit" is any structure that:
a. is combination or configuration of structures that would utilize the
same, or greater number of full size panels of the Daedalus Building
Systems (Metal), i.e., 60 panels
b. sixty or more full size panels of the Daedalus Building Systems
(Metal)
Page 7 of 9
<PAGE>
ANNEX B
Pricing
Page 8 of 9
<PAGE>
Annex C
Individual Purchase Order
Name
Individual Purchase Order No.:
Address Date:
Country
Telephone: 011- Facsimile: 011-
================================================================================
To: The Daedalus Project, Inc.
8653 Richmond Highway Contract Reference: 00000000
Alexandria, Virginia 22309 USA Daedalus Reference: Pro forma No.
Point of Contact:
- --------------------------------------------------------------------------------
Item Quantity Model No. Description Unit Price Extension
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total FOB Ontario, Canada : Export packed in 40 ft. container: $
Export processing, packaging, prepaid inland/ocean freight
to ____________ & forwarder's handling charges ex-works: $
Freight and insurance $
Estimated total costs: $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Estimated gross weight: Estimated cube: 2,560 cubic feet/73
cubic meters
- --------------------------------------------------------------------------------
Banking Information
First Virginia Bank
International Department
6400 Arlington Blvd.
Falls Church, Virginia 22046 USA
Fax: 703-241-3464
ABA#:
Account #:
The Daedalus Project, Inc.
Page 9 of 9
STOCK TRANSFER AND LICENSE AGREEMENT
AGREEMENT made October 31, 1999 between The Daedalus Project, Inc., a
Virginia Corporation (hereinafter called "TDP" and "Licensor") and Daedalus
Building Systems, Inc., a Delaware Corporation (hereinafter called "DBS" and
"Licensee").
WITNESSETH:
WHEREAS, TDP is the owner of potential patents, technology, processes,
and trade secrets with respect to composite housing.
WHEREAS, TDP raised monies from investors to refine said technology and
processes and to acquire assets of a manufacturing facility in Ontario, Canada.
WHEREAS, TDP, in conjunction with the selling of its shares, promised
and covenanted that any subscriber shall receive an equal amount of shares in
any entity created for the purpose of public ownership.
WHEREAS, TDP created DBS for the purpose of manufacturing, marketing,
and selling composite and other housing systems, utilizing the information and
technology processed and developed by TDP.
WHEREAS, TDP created and funded Daedalus Composites, Inc., a Canadian
company, to own and operate the plant in Canada.
WHEREAS, DBS was created to be owned proportionately by the
shareholders of TDP.
WHEREAS, the shares of DBS have been allocated to the shareholders of
TDP proportionately to their individual ownership in TDP, except Edward A.
Mcculloch as the majority shareholder and sole director of TDP has agreed to
substantially reduce and curtail his equity ownership until certain earnings
have been attained by DBS.
WHEREAS, the shares in DBS have been issued to its shareholders.
WHEREAS, the shares in DCI are to be transferred to DBS so that DBS may
operate the business herein contemplated.
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It is therefore agreed:
1. Shares of Daedalus Composites, Inc. All shares, title, and ownership in the
shares of Daedalus Composites, Inc. are hereby irrevocably transferred and
assigned to DBS.
2. Purchase of Corporate Stock of Daedalus Composites, Inc.
2.1 Instruments of Assignment. The sale, assignment and
transfer of the above stock to DBS shall be effected by TDP's execution
and delivery of the Stock Certificates, assignments and other good and
sufficient instruments of transfer and conveyance as shall be
satisfactory to DBS and its Counsel and shall be effective to vest in
DBS all of TDP's right, title and interest in the above corporate
stock.
2.2 Documentation. At or prior to Closing, TDP shall provide
DBS with all existing documentation available to TDP and necessary in
the operation of Daedalus Composites, Inc., including, but not limited
to, copies of agreements with suppliers, worksheets and invoices for
1999, all financials with respect to this operations for year 1999,
equipment records reflecting date of purchase, warranties, maintenance
and repair information, TDP's list of suppliers, and all intangible
rights.
2.3 Liabilities. DBS shall not be or become responsible for
any debts, claims, obligations, contracts or liabilities of TDP, with
respect to Daedalus Composites, Inc., accruing before October 31, 1999
until closing, whether known or unknown, fixed or contingent, including
but not limited to tax liabilities, license fees, or assessments made
by Federal, state or local governments, except all liabilities of the
Lease accruing after date of settlement.
2.4 Allocation of Purchase Price. TDP and DBS mutually agree
that the stock of DCI shall be allocated as follows:
The stock and the underlying assets of Daedalus Composites,
Inc.
TOTAL $2,500,000.00
None of the parties hereto shall take for tax purposes any position
inconsistent with the allocation of valuation set forth above.
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<PAGE>
3. Bulk Sales Compliance
3.1 Notice to Creditors. If applicable, within five (5) days
after execution of this Agreement, but in no event less than fifteen
(15) days prior to Closing, TDP shall prepare and furnish to DBS a list
of creditors of TDP which conforms to all of the requirements of the
Virginia Uniform Commercial Code -- Bulk Transfers, in particular the
requirements as to form set forth in Virginia Code Section 8.6-104 and
any Canadian equivalent statute.
4. Representations and Warranties of TDP. TDP represents and warrants to DBS
as follows:
4.1 Conduct of Business. At all times after execution of this
Agreement, TDP agrees to conduct the business of its Canadian
subsidiary only in the ordinary course, without incurring any
obligations or liabilities which would affect its obligations under
this Agreement, up to the Closing.
4.2 Title to Assets. Except as otherwise provided herein, TDP
through its subsidiary has good and marketable title to all of the
Assets, and none of the Assets or use thereof: (i) is subject to any
restrictions, liens, pledges, claims, encumbrances, licenses or rights
of others of any kind or nature; (ii) encroaches or infringes on the
property rights of another; or (iii) contravenes any applicable law,
ordinance or regulation.
4.3 Transfer. The transfer of the Corporate Stock of Daedalus
Composites, Inc. is not made with intent to delay, hinder or defraud
creditors, DBS or other persons, as defined in Virginia Codess.55-80 or
Canadian equivalent statute.
4.4 Creditors. Except as provided herein all claims of
creditors will be paid by TDP when due.
4.5 Lease. DBS have been provided with a draft copy of the
Lease (the "Lease") for the Premises of Daedalus Composites, Inc. TDP
represents that it is not in default under the Lease in any respect and
that the Lease is in full force and effect in all respects and binding
upon the Landlord and TDP.
4.6 Applicable Laws and Regulations. The Assets of Daedalus
Composites, Inc. are installed and are being maintained, and Daedalus
Composites, Inc.'s business has, at all times, operated in full
compliance with all applicable health, safety, zoning and land use, and
other laws, rules and regulations and contractual provisions, if any.
4.7 Environmental Laws and Regulations. TDP and Daedalus
Composites, Inc. is in compliance in all material respects with all
applicable Federal, Provincial and local laws and regulations relating
to environmental protection and zoning including, but not limited to,
all laws and regulations governing the generation, use, collection,
discharge, or disposal of Hazardous Materials and all laws and
regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials. TDP and/or its subsidiary
has not been alleged to be in violation of, nor has it been subject to
any administrative or judicial proceeding pursuant to, such laws or
regulations either now or any time during the past three (3) years.
There are no facts or circumstances which TDP or its subsidiary
reasonably expects could form the basis for the assertion of any claim
against TDP or its subsidiary relating to environmental matters
including, but not limited to, any claim arising from past or present
environmental practices asserted under any other Federal, Provincial or
local environmental statute, which TDP or its subsidiary believes might
have a material adverse change in the assets, properties, business,
condition (financial or otherwise), operation or prospects of TDP.
3
<PAGE>
4.8 Permits and Licenses. TDP and/or its subsidiary has all
necessary permits, Certificates of Occupancy, licenses and approvals
("Permits") from all governmental agencies required to own and use the
Assets in, and operate the business, and all Permits are in good
standing and in full force and effect.
4.9 Information Furnished. Financial information, operating
information, contract information and data previously provided to DBS
are complete and accurate in all material respects.
4.10 Employees. There are no employee benefit plans of TDP or
its subsidiary. All payments of salary, benefits, insurance or taxes
paid to or on behalf of their employees are current, and there are no
claims or causes of action by employees or former employees of TDP or
its subsidiary. All obligations, loans or debts due any officer,
employee, shareholder, director or related party to any of the above is
and shall be the sole obligation of TDP.
4.11 Notice of Breach or Adverse Action. TDP has not received
notice and has no knowledge of any breach of any contract, law,
ordinance or regulation relating to Daedalus Composites, Inc.'s
business or the Premises or the Assets.
4.12 No Litigation. There are no actions, suits,
investigations or proceedings pending or threatened against or
affecting TDP or TDP Shareholder (or any of them) or any of their
respective assets or properties, in any court or before any arbitrator,
or before or by any governmental department, commission, bureau, board,
agency or instrumentality, domestic or foreign, which, if adversely
determined, would adversely affect TDP's or Daedalus Composites, Inc.'s
ability to operate the business or the Assets, or would adversely
affect its financial condition in any material respect, or would impair
the ability of TDP or Daedalus Composites, Inc. to perform their
respective obligations hereunder. Furthermore, there are no defaults by
TDP or Daedalus Composites, Inc. (or either of them) under any
applicable order, writ, injunction, decree or award of any Court or
arbitrator or any governmental department, board, agency or
instrumentality which would adversely affect TDP's or Daedalus
Composites, Inc. ability to operate its business or the Assets, or
would adversely affect its financial condition in any material respect,
or would materially impair the ability of TDP or Daedalus Composites,
Inc. to perform their respective obligations hereunder.
4.13 Tax Obligations. TDP has filed or caused to be filed,
within the times and in the manner prescribed by law, all Federal,
state, local and foreign tax returns and tax reports which are required
to be filed by, or with respect to, TDP. Such returns and reports
reflect accurately the liability for taxes of TDP for the periods
covered thereby. All Federal, state, local and foreign income, profits,
franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) payable by, or due from,
TDP have been fully paid or adequately disclosed and fully provided for
in the books and financial statements of TDP. The Federal income tax
liability of TDP has been finally determined for all fiscal years to
and including the fiscal year ended December 31, 1998. No examination
of any tax return or report of TDP or Daedalus Composites, Inc. is
currently in progress. There are no (i) audits or investigations
pending or threatened against TDP or TDP Shareholders in respect to
taxes asserted by any governmental authority, (ii) outstanding
agreements or waivers extending the statutory period of limitation
applicable to any tax return of TDP and (iii) agreements with any
Federal, state, county or local taxing authority that may affect the
subsequent tax liabilities of TDP.
4
<PAGE>
4.14 Organization, Authority. TDP is duly organized, validly
existing, and in good standing under the laws of the State of Virginia
and has the corporate power and authority to own its properties and to
conduct the business now conducted by it. TDP has full corporate power
and authority to enter into this Agreement and carry out its
obligations hereunder.
4.15 No Change in Business. Neither TDP nor Daedalus
Composites, Inc. have any knowledge or reason to know of any existing
termination, cancellation, limitation, modification or change or threat
of any such termination, cancellation, limitation, modification or
change of the business relationship of TDP with any customer, or any
other person which would have a material impact on the business
presently conducted by TDP. Neither TDP or said Daedalus Composites,
Inc. has any knowledge of any specific reason (other than general
market conditions) why Daedalus Composites, Inc. customers would not
continue to do business with DBS in the future to the same or a greater
extent as they have done business with TDP and/or Daedalus Composites,
Inc. in the past.
4.16 No Violation. The execution and delivery by TDP, of this
Agreement, the consummation by them of the transactions contemplated
hereby, and compliance by them with the terms hereof, will not:
(i) violate or result in the breach of or contravene any of
the terms, conditions or provisions of any law, regulation,
order, writ, injunction, decree, determination or award of any
Court, governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator,
applicable to TDP or Daedalus Composites, Inc. or to assets
and properties of TDP or Daedalus Composites, Inc.;
(ii) result in prohibited action under any term or provision
of, or the material breach of any term or provision of, the
termination of, or the acceleration or permitting the
acceleration of the performance required by the terms of, or
constitute a default under or require the consent of any party
to, any loan agreement, indenture, mortgage, deed or trust or
other contract, agreement or instrument, to which TDP or
Daedalus Composites, Inc., or any of them, is a party or by
which any is bound; or
(iii) conflict with the Articles of Incorporation or By-Laws
of TDP or Daedalus Composites, Inc. or any other agreements,
licenses or permits of any kind relating to the formation,
management, operation or other activity of TDP or Daedalus
Composites, Inc.
5. Conditions Precedent to Obligations of DBS. The obligations of DBS under this
Agreement are subject to the conditions that, at or prior to the Closing Date,
the following conditions shall be satisfied.
5.1 TDP shall have signed this Agreement, obligating and
committing TDP to sell to DBS the corporate stock of Daedalus
Composites, Inc. The individuals signing this Agreement on behalf of
Daedalus Composites, Inc. shall have authority to do so. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly authorized by
TDP's Board of Directors. Evidence of Director approval shall be
provided to DBS at Closing since Daedalus Composites, Inc. is the
wholly owned subsidiary of TDP.
5
<PAGE>
5.2 The representations and warranties of TDP set forth in
this Agreement in connection with the transactions contemplated by this
Agreement shall be true and correct on the date when made and at
Closing.
5.3 TDP shall have performed and complied with all agreements
and conditions contained in this Agreement required to be performed or
complied with by it prior to or contemporaneously with Closing.
5.4 TDP shall have taken all actions (whether corporate or
otherwise) which, in DBS reasonable judgment, are necessary or
appropriate to authorize the execution and delivery of this Agreement,
the transactions contemplated by this Agreement, and all documents and
instruments incident to such transactions.
5.5 There shall be no suit, action, investigation, inquiry or
other proceeding by any governmental authority or any other person or
any other legal or administrative proceeding pending or threatened
which questions the validity or legality of the transactions
contemplated by this Agreement, or seeks damages in connection
therewith.
5.6 There shall have been no fire, flood, or other casualty,
which has a materially adverse affect on the value of Daedalus
Composites, Inc.'s business.
5.7 All inventory and property, contracts, furniture, fixtures
and equipment shall not be damaged, assigned, conveyed, converted, or
in any manner removed from the Premises of Daedalus Composites, Inc.
5.8 The business conducted at the Premises shall continue to
be an ongoing business at the date of Closing, and there shall have
been no material adverse change to the existence, nature or quality of
said business.
In the event that any of the foregoing conditions are not satisfied,
TDP shall have notice and opportunity to cure. Time to cure shall be fifteen
(15) business days. If the condition remains unsatisfied, at the option of DBS,
this Agreement shall be null and void and the parties shall have no further
liability hereunder.
6. Conditions Precedent to Obligations of TDP:
6.1 This Agreement shall have been signed by DBS, obligating
and committing DBS to purchase and TDP to sell the stock of Daedalus
Composites, Inc. of TDP set forth herein. The person signing the
Agreement on behalf of TDP shall have the authority to do so.
6.2 DBS shall have performed and complied with all agreements,
conditions, representations and warranties contained in the Agreement
required to be performed or complied with by it prior to or
contemporaneously with Closing.
7. Closing. The sale and purchase of stocks provided for in this Agreement shall
be consummated by October 31, 1999. (The date and event of the sale of purchase,
respectively, hereinafter referred to as the "Closing Date" and the "Closing.")
The parties hereto acknowledge that they are entitled to be represented by
Counsel of their own choosing at the Closing.
8. Access to Information. The parties hereto acknowledge that prior to the
execution of this agreement, DBS have had the right to verify the Assets set
forth herein, interview employees, and to examine and/or copy all of the books
and records of TDP and Daedalus Composites, Inc., in person or by the agents,
attorneys or accountants and to observe the inventory and facilities of the
business.
6
<PAGE>
9. Indemnification and Hold Harmless. TDP as herein identified shall and do
jointly and severally indemnify, defend and hold harmless DBS, their members,
officers, directors, shareholder, successors and assigns against any and all
losses, damages, demands, claims, assessments, actions, taxes, deficiencies,
penalties, interest, attorneys' fees, costs and expenses arising out of or
incident to any of the following:
(a) If any representation or warranty made by TDP or Daedalus
Composites, Inc. in this Agreement shall be untrue, or if any covenant
of TDP or Daedalus Composites, Inc. not be performed;
(b) Without limiting the generality of the foregoing, any claim
asserted against DBS, its successors or assigns, and alleged to arise
out of any act, omission, obligation or liability of TDP or Daedalus
Composites, Inc. or any of their employees (while employed by TDP or
Daedalus Composites, Inc.) or agents including, but not limited to,
claims of ownership of or rights to the corporate stock, taxes of all
kinds except those assumed herein, any claim made under the Bulk
Transfers Title of the Uniform Commercial Code, any claim, damage or
liability resulting from negligence or products liability of TDP or of
Daedalus Composites, Inc., and any claim, damage or liability resulting
from lack of compliance by TDP or Daedalus Composites, Inc. with laws
or governmental regulations, whether Federal, state or local.
10. Post-Closing Covenants of Parties.
10.1 At the request of DBS, TDP and Daedalus Composites, Inc.
shall deliver any further instruments of transfer and take any and all
action as may be in the reasonable opinion of Counsel for DBS,
necessary and appropriate to:
(i) vest in DBS good and marketable title to the corporate
stock of Daedalus Composites, Inc.;
(ii) vest in DBS all rights in Daedalus Composites, Inc.
10.2 TDP shall do no act to dissolve, liquidate, or terminate
the existence of Daedalus Composites, Inc. at any time prior to the
effective date of the Stock Purchase Agreement. Until said date, TDP
shall remain in good standing and qualified to do business in Canada.
11. Expenses. TDP and DBS shall each pay their own expenses and costs, including
without limitation all Counsel fees, transfer taxes and taxes arising out of
this transaction.
12. Miscellaneous
12.1 Waiver of Breach. Any waiver by any party hereto of a
breach of any of the provisions of this Agreement by any other party
shall not operate or be construed as a waiver by the other parties of
any of the rights and privileges of said parties hereunder or of any
subsequent breach.
7
<PAGE>
12.2 Controlling Law. This Agreement shall be interpreted,
construed and administered according to the law of the Commonwealth of
Virginia.
12.3 Survival of Representations and Warranties. This
Agreement shall not be deemed merged into any Bill of Sale or other
document executed at or pursuant to Closing. All of the representations
and warranties of all parties set forth in this Agreement shall survive
the Closing Date and shall not be affected by any investigation,
verification or approval by any party hereto or by anyone on behalf of
any such parties.
12.4 Construction. The language in all parts of this Agreement
shall in all cases be construed as a whole, according to its fair
meaning, and not strictly for or against either party.
12.5 Further Acts. TDP shall, at any time and from time to
time after the Closing Date, upon request of DBS, do, execute,
acknowledge and deliver all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may
reasonably be required to convey, transfer to and vest in DBS, and
protect the right, title, interest in and enjoyment of, the assets of
TDP intended to be assigned, transferred and conveyed pursuant to this
Agreement.
12.6 Counterparts. This Agreement may be executed and/or
conformed in any number of counterparts, each of which shall be deemed
original.
12.7 Alteration. This Agreement may be altered, amended,
modified or terminated only by a writing signed by all of the parties
hereto.
13. License. The Licensor grants to the Licensee the exclusive, nontransferable
right and license to manufacture, use, market, sell and otherwise to
commercialize the patents, potential patents, technology, information and
processes, and the improvements (the "Technology) throughout the world related
to residential housing units. Such license includes the right to grant
sublicenses upon terms consistent with this agreement. The exclusive right and
license herein granted shall apply to all inventions, improvements, patent
application or letters patent, which the Licensor now owns or controls, or
hereafter shall own or control, relating to the Technology.
The current embodiment of the technology is in the form of panels that
are fabricated from advanced composite technology, principally from
recycled polyolefins, primarily polyethylene, with various additives,
including glass fiber and talc, to increase performance parameters and
the typical attributes of composites such as strength, flexibility,
durability, and permanence. Production technologies presently include
compression, injection-compression, thermoforming and various other
plastic forming method.
8
<PAGE>
14. Representations of Licensor. The Licensor represents the following:
a. that the licensor is the exclusive owner of all rights to
any potential patent, has the right to grant this exclusive
license, and has not granted to any other person, firm or
corporation any right, license, shop right, or privilege
thereunder;
b. that the Licensor has at no time filed, or caused to be
filed, applications for letters patent, or obtained in its
name, or caused to be obtained in the name of others, any
letters patent in the United States or elsewhere, relating to
the Invention or articles similar thereto.
15. Necessary Aid and Information. The Licensor shall furnish to the Licensee,
its nominees, or patent attorneys all information and documents relating to the
technology, trade secrets, potential patents, etc., which are necessary to
enable the Licensee to prosecute the patent applications and to conduct
operations under the terms of this agreement. The Licensor shall not reveal such
information or any information relating thereto to any other person without the
approval of the Licensee.
16. Patents. Any letters patent issued on such technology and its improvements
shall be the exclusive property of the Licensor, subject to the license hereby
granted. The Licensee shall prepare, file and prosecute, in the name of the
Licensor but at its own expense, applications for the letters patent of the
United States for the Invention and all improvements hereafter made by the
Licensor, Licensee or sublicensees. The Licensor shall, without further
consideration, at the request of the Licensee, do all acts necessary for
obtaining, sustaining, reissuing, or extending any letters patent and shall give
testimony and otherwise provide evidence in cases of interference.
17. License Year. A license year shall be a period of one-year starting on
January 1 of one year and ending on December 31 of the same year.
18. Royalties. The Licensee shall pay and deliver to the Licensor:
a. $1,000 by certified check upon the execution of this
agreement.
b. Royalties equivalent to 5% of gross sales of any products in
which the Technology is embodied.
19. Payment of Royalties. The Licensee shall at all times keep an accurate
account of all operations under the scope of this license, shall render written
statements thereof to the Licensor within 30 days after every quarter-annual
period of each license year during the life of this agreement, and shall pay to
the Licensor with each such statement the amount of all royalties earned during
the corresponding quarter-annual period. The Licensor shall have the right, at
its own expense and not more often than once in each quarter-annual period, to
have the Licensee's books examined for the purpose of verifying such royalty
statements. In all sublicensing agreements, the Licensee shall procure for the
Licensor a similar right to have the books of the sublicensee examined for the
purpose of verifying royalty statements.
20. Covenants of licensee. The Licensee covenants as follows:
a. The Licensee shall in good faith and with diligence conduct
all manufacturing, marketing, and other operations in
accordance with the best business customs of its industry.
9
<PAGE>
21. Term. This license shall continue indefinitely so long as revenues are
generated as a result of building systems technologies being brought to Daedalus
Building System, Inc., subject to the following:
a. If royalty payments to the Licensor are in arrears for 60
days after the due date, or if the Licensee defaults in
performing any of the other terms of this agreement and
continues in default for a period of 60 days, of if the
Licensee is adjudicated a bankrupt or becomes insolvent, or
enters into a composition with creditors, or if a receiver
is appointed for it, then the Licensor shall have the right
to terminate this agreement upon giving notice to the
Licensee ten days before the time when such termination is
to take effect, and if the cause for such notice is not
cured within the ten days, then at the expiration of the ten
days the agreement shall terminate, without prejudice to any
moneys due or to become due to the Licensor under this
agreement, and without prejudice to any other rights of the
Licensor.
b. Upon termination of this agreement for any cause, the
Licensee shall duly account to the Licensor and shall
transfer to him all rights which it may possess in
sublicenses, letters patent, inventions, trade names, and
trademarks, relating to the Invention/technology.
22. Infringement. The Licensee shall defend at its own expense all infringement
suits that may be brought against is on account of the manufacture, use or sale
of the Invention/technology, and when information is brought to its attention
indicating that others without license are unlawfully infringing on the rights
granted in this agreement, it shall prosecute diligently any infringer at its
own expense. In connection with such suits, the Licensor shall, at the expense
and at the request of the Licensee, give evidence and execute such documents as
the Licensee may require.
23. Notice. Any notice required or permitted to be given under this Agreement
shall be given in writing and sent by certified mail to the address of the party
set forth herein, unless that party shall give notice of a different address.
The date of notice shall be the date of mailing. Any notices under this
Agreement shall also be delivered to:
If to DBS: Daedalus Building Systems, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
If to TDP: The Daedalus Project, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
With copies to: Herbert S. Rosenblum, Esquire
Post Office Box 58
Alexandria, VA 22313-0058
24. Assignment. The Licensee shall not have the right to assign this agreement
without the prior written consent of the Licensor.
25. Arbitration. Any dispute under this agreement shall be settled in
Alexandria, Virginia by arbitration pursuant to the rules, then obtaining, of
the American Arbitration Association.
In witness whereof the parties have executed this agreement on the date
first set forth above.
SELLER AND LICENSOR:
The Daedalus Project, Inc.
/s/
---------------------------
Edward A. McCulloch
President
PURCHASER AND LICENSEE:
Daedalus Building Systems, Inc.
/s/
---------------------------
Patricia L. Espino-Nayar
Vice President
10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made and entered
into effective as of the first day of December, 1999, by and between DAEDALUS
BUILDING SYSTEMS, INC, a Delaware Corporation (hereinafter "Employer") and
EDWARD A. McCULLOCH (hereinafter "Employee").
WHEREAS, Employer is engaged in the business of manufacturing and
selling building systems to build housing units worldwide, and desires to employ
Employee to act as President and CEO; and
WHEREAS, Employee desires to accept employment to act as President
and CEO and as an employee of Employer; and
WHEREAS, Employer has offered Employee reasonable compensation in
consideration for such employment pursuant to certain terms and conditions set
forth herein and Employee hereby accepts such offer.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Employer and Employee
hereby agree as follows:
1. Term. The term of Employee's employment under this Agreement shall
commence on December 1, 1999, and shall continue thereafter until November 30,
2002, except as otherwise provided herein (the "Term").
2. Duties and Services. Employee agrees to devote appropriate time and
attention to the business of Employer for the benefit of Employer. The
expenditure of reasonable amounts of time for other business activities shall
not be deemed a breach of this Agreement, provided such activities do not
materially interfere with the services to be rendered hereunder. Any outside
employment must be pre-approved by the Employer, except for employment by
companies now known as Daedalus Products, Inc., Daedalus IT, Inc., or any of the
Chesapeake companies.
3. Compensation. As compensation for services provided by Employee and
as long as Employee is not in default hereunder, Employer shall pay Employee per
annum as follows: Year 1 the sum of $ 225,000.00; Year 2 the sum of $
275,000.00; Year 3 the sum of $ 325,000.00. The compensation shall be paid
periodically in accordance with Employer's normal payroll procedures; provided,
however, that compensation payable to Employee after the Term shall be payable
in accordance with Section 11 of this Agreement. Further, at the option of the
Employer, the Employee may be paid a bonus based upon the financial condition of
the company and upon consideration of Employee's contributions to the company.
4. Disclosure and Ownership of Information.
a. Employee recognized and agrees that the business of
Employer and its business interests require a confidential relationship
between Employer and its employees and the fullest practical protection
and confidential treatment of its trade secrets, trade practices,
prospects, transactions, business lists, business information, business
files and other knowledge of business which will be or have been
conceived, developed or learned by Employee during Employee's course of
1
<PAGE>
employment with Employer. Accordingly, during Employee's term of
employment with Employer and thereafter, Employee will: (i) keep secret
and confidential all such information, trade secrets, trade practices,
prospects, transactions, business lists, business information, business
files and other business practices of Employer; (ii) not use or aid
others in using, directly or indirectly, the same in competition with
Employer; and (iii) will not contact or solicit the customers,
employees or creditors of Employer in any manner which relates to any
business engaged in by Employer.
b. Notwithstanding anything to the contrary in subsection (a)
of this section, Employer and Employee agree that all housing related
inventions, housing related ideas, housing related plans, housing
related reports, or housing related processes which are conceived,
invented, prepared or developed primarily by Employee during Employee's
employment with the Employer shall be the sole and exclusive property
of Employer.
c. Employer and Employee agree that all inventions, ideas,
plans, reports, prospects or processes or other results of labor which
are conceived, invented, prepared or developed, in whole or in part,
during Employee's employment with the employer, by or with the
assistance of Employee and with or without the assistance of Employer
or other employees of Employer shall be the sole and exclusive property
of Employer, and Employee shall, upon request by Employer at any time,
execute assignments of the same or other similar documents in favor of
Employer.
d. During the term of this Agreement, Employee shall have
access to and become acquainted with various trade secrets and/or
confidential or proprietary information, including but not limited to
protocols, procedures, policies, business or strategic plans, business
accounts, financial information, contracts, risk management or quality
assurance information, and other records of Employer (some of which may
be developed in part by Employee under this Agreement), which items are
owned exclusively by Employer and, to the extent created by Employee,
shall be deemed work for hire, and used in the operation of its
business (the "Confidential Information"). Employee acknowledges that
the Confidential Information is secret, confidential and proprietary to
Employer and has been disclosed to and/or obtained by Employee in
confidence and trust for the sole purpose of using the same for the
sole benefit of Employer. During his employment and after the
termination or expiration of his employment, Employee shall not divulge
any of the Confidential Information to any other person or entity or
use the Confidential Information for his own benefit or for the benefit
of any other person or entity, without the prior written consent,
Employer, which consent may be withheld in its sole discretion.
e. The parties agree that the terms of this Section 4 shall
survive termination or expiration of this Agreement. The existence of
any claim or cause of action against Employer by Employee, whether
predicated on this Agreement or otherwise, shall not constitute a
defense to enforcement of this Section.
5. Covenant Not to Compete.
a. Employee agrees that while employed by Employer, Employee
will not, directly or indirectly, own, operate, participate in,
undertake any employment with or have any interest in any business
2
<PAGE>
enterprise which is competitive with the business engaged in by
Employer; provided, that this section shall not be interpreted to limit
the activities of the Employee when such Employee is acting as the
agent of Employer.
b. For a period of sixty (60) months following the termination
of employment hereunder, Employee shall not, directly or indirectly,
own, operate, participate in, undertake any employment with or have any
interest in any business which is involved in providing housing or
dwelling units made of composites or other materials.
6. Damages for Breach of Sections 6 and 7. In the event Employee
breaches or threatens to breach any of the covenants contained in Sections 6 or
7 hereof, Employer shall have any and all rights and remedies at law or in
equity against Employee, including, but not limited to, the right to obtain
compensatory damages from Employee. Employer may offset any amounts due Employee
from Employer against amounts due Employer hereunder. The rights and remedies
provided in this Section are in addition to any and all rights and remedies
Employer has, including the right of injunction, pursuant to Section 16 hereof.
Upon request of Employer, Employee shall submit to arbitration as provided in
Section 19 hereof.
7. Reasonableness of Restrictions.
(a) Employee has carefully read and considered the provisions
of Paragraph 6, 7 and 8 and, having done so, agrees that the
restrictions set forth in these paragraphs, including, but not limited
to, the time period of restriction are fair and reasonable and are
reasonably required for the protection of the interests of employer and
its officer, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of
the provisions of Paragraphs 6, 7 and 8 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision of the said Paragraphs relating to the time period shall
be declared by a court of competent jurisdiction to exceed the maximum
time period or areas or amount such court deems reasonable and
enforceable, the time period deemed reasonable and enforceable by the
court shall become and thereafter be the maximum time period.
8. Benefit Plans. Employee shall be provided the opportunity to
participate in any group health and life insurance plans, medical reimbursement
plans, pension plans, profit sharing plans, and any other employee benefit plans
or other fringe benefits available to other physician employees of Employer,
whether now existing or hereafter created. Additionally, the employee will be
provided the opportunity to participate in any program of higher education, at
the expense of the company, so long as it relates directly to the business of
the Employer and to the functions for which the Employee is employed.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either personally delivered or
mailed by registered or certified mail, return receipt requested, postage
prepaid, to the employer at its principal place of business and to the Employee
at his or her last known residential address.
10. Arbitration; Injunctive Relief. Except as otherwise provided in
Section 8 hereof, any dispute or controversy arising under this Agreement and
relating to damages shall be settled by submitting the same to arbitration under
the commercial rules of the American Arbitration Association, as then in effect,
3
<PAGE>
in Alexandria, Virginia. Any decision or determination from such an arbitration
proceeding shall be final and binding and may be entered in any court having
jurisdiction thereof, unless the decision or determination is in manifest
disregard of the applicable law. Employee and Employer acknowledge, however,
that in many situations damages are an inadequate remedy at law for the breach
of many of the terms hereof (including, but not limited to, the covenants of
Employee contained in Sections 6 and 7 hereof) and, accordingly, Employer is
hereby granted and shall have the right of injunction (any requirements for
posting of bonds for injunction are hereby expressly waived), and such other and
further relief in equity as Employer may be entitled to receive under the laws
of the Commonwealth of Virginia, in the event Employee breaches or threatens to
breach any of the covenants or agreements contained herein. In the event any
provisions hereof shall be modified or held ineffective by any arbitrator or any
court in any respect, such determination or adjudication shall not invalidate or
render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law.
11. Entire Agreement. The Agreement represents the entire and final
agreement between the parties. The parties hereto have read the terms and
conditions of their Agreement before signing the same, and hereby agree that no
statement, agreement or understanding, whether oral or written, not contained
herein will be recognized or enforced.
12. Miscellaneous. This Agreement shall be governed by the laws of the
Commonwealth of Virginia and shall be enforceable in Alexandria or Fairfax,
Virginia, and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. This Agreement may be amended only in a writing signed by
Employer and Employee. Any waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any part or of any other provision hereof. A waiver of any
of the terms and conditions hereof shall not be construed as a general waiver by
Employer, and employer shall be free to reinstate any such term or condition,
with or without notice to Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the first date stated above.
EMPLOYER:
DAEDALUS BUILDING SYSTEMS, INC.
By: /s/
----------------------
Name: PATRICIA L. ESPINO-NAYAR
Vice President
EMPLOYEE:
/s/
--------------------------
EDWARD A. McCULLOCH
4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made and entered
into effective as of the first day of December, 1999, by and between DAEDALUS
BUILDING SYSTEMS, INC, a Delaware Corporation (hereinafter "Employer") and DAVID
LIGHTBODY (hereinafter "Employee").
WHEREAS, Employer is engaged in the business of manufacturing and
selling building systems to build housing units worldwide, and desires to employ
Employee to act as Executive Vice President; and
WHEREAS, Employee desires to accept employment to act as Executive Vice
President and as an employee of Employer; and
WHEREAS, Employer has offered Employee reasonable compensation in
consideration for such employment pursuant to certain terms and conditions set
forth herein and Employee hereby accepts such offer.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Employer and Employee
hereby agree as follows:
1. Term. The term of Employee's employment under this Agreement shall
commence on December 1, 1999, and shall continue thereafter until November 30,
2002, except as otherwise provided herein (the "Term").
2. Duties and Services. Employee agrees to devote appropriate time and
attention to the business of Employer for the benefit of Employer. The
expenditure of reasonable amounts of time for other business activities shall
not be deemed a breach of this Agreement, provided such activities do not
materially interfere with the services to be rendered hereunder. Any outside
employment must be pre-approved by the Employer, except for employment by
companies now known as Daedalus Products, Inc., Daedalus IT, Inc., or any of the
Chesapeake companies.
3. Compensation. As compensation for services provided by Employee and
as long as Employee is not in default hereunder, Employer shall pay Employee per
annum as follows: Year 1 the sum of $ 130,000.00; Year 2 the sum of $
160,000.00; Year 3 the sum of $ 190,000.00. The compensation shall be paid
periodically in accordance with Employer's normal payroll procedures; provided,
however, that compensation payable to Employee after the Term shall be payable
in accordance with Section 11 of this Agreement. Further, at the option of the
Employer, the Employee may be paid a bonus based upon the financial condition of
the company and upon consideration of Employee's contributions to the company.
4. Disclosure and Ownership of Information.
a. Employee recognized and agrees that the business of
Employer and its business interests require a confidential relationship
between Employer and its employees and the fullest practical protection
and confidential treatment of its trade secrets, trade practices,
prospects, transactions, business lists, business information, business
files and other knowledge of business which will be or have been
1
<PAGE>
conceived, developed or learned by Employee during Employee's course of
employment with Employer. Accordingly, during Employee's term of
employment with Employer and thereafter, Employee will: (i) keep secret
and confidential all such information, trade secrets, trade practices,
prospects, transactions, business lists, business information, business
files and other business practices of Employer; (ii) not use or aid
others in using, directly or indirectly, the same in competition with
Employer; and (iii) will not contact or solicit the customers,
employees or creditors of Employer in any manner which relates to any
business engaged in by Employer.
b. Notwithstanding anything to the contrary in subsection (a)
of this section, Employer and Employee agree that all housing related
inventions, housing related ideas, housing related plans, housing
related reports, or housing related processes which are conceived,
invented, prepared or developed primarily by Employee during Employee's
employment with the Employer shall be the sole and exclusive property
of Employer.
c. Employer and Employee agree that all inventions, ideas,
plans, reports, prospects or processes or other results of labor which
are conceived, invented, prepared or developed, in whole or in part,
during Employee's employment with the employer, by or with the
assistance of Employee and with or without the assistance of Employer
or other employees of Employer shall be the sole and exclusive property
of Employer, and Employee shall, upon request by Employer at any time,
execute assignments of the same or other similar documents in favor of
Employer.
d. During the term of this Agreement, Employee shall have
access to and become acquainted with various trade secrets and/or
confidential or proprietary information, including but not limited to
protocols, procedures, policies, business or strategic plans, business
accounts, financial information, contracts, risk management or quality
assurance information, and other records of Employer (some of which may
be developed in part by Employee under this Agreement), which items are
owned exclusively by Employer and, to the extent created by Employee,
shall be deemed work for hire, and used in the operation of its
business (the "Confidential Information"). Employee acknowledges that
the Confidential Information is secret, confidential and proprietary to
Employer and has been disclosed to and/or obtained by Employee in
confidence and trust for the sole purpose of using the same for the
sole benefit of Employer. During his employment and after the
termination or expiration of his employment, Employee shall not divulge
any of the Confidential Information to any other person or entity or
use the Confidential Information for his own benefit or for the benefit
of any other person or entity, without the prior written consent,
Employer, which consent may be withheld in its sole discretion.
e. The parties agree that the terms of this Section 4 shall
survive termination or expiration of this Agreement. The existence of
any claim or cause of action against Employer by Employee, whether
predicated on this Agreement or otherwise, shall not constitute a
defense to enforcement of this Section.
5. Covenant Not to Compete.
a. Employee agrees that while employed by Employer, Employee
will not, directly or indirectly, own, operate, participate in,
undertake any employment with or have any interest in any business
enterprise which is competitive with the business engaged in by
2
<PAGE>
Employer; provided, that this section shall not be interpreted to limit
the activities of the Employee when such Employee is acting as the
agent of Employer.
b. For a period of sixty (60) months following the termination
of employment hereunder, Employee shall not, directly or indirectly,
own, operate, participate in, undertake any employment with or have any
interest in any business which is involved in providing housing or
dwelling units made of composites or other materials.
6. Damages for Breach of Sections 6 and 7. In the event Employee
breaches or threatens to breach any of the covenants contained in Sections 6 or
7 hereof, Employer shall have any and all rights and remedies at law or in
equity against Employee, including, but not limited to, the right to obtain
compensatory damages from Employee. Employer may offset any amounts due Employee
from Employer against amounts due Employer hereunder. The rights and remedies
provided in this Section are in addition to any and all rights and remedies
Employer has, including the right of injunction, pursuant to Section 16 hereof.
Upon request of Employer, Employee shall submit to arbitration as provided in
Section 19 hereof.
7. Reasonableness of Restrictions.
(a) Employee has carefully read and considered the provisions
of Paragraph 6, 7 and 8 and, having done so, agrees that the
restrictions set forth in these paragraphs, including, but not limited
to, the time period of restriction are fair and reasonable and are
reasonably required for the protection of the interests of employer and
its officer, directors, shareholders and other employees.
(b) In the event that, notwithstanding the foregoing, any of
the provisions of Paragraphs 6, 7 and 8 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision of the said Paragraphs relating to the time period shall
be declared by a court of competent jurisdiction to exceed the maximum
time period or areas or amount such court deems reasonable and
enforceable, the time period deemed reasonable and enforceable by the
court shall become and thereafter be the maximum time period.
8. Benefit Plans. Employee shall be provided the opportunity to
participate in any group health and life insurance plans, medical reimbursement
plans, pension plans, profit sharing plans, and any other employee benefit plans
or other fringe benefits available to other physician employees of Employer,
whether now existing or hereafter created. Additionally, the employee will be
provided the opportunity to participate in any program of higher education, at
the expense of the company, so long as it relates directly to the business of
the Employer and to the functions for which the Employee is employed.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either personally delivered or
mailed by registered or certified mail, return receipt requested, postage
prepaid, to the employer at its principal place of business and to the Employee
at his or her last known residential address.
10. Arbitration; Injunctive Relief. Except as otherwise provided in
Section 8 hereof, any dispute or controversy arising under this Agreement and
relating to damages shall be settled by submitting the same to arbitration under
the commercial rules of the American Arbitration Association, as then in effect,
3
<PAGE>
in Alexandria, Virginia. Any decision or determination from such an arbitration
proceeding shall be final and binding and may be entered in any court having
jurisdiction thereof, unless the decision or determination is in manifest
disregard of the applicable law. Employee and Employer acknowledge, however,
that in many situations damages are an inadequate remedy at law for the breach
of many of the terms hereof (including, but not limited to, the covenants of
Employee contained in Sections 6 and 7 hereof) and, accordingly, Employer is
hereby granted and shall have the right of injunction (any requirements for
posting of bonds for injunction are hereby expressly waived), and such other and
further relief in equity as Employer may be entitled to receive under the laws
of the Commonwealth of Virginia, in the event Employee breaches or threatens to
breach any of the covenants or agreements contained herein. In the event any
provisions hereof shall be modified or held ineffective by any arbitrator or any
court in any respect, such determination or adjudication shall not invalidate or
render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law.
11. Entire Agreement. The Agreement represents the entire and final
agreement between the parties. The parties hereto have read the terms and
conditions of their Agreement before signing the same, and hereby agree that no
statement, agreement or understanding, whether oral or written, not contained
herein will be recognized or enforced.
12. Miscellaneous. This Agreement shall be governed by the laws of the
Commonwealth of Virginia and shall be enforceable in Alexandria or Fairfax,
Virginia, and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. This Agreement may be amended only in a writing signed by
Employer and Employee. Any waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any part or of any other provision hereof. A waiver of any
of the terms and conditions hereof shall not be construed as a general waiver by
Employer, and employer shall be free to reinstate any such term or condition,
with or without notice to Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the first date stated above.
EMPLOYER:
DAEDALUS BUILDING SYSTEMS, INC.
/s/
--------------------------
EDWARD A. McCULLOCH
President
EMPLOYEE:
/s/
--------------------------
DAVID LIGHTBODY
4
L E A S E
THIS LEASE, made in quadruplicate, this 31st day of October, 1999, by
and between CHESAPEAKE SERVICES CORPORATION, a Virginia Corporation, hereinafter
referred to as "Lessor", and DAEDALUS BUILDING SYSTEMS, INC., a Delaware
Corporation, hereinafter referred to as "Lessee."
W I T N E S S E T H:
1. PREMISES. The Lessor does demise and let unto the Lessee, and Lessee
does lease and take from the Lessor, for the term and upon the restrictions and
conditions as set forth in this Lease, the first floor of the premises,
consisting of 4,556 square feet, inclusive of land, building and structures,
located at 8653 Richmond Highway, Alexandria, Virginia 22309, together with all
alley rights and parking rights, if any, easements, rights of way, and
appurtenances in connection therewith or thereunto belonging.
2. USE OF LEASED PREMISES.
a. Use. Lessee shall occupy and use the demised premises for the
operation of an office and facilities for Lessee. Lessee shall not
permit any conduct, which, in the opinion of Lessor, is disreputable.
b. Compliance with Laws. The lessee shall comply with all federal,
state, or municipal laws, ordinances and regulations dealing with the
use of the demised premises, and will save the Lessor harmless from
any damage, penalty, or charge imposed or incurred for the violation
of any such laws, ordinances, or regulations, whether occasioned by
the Lessee, its agents, or any other person using or present upon the
demised premises.
c. Waste and Quiet Conduct. The Lessee shall not commit or suffer to be
committed any waste or any nuisance upon the demised premises. The
Lessee shall keep the demised premises reasonably clean and free of
trash, waste paper and other litter.
d. Utilities and Service. Lessee shall, throughout the term of this
Lease, pay for all electricity, gas, water and every other service,
commodity, or article which may be furnished and supplied to it or to
the demised premises.
1
<PAGE>
e. Lessor's Right to Enter. The Lessee shall permit the Lessor and its
authorized agents, at all reasonable times during the period of this
Lease, to enter upon the demised premises for the purpose of inspecting
them.
3. POSSESSION. The Lessor agrees to deliver to Lessee physical
possession of the demised premises upon the commencement of the term hereof,
free and clear of all tenants and occupants and the rights of either. Lessee
agrees to deliver to the Lessor physical possession of the demised premises upon
the termination of the term hereof or any extension thereof, in good condition,
and repair, reasonable wear, damage by fire, or damage from any other cause not
directly attributable to the negligence of Lessee excepted.
4. TERM. The term of this Lease shall be for five (5) years commencing
on the 1st day of November 1999, and ending on the 31st day of October 2004,
unless otherwise terminated or renewed.
5. OPTIONS TO RENEW. Lessee shall have the right to extend the term of
this lease for three optional periods of five (5) years each, if, at the end of
the initial term of this Lease, Lessee is not in default in any of its
obligations imposed in this Lease. The optional term shall be at the rental to
be agreed upon at the time of the exercise of said option and subject to all of
the remaining terms contained in this Lease.
The Lessee shall exercise the option by giving the Lessor written
notice of its intention to do so at least one hundred eighty (180) days prior to
the expiration of the original term.
6. RENT.
a. Minimum Rent. The Lessee shall pay to the Lessor a minimum rent of
Eighty Two Thousand Eight Dollars ($82,008.00) yearly, payable Six
Thousand Eight Hundred Thirty Four Dollars ($6,834.00) monthly, at
which time the rent will increase as adjusted by Paragraph (d)
hereunder.
b. Time of Payment. The minimum rent shall be paid in advance to the
Lessor in monthly installments on the first day of each and every month
of the term without notice or demand and without abatement, deduction
or set-off in the amount as agreed.
2
<PAGE>
c. Additional Annual Rent. The Lessee shall pay to the Lessor
additional rent which shall be the rent as hereinafter defined.
d. Rent Adjustment. The monthly base rent shall be increased on the 1st
of each year during the term hereof, beginning in 2001, in accordance
with the Index now known as "United States Bureau of Labor Statistics,
Consumer Price Index, All Urban Consumers," 1967 = 100 Base, All Items,
Washington, DC, SMSA (hereinafter referred to as the "Index"). Such
adjustment shall be computed by multiplying the Monthly Base Rent for
the immediately preceding month (hereinafter "Existing Monthly Base
Rent") by one hundred percent (100%) of a fraction, having as a
numerator the Index published for the month prior to the month in which
the adjustment becomes effective, and having as a denominator the Index
most recently published prior to the Lease Commencement Date, and
subtracting the integer 1. Any resulting positive number shall then be
added to the Existing Monthly Base Rent to determine the Adjusted
Monthly Base Rent.
Formula for Rent Adjustment in 2001:
CPI Index for 01/2000
Existing Monthly Base Rent x 1.00 ------------------
CPI Index for 01/2001 + Existing Monthly Base Rent = Adjusted Monthly Base Rent.
Provided, however, that the amount payable by Tenant under this Lease
as Monthly Base Rent shall not be less than the Monthly Base Rent for the
immediately preceding month.
e. If such Index shall be discontinued with no successor or comparable
successor Index, or if a substantial change is made in the term or
number of items contained in this Index, or if the Index ceases to use
1967 = 100 as the basis for calculation, the parties shall attempt to
agree upon a substitute formula, but if the parties are unable to agree
upon a substitute formula, then the matter shall be determined by
arbitration in accordance with the rules of the American Arbitration
Association then prevailing.
3
<PAGE>
NOTWITHSTANDING THE ABOVE, THE INCREASE IN ANY GIVEN YEAR SHALL NOT
EXCEED THREE (3%) PERCENT.
f. Late Charge. Lessee shall pay a late charge of five percent (5%) of
any rental, minimum or additional, received by Lessor later than ten
(10) days after the due date.
7. LIENS AND OTHER OBLIGATIONS. Lessee will not create or permit to be
created or to remain, and will discharge, any lien, security interest,
encumbrance or charge upon the demised premises or any part thereof or upon
Lessee's leasehold interest therein; provided that the existence of any
mechanic's lien or right in respect thereof shall not constitute a violation of
this section if it is bonded or insured.
8. REAL ESTATE TAXES. Lessor shall be obligated to pay all real
property taxes (including extraordinary and/or special assessments) which may be
levied or assessed by any lawful authority against the land, buildings and other
improvements as additional rent.
9. FURNITURE, FIXTURES AND EQUIPMENT. All furniture, fixtures and
equipment furnished to or installed in or on the demised premises at the
Lessee's expense shall belong to and be the property of the Lessee and the
Lessee shall have the right to remove said furniture, fixtures and equipment
from said leased premises at any time during the term of this Lease, provided
said Lessee is not then in default in the payment or rent or other charges as
provided in this Lease.
Lessee shall have the right, prior to and during the term of this
Lease, at any time and from time to time, to install such equipment, fixtures
and furnishings as Lessee may desire to place in the demised premises, without
liability by Lessee therefor, except for negligence of Lessee, its agents or
employees. Lessor shall not be liable to Lessee for any loss, damage, or
destruction of any equipment, fixtures or furnishings placed upon the demised
premises by Lessee except for any such loss, damage or destruction caused by
negligence or willful misconduct on the part of Lessor, its agents, contractors
or employees.
4
<PAGE>
10. QUIET POSSESSION. The Lessor agrees that the Lessee, upon paying
the rent and performing the covenants of this Lease, may quietly have, hold and
enjoy the demised premises and all rights granted Lessee in this Lease during
the term hereof or any extension thereof.
11. INDEMNIFICATION AND NON-LIABILITY OF LESSOR. Lessee covenants and
agrees to indemnify and save Lessor harmless against any and all claims by any
person, firm, corporation or governmental authority, arising from the
occupation, use, possession, conduct or management of or from any work done in
or about the demised premises or from the subletting of any part thereof. Lessee
also covenants and agrees to indemnify and save Lessor harmless against and from
any and all claims arising from (1) any breach or default on the part of Lessee
in the performance of any covenant or agreement to be performed by Lessee
pursuant to this Lease; and (2) any act of negligence by Lessee or any of its
agents, contractors, servants, employees or licensees.
12. INSURANCE. Lessee will continuously maintain insurance against such
risks as are customarily insured against by businesses of like size and
character, paying as the same shall become due all premiums in respect thereto,
including but not limited to the following:
a. General public liability insurance against claims of bodily
injury, death or property damage occurring on, in or about the
demised premises, such insurance to afford protection to Lessor of
not less than One Million Dollars ($1,000,000.00) with respect to
bodily injury or death to any one person, and not less than One
Million Dollars ($1,000,000.00) with respect to any one accident,
and not less than Two Hundred Fifty Thousand Dollars ($250,000.00)
with respect to property damage. Policies for such insurance shall
name the Lessor, Lessee and such lending institutions that Lessor
may name as assureds as their respective interests may appear.
Copies of all insurance policies shall be delivered to Lessor.
13. MAINTENANCE AND REPAIR. During the term of this Lease, Lessor will,
at its own expense, keep the demised premises and all equipment, all
improvements, interior and exterior, including, without limitation, roof
5
<PAGE>
parking, masonry, heating, air conditioning, electrical and plumbing systems, in
good repair and operating condition, making from time-to-time all necessary
repairs and replacements thereof.
The Lessor hereby covenants and agrees that it will commence repair
work within fifteen (15) days from receipt of written notice by Lessee
specifying the necessary repairs. Failure of the Lessor to reasonably commence
and complete such necessary repairs shall constitute a default under this
agreement, and Lessee shall be entitled to all remedies upon default as provided
hereunder, including the right, but not hereby the obligation, to make such
repairs for the Lessor and the expense thereof shall constitute and may be
deducted from the rent.
Lessor shall be required to rebuild or make any repairs, renewals, or
replacements of the demised premises or other improvements on the demised
premises of any nature whatever. Lessee may, at its own expense, make any
additions, modifications or improvements to the demised premises that it may
deem desirable for its business purposes that do not adversely affect the value
of the demised premises or the structural integrity of any building or other
structure forming a part thereof, provided that such additions, modifications or
improvements are located wholly within the boundary lines of the demised
premises. All such renewals, replacements, additions, modifications and
improvements shall become a part of the demised premises.
14. ENTRY AND INSPECTION. The Lessee shall permit Lessor and his agents
to enter the demised premises at all reasonable times for any of the following
purposes: to inspect the same; to maintain the building in which the said
premises are located; to make such repairs to the demised premises as the Lessor
may elect to make; to post notices of non-responsibility for all alterations,
additions or repairs. The Lessor shall have such right of entry and the right to
fulfill the purpose thereof without any rebate of rent to the Lessee for any
loss of occupancy or quiet enjoyment of the demised premises thereby occasioned.
15. DAMAGE AND CONDEMNATION. If all or any part of the demised premises
is destroyed or damaged by fire or other casualty prior to the end of the term
of this Lease, the Lessor will promptly repair and rebuild or replace the
property damaged or destroyed to substantially the same condition as prior to
such damage or destruction. The Lessor or Lessee, as the case may be, shall
apply so much of the net proceeds of insurance received on account of such
damage or destruction as may be necessary to the cost of such repair and
6
<PAGE>
rebuilding. If such net proceeds shall be inadequate to pay the full cost of
such repair and rebuilding, Lessor will pay the excess cost thereof. Any balance
of such net proceeds remaining after payment of the cost of such repair and
rebuilding shall be the property of Lessor and shall be paid to the Lessor. Any
disbursement of insurance proceeds by a holder of a Deed of Trust shall be
deemed to have been made by the Lessor. If any holder of a Deed of Trust shall,
in lieu of disbursing any portion of insurance proceeds to which the Lessee is
entitled, apply them to the indebtedness secured by the Deed of Trust, the
Lessor shall provide an equivalent sum from other sources.
16. CONDEMNATION. If the demised premises or any part thereof shall be
taken by any governmental or quasi-governmental authority pursuant to the power
of eminent domain, Lessee agrees to make no claim for any rights which Lessee
may have to any portion of any award made as a result of such taking. The
foregoing notwithstanding, Lessee shall be entitled to claim, prove and receive
in the condemnation proceedings such awards as may be allowed for relocation
expenses and for fixtures and other equipment installed by it which shall not,
under the terms of this Lease, be or become the property of the Lessor at the
termination hereof, but only if such awards shall be made by the condemnation
court in addition to and stated separately from the award made by it for the
land and the building or part thereof so taken.
If the nature, location or extent of any proposed condemnation is such
that the demised building will be substantially taken, then the Lessor may
terminate this Lease by giving at least sixty (60) days' written notice of
termination to the Lessee at any time after such condemnation and this Lease
shall terminate on the date specified in such notice.
17. SUBORDINATION. This Lease is subject and subordinate to any and all
mortgages or Deeds of Trust now or hereafter placed on the property of which the
demised premises are a part.
18. CUSTOM AND USAGE. Any law, usage, or custom to the contrary
notwithstanding the Lessor shall have the right at all times to enforce the
covenants and conditions of this Lease in strict accordance with the terms
7
<PAGE>
hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times. The failure of the Lessor at any
time to enforce its rights under such covenants and conditions strictly in
accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific covenants and conditions of this
Lease or as having in any way or manner modified or waived same.
19. CONTROL OF LESSEE. Lessee may transfer all or part of its interest
to a Partnership or Corporation controlled by Lessee so long as Lessee remains
in the actual conduct of the business and both the new entity as well as Lessee
are primarily liable.
20. EVENTS OF DEFAULT. Each of the following shall be deemed both a
default by the Lessee and a breach of this Lease:
a. A default in the payment of the rent herein reserved, or any part
thereof, for a period of ten (10) days after it shall become due and
payable (it being specifically understood and agreed that the term
"Rent" includes minimum annual rent, CPI adjustment, and any payments
due for any other consideration under the lease that is identified as
rent in this Lease);
b. A default in the payment of any other money payment due under the
terms of this Lease.
c. The appointment of a receiver to take possession of all or
substantially all of the assets of the Lessee;
d. A general assignment by the Lessee for the benefit of creditors;
e. The acquiescence by the Lessee to the appointment of a creditor's
committee;
f. The dissolution or the commencement of any action for the
dissolution or liquidation of the Lessee;
g. Any action taken or suffered by the Lessee under any insolvency or
bankruptcy act;
8
<PAGE>
h. The rendering of a final judgment or decree against Lessee for the
payment of money and execution and levy thereupon, which execution and
levy be not dismissed within ten (10) days after such date of execution
and levy.
21. LESSOR'S RIGHT TO CURE. In the event of any breach hereunder by the
Lessee, the Lessor may immediately or at any time thereafter, without notice,
breach for the account and at the expense of the Lessee. If the Lessor at any
time by reason of such breach, is compelled or elects to pay any sum of money or
incurs any expenses, including reasonable attorney's fees, in instituting,
prosecuting or defending any action to enforce or protect the Lessor's rights
hereunder, such sum and expenses, together with interest, costs and damages
shall be deemed to be additional rent hereunder and shall be due from the Lessor
to the Lessor on the first day of the month following the Lessor's payment of
such sums or expenses.
22. LESSOR'S REMEDIES. Upon the happening of any of the aforementioned
defaults, this Lease shall, at Lessor's option, cease and determine and shall
operate as a Notice to Quit, any written Notice to Quit being hereby expressly
waived. Lessor may proceed to recover possession of said premises by virtue of
any legal process as may at the time be in operation and force in like cases
relative to proceedings between Lessor and Lessee, and Lessee shall pay for any
Court costs relative to such proceedings and a reasonable attorney's fee and
Lessor may, at its option, re-enter and re-rent the demised premises for the
account of the Lessee, and in such event, Lessee shall remain liable to Lessor
for any and all deficiencies in the rent under this Lease.
23. RE-LETTING. Should Lessor elect to re-enter, as herein provided, or
should it take possession pursuant to legal proceedings or pursuant to any
notice provided by law, it may either terminate this Lease, or it may, from time
to time, without terminating this Lease, make such reasonable alterations and
reasonable repairs as may be necessary in order to re-let the premises, and
re-let said premises or any part thereof for such term or terms (which may be
for a term extending beyond the term of this Lease) and at such rental or
rentals and upon other terms and conditions as Lessor in its discretion may deem
advisable; upon each such re-letting, all rentals received by the Lessor from
such re-letting shall be applied first to the payment of any indebtedness, other
than rent due hereunder from Lessee to Lessor; second, to the payment of any
costs and expenses of such re-letting, including brokerage fees and attorney's
fees and of costs of such reasonable alterations and reasonable repairs; third,
9
<PAGE>
to the payment of rent due and unpaid hereunder; and the residue, if any, shall
be held by Lessor and applied in payment of future rent as the same may become
due and payable hereunder. If such rentals received from such re-letting during
any month be less than that to be paid during that month by Lessee hereunder,
Lessee shall pay any such deficiency to Lessor. Such deficiency shall be
calculated and paid monthly. No such re-entry or taking possession of said
premises by Lessor shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a Court of competent jurisdiction.
Notwithstanding any such re-letting without termination, Lessor may, at any time
thereafter, elect to terminate this Lease for nay-such previous breach. Should
Lessor at any time terminate this Lease for any breach, in addition to any other
remedies it may have, it may recover from Tenant damages it may incur by reason
of such breach including reasonable attorney's fees and other costs of
recovering the demised premises.
24. ASSIGNMENT. The Lessee shall not assign this Lease or any interest
therein, and shall not sublet the demised premises or any part thereof, or
permit another person or entity to occupy or use the demised premises without
consent of said Lessor, which shall not be unreasonably withheld.
In the event Lessee assigns, sublets or allows the occupation or use
of the demised premises by another person or entity, Lessor shall be entitled to
fifty percent (50%) of any and all rental payments made or due by such a
sublessee in excess of the payments required hereunder from the Lessee, and
Lessee covenants and agrees to remain primarily liable for all payment required
under this Lease.
25. CAPTIONS AND HEADINGS. Captions and headings are for convenience
and reference only.
NOTICES. All notices, approvals, consents, requests and other
communications hereunder shall be in writing and shall be deemed to have been
given when delivered or mailed by first class, registered or certified mail,
postage prepaid, addressed to Lessee at 8653 Richmond Highway, Alexandria,
Virginia 22309, or if to Lessor, at 8653 Richmond Highway, Alexandria, Virginia
22309. The Lessor and Lessee may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, approvals, consents,
requests or other communications shall be sent or persons to whose attention the
same shall be directed.
26. SEVERABILITY. If any provision of this Lease shall be held invalid
by any Court of competent jurisdiction, such holding shall not invalidate any
other provision hereof.
27. VIRGINIA LAW TO GOVERN. This Lease shall be governed by the
applicable laws of the Commonwealth of Virginia.
28. ENTIRE UNDERSTANDING. This Lease embodies the entire understanding
and all agreements between the parties. No party has made or shall be bound by
any agreement or representation to the other party which is not expressly set
forth herein.
29. BINDING ON SUCCESSORS. The covenants and conditions contained
herein shall, subject to the provisions as to assignment, apply to and bind the
heirs, successors and assigns of all the parties hereto. All of the parties
hereto shall be jointly and severally liable hereunder.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
executed in their respective name all as of the day and year first hereinabove
written.
LESSOR:
CHESAPEAKE SERVICES CORPORATION,
a Virginia Corporation
By: /s/
-------------------------
EDWARD A. McCULLOCH
President
LESSEE:
DAEDALUS BUILDING SYSTEMS, INC.
a Delaware Corporation
By: /s/
-------------------------
Patricia L. Espino-NAYAR
Vice President
12
LIST OF SUBSIDIARIES
AND STATE OF INCORPORATION
Daedalus Composites, Inc. - Ontario, Canada
Daedalus-Cambridge, Inc. - Ontario, Canada
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form SB-2 of
Daedalus Building Systems, Inc. (Daedalus), of our report dated December 10,
1999 on Daedalus' consolidated financial statements as of October 31, 1999 and
for the period May 20, 1999 (inception) to October 31, 1999, and to the
reference of our firm as experts.
/s/ Pannell Kerr Forster
- -------------------------
Pannell Kerr Forster PC
Fairfax, Virginia
April 10, 2000
April 4, 2000
VIA FACSIMILE TRANSMISSION
(703) 360-1974
Mr. E. A. McCulloch, President
Daedulus Systems, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
Re: Daedalus Systems
Our File No. 2986/07
Dear Mr. McCulloch:
I have acted as counsel to Daedalus Systems, Inc. (the "Company") in
connection with the preparation of the registration statement on form SB-2
("registration statement") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the registration of 1,000,000 shares of common stock, par value $.01 per share
("Common Stock"), by the Company pursuant to its Agreement with Empiric Energy,
Inc. whereby the stock will be distributed to the shareholders of Empiric.
In rendering this opinion, I have examined the following documents: (i)
the Company's Certificate of Incorporation and Bylaws, since the inception of
the Company, (ii) resolutions adopted by the Board of Directors related to the
Agreement and; (iii) the registration statement including all exhibits thereto.
I have assumed and relied, as to question of fact and mixed questions of law and
fact, on the truth, completeness, authenticity and due authorization of all
documents and records examined and the genuineness of all signatures.
Based upon and subject to the foregoing, I am of the opinion that:
The shares of Common Stock of the Company which are being offered by
the Company pursuant to the registration statement, when transferred in the
manner and for the consideration contemplated by the registration statement,
will be legally issued, fully paid and non-assessable.
This opinion is given as of the date hereof. I assume no obligation to
update or supplement this opinion to reflect any facts or circumstances, which
may hereafter, come to my attention or any changes in laws, which may hereafter,
occur after the effective date of the registration statement.
<PAGE>
Mr. E. A. McCulloch, President
April 4, 2000
Page 2
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
I consent to the filing of this opinion as an exhibit to and to be
named in the registration statement.
Very truly yours,
/s/ Herbert S. Rosenblum
--------------------
Herbert S. Rosenblum
HSR/jsm
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAEDALUS
BUILDING SYSTEMS, INC AND SUBSIDIARIES FOR THE PERIOD MAY 20, 1999 TO JANUARY
31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001102241
<NAME> Daedalus Systems Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> OCT-31-1999
<PERIOD-END> JAN-01-1999
<EXCHANGE-RATE> 1
<CASH> 17,949
<SECURITIES> 0
<RECEIVABLES> 61,361
<ALLOWANCES> 0
<INVENTORY> 20,960
<CURRENT-ASSETS> 100,270
<PP&E> 3,533,838
<DEPRECIATION> (70,921)
<TOTAL-ASSETS> 3,590,140
<CURRENT-LIABILITIES> 337,551
<BONDS> 0
0
2,625,000
<COMMON> 87,000
<OTHER-SE> 540,589
<TOTAL-LIABILITY-AND-EQUITY> 3,590,140
<SALES> 92,498
<TOTAL-REVENUES> 92,498
<CGS> (82,965)
<TOTAL-COSTS> (363,542)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (354,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (354,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (354,009)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
